We’ve all heard the old adage, “trust takes years to build, seconds to break, and forever to repair,” right? Well when it comes to winning and retaining clients in the legal world, that adage should be slightly tweaked. 

Let’s go with – “trust takes seconds to build, years to perfect, but you’ll reap the benefits forever.”  

How do you build trust in seconds? One tactic is to be as transparent as possible during your initial consultation while showing that you understand your client’s concerns. Better yet, if you can address those concerns on your client’s level and not in legalese, this can go a long way in building an instant connection. 

One of the biggest stressors when it comes to hiring a lawyer is dealing with the transfer of money. Humans stressing about money is a tale as old as time. If you’re explaining the intricacies of your billing process in terms that aren’t used in everyday conversation like trust account, fiduciary responsibility, and disbursements —  your client’s eyes will glaze over and they won’t be able to pay attention to what you’re actually telling them. 

In order to relay accurate information (thus building trust) about how your client’s money is going to be handled legally and ethically, you first need to understand the ins and outs of client trust accounts yourself. So let’s go over the basics, and come up with some ways that you can address these complex situations to further build client trust. 

What is a client trust account?  

According to the ABA, “Standard rules and common practice dictate that lawyers use a client trust account (CTA) to hold funds paid by the client upfront as an advance on fees and expenses before the work is done and prior to the client’s approval of billing. Once the lawyer earns the fees and bills the client, and upon the client’s approval of the lawyer’s billing, the funds are no longer property of the client and should be removed from the lawyer’s CTA.”  

Simply put —  a client trust account is a way to separate client funds from law firm operating funds. As basic as the theory is, the practice gets complicated when banks and credit card processors, who may not be acutely aware of the regulations, get involved.  

If you want to ooze confidence and explain to your clients where their money will be at every step of your relationship, your first task is going to be to ensure that your firm’s client trust accounts are operating in compliance. Practice management software such as PracticePanther makes this easy by giving you a holistic view of all of your bank accounts, including client trust accounts, and even places stopgap measures and alerts in place so that you are using the appropriate funds at the appropriate times.  

Pretty straightforward up until this point right? Here’s the kicker, each state bar has a different set of rules, so make sure you read up on your local bar’s requirements before you put yourself at risk for disbarment because you accidentally mishandled funds. The golden rule that remains in all states is that there is no commingling of client funds and firm funds, thus the need for detailed and accurate accounting. 

When are these trust accounts used?  

The three most common use cases of client trust accounts are as follows: 

  • At the beginning of representation when initial funds are received.
    • In this situation, attorneys would place “unearned income” into the trust, including upfront fees, retainers, or cash advances. Again, by law attorneys can’t use this money for operations and it must be held in trust until the completion of their case or matter.   
  • When and if there is payment from a settlement.  
    • Transactions revolving around real estate for example must pass through a trust account and must not be commingled with operating accounts. 
  • When an attorney acts as a fiduciary on behalf of a client or the client’s estate. 
    • Similar to settlement, these “third party funds” that are handled by an attorney when acting as a fiduciary must remain separated. 

Depending on your firm’s billing practices, here’s how you can explain client trust accounts. 

“At the start of our relationship, we’re going to ask you to pay us (x amount of dollars) upfront.  We know this is quite a bit of money so we’d like to explain how we keep these funds safe. This money is placed in what’s called a client trust account and will remain untouched until we resolve your issue. We understand this may sound odd, but as attorneys, there are strict rules in place that we need to follow that ensure your money is used properly. Having your money stored separately means that we’re not using your money for someone else’s case.” 

Taking a few minutes to walk through this process with your clients starts you off on the correct path.  

Here comes the fun part – accounting! 

You’ve won your clients over and begin to represent them, diligence is the name of the game now when it comes to accounting. Here are a few best practices for you to remain compliant with your client trust accounting. 

Step 1: Track each and every transaction whether it’s a deposit or a disbursement 

Step 2: Keep a separate ledger for each client 

Step 3: Add detailed notes for each transaction 

Step 4: At the end of each month, you must reconcile the account. This helps you ensure accuracy, the goal being to match all activities going into and coming out of trust. This is called a 3-way reconciliation. 

While this sounds complicated and there are many steps involved, practice management software such as PracticePanther allows you to easily track funds, segment them into either trust or operating accounts, and take the necessary detailed notes all on the same dashboard.  

If you’ve been struggling with your trust accounting, or don’t know exactly how to get started, we hope that this simple guide gives you a bit more insight into the process. To learn more, head over to our demo page to receive a custom walkthrough of how PracticePanther can help you manage all your client trust accounting needs.

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