This post is meant for non-lawyers and people who want a general understanding of the topic. Lawyers should rely on more specific sources including their state bar associations. Rules vary by state and jurisdiction. These are just general principles.
- Client funds that are not earned legal fees must be kept in separate accounts and not commingled with the lawyers’ and law firms’ accounts.
- Only approved institutions may be used to hold the trust funds.
- In some cases a separate account is required for each client. In other cases smaller amounts of trust fund balances may be combined into a single trust fund account for multiple clients.
- Trust fund accounts may not charge fees.
- Interest on trust fund accounts goes to neither the lawyer nor the client but in most cases goes to state-specific programs pay for legal services for the underprivileged.
- Trust fund accounting requires specific types of reports distinguished by client, matter and date.
- Jurisdiction-specific rules for transferring funds from one account to another must be followed.
- The consequences for violating trust fund accounting rules are severe, including possible disbarment.