Client Trust Fund Management Checklist
Monthly IOLTA trust-account workflow for a small-to-mid law firm — covers receipts, disbursements, three-way reconciliation, client reporting, and audit readiness under Model Rule 1.15.
Trust Account Setup
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Confirm IOLTA rules for the state of practice
Pull the current state bar's IOLTA handbook and Rule 1.15 text. Confirm whether the state requires a designated IOLTA-eligible bank, whether interest goes to the state IOLTA foundation, and whether the firm must register the account with the bar.
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Designate the responsible attorney for trust
Under Rule 5.1 / 5.3, one partner owns trust-account compliance. Document the designation in the firm's operations manual; this attorney signs the monthly three-way reconciliation and answers any bar inquiry.
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Open the IOLTA at an approved institution
Use a bank on the state's IOLTA-approved list. Title the account exactly as the state requires (commonly "[Firm Name] IOLTA Trust Account"). Sign the bank's IOLTA remittance authorization so interest flows directly to the state foundation.
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Document the trust accounting SOP
Write the SOP covering: deposit timing, disbursement hold periods, signature authority, reconciliation cadence, and overdraft response. Distribute to bookkeeper, billing clerk, and every attorney with disbursement authority.
Client Funds Intake
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Deposit retainer to IOLTA same day
Funds belonging to the client — unearned retainers, settlement proceeds, advanced costs from the client — go to IOLTA on receipt, never to operating. Earned-on-receipt flat fees follow the state's specific rule (some states require IOLTA deposit, some don't).
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Record the deposit on the client ledger
Every dollar in IOLTA must be traceable to a single client matter. Post the receipt to the client's individual ledger in Clio Trust, CosmoLex, Tabs3 Trust, or LeanLaw — date, amount, source, matter number, purpose.
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Hold disbursement until funds clear
Do not write a disbursement check against an uncleared deposit. Personal and business checks need 7-10 banking days; settlement checks from large insurers can hold longer. A bounced deposit after disbursement = negative IOLTA balance = automatic bar referral in most states.
Disbursements and Fee Transfers
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Verify the client ledger has sufficient balance
Check the individual client ledger before any disbursement, not the aggregate IOLTA balance. A client ledger going negative — even if the overall IOLTA is positive — is commingling: you've used Client A's funds to pay Client B's costs.
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Request additional retainer from client
If the ledger is short, pause the disbursement and send the evergreen-retainer replenishment letter referenced in the engagement agreement. Do not advance firm funds to cover a client cost from IOLTA.
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Edit the pre-bill before fee transfer
Responsible attorney reviews every time entry, narrative, and cost line. Trim block-billed entries, fix vague descriptions ("reviewed file"), apply write-downs. Unedited pre-bills sent to clients are the leading driver of fee disputes and bar grievances.
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Transfer earned fees from IOLTA to operating
Transfer only the amount on the approved invoice, only after the invoice has been delivered to the client. Most states require notice to the client before sweeping fees from trust. Document the transfer on both the client ledger and the operating account.
Monthly Three-Way Reconciliation
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Pull the bank statement and adjusted balance
Download the IOLTA bank statement. Add deposits in transit, subtract outstanding checks, to get the adjusted bank balance as of month-end.
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Run the trust book balance report
From Clio Trust, CosmoLex, Tabs3, or LeanLaw, pull the trust journal / book balance as of month-end. This is the firm's record of what should be in the account.
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Sum every individual client ledger
Pull the client ledger summary report — every client matter with a trust balance, totaled. The sum of client ledgers is the third leg of the three-way reconciliation.
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Confirm all three balances match
Adjusted bank balance, trust book balance, and sum of client ledgers must all equal the same number. Any mismatch — even by a penny — is a reconciliation failure that must be investigated before the partner signs off.
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Investigate and document the discrepancy
Common causes: bank fee charged to IOLTA (should be reversed by bank — never absorbed by client funds), unrecorded disbursement, deposit posted to wrong client ledger, stale outstanding check. Document root cause and corrective action in a memo to the file.
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Client Reporting and Sign-Off
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Send trust ledger statements to active clients
Each active matter with a trust balance gets a statement showing opening balance, deposits, disbursements, fee transfers, and closing balance. Required at least at year-end and on matter close in most states; monthly is better practice.
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Notify clients of significant disbursements
For settlement distributions, lien payoffs, or expert-fee payments above a threshold the firm sets (commonly $1,000 or 10% of the retainer), send a contemporaneous notice with the disbursement statement showing gross, attorney fee, costs, lien deductions, and net to client.
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Partner sign-off on monthly reconciliation
The responsible attorney signs the reconciliation packet (bank statement, trust journal, client ledger summary, signed reconciliation worksheet). Store the packet for the state-mandated retention period — commonly 7 years post-matter-close for trust records.
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