Trust Accounting for Lawyers in Georgia

At a Glance

• Trust accounting is a vital requirement for Georgia lawyers, mandating the proper handling and separation of client funds in distinct trust accounts.
• Accurate record-keeping is essential, encompassing client fee arrangements, reconciliations, bank statements, and more, with retention for at least six years.
• Choosing the right type of trust account matters, such as IOLTA or attorney trust accounts, to prevent co-mingling and potential penalties for non-compliance, including disbarment and the need for meticulous record remediation.

Aprio understands what keeps lawyers up at night. Our team members have deep experience in tax planning and trust accounting for law firms in Georgia. Connect with us today to discuss your particular situation and see how Aprio can help you improve your trust accounting.

The full story

Trust accounting can seem complex as a practicing attorney in Georgia, but it is a vital component of your profession. Under Rule 1.15, if you receive money or property on behalf of a client, you must maintain a trust account.

Understanding how trust accounting works, along with the rules and penalties for non-compliance is critical. Here are the basics of what lawyers need to know about trust accounting.

Deposit and Segregation of Client Funds

The Georgia Bar requires all practicing lawyers in Georgia to deposit funds held for a client in a trust account. These funds should be kept distinct from your business operating or general account, thus preventing the risk of co-mingling personal and client funds.

Lawyers are allowed multiple trust accounts, each subject to an audit by the State Disciplinary Board for cause. Triggers for an audit may include checks written for office expenses, state bar dues, insufficient funds, or overdraft notices, which are automatically reported to the state bar by the bank.

Personal funds are not to be mixed with client funds unless necessary to cover the account’s maintenance fees or service charges.

Borrowing from the trust funds is strictly prohibited. When a lawyer’s fees have been earned, they can be withdrawn from a specific client’s funds held and recorded as income received for the lawyer. Such withdrawals should align with the lawyer’s billing cycle.

Funds that have already been earned when received should go directly into an operating account.

If the funds are received on a retainer, they go directly into the client’s trust account since they have not been earned yet. Once the funds have been earned, they should be withdrawn from the trust account and deposited directly into the firm’s operating account.

Record Keeping

Keeping exact records of balances held for each client is crucial. In Georgia, retaining these records for at least six years is required. They should include details of the client fee arrangements, reconciliations, bank statements, deposit slips, check copies, and more.

The records should indicate client balances, including all dates, payors, and payees of funds and purposes of such funds. Moreover, it should contain a three-way reconciliation between the trust account statement, checkbook, and client balances.

Bookkeeping duties can be delegated, but the lawyer is ultimately responsible for ensuring accuracy, which is crucial for risk management.

Type of Account

The type of trust account you choose matters. A common choice is the Interest on Lawyers’ Trust Accounts (IOLTA), a government-insured trust account that bears interest.

This account type is suitable for nominal funds or funds held for short periods. Neither earnings nor interest should be available to the lawyer, and withdrawals should be available upon request.

The interest earned is remitted to the Georgia Bar Foundation. An approved IOLTA bank list is available on the Georgia State Bar website.

Alternatively, you can use an attorney trust account, which is an interest-bearing account where the interest is paid to the client. As with the IOLTA, no earnings should be available to the lawyer, and withdrawals should be available upon request.

These accounts are appropriate when funds will be held for a longer period or create a more significant amount of earnings in the form of dividends or interest that should be made available to the client.

Penalties for Non-Compliance

Non-compliance with trust accounting rules can lead to serious consequences. Disbarment can occur due to an ethical breach, misconduct, theft or negligence. A public reprimand or other disciplinary action may also be issued in cases where the wrong type of account is used, but funds are still segregated from operating funds.

In addition to penalties, lawyers must spend much time cleaning and fixing the recordkeeping. We highly recommend hiring an experienced bookkeeper and working with a CPA firm to ensure that you keep accurate records from the start.

A final word

Trust accounting is an essential aspect of the legal profession in Georgia. As a lawyer, it’s crucial to ensure the proper management of client funds, adherence to state rules, and maintenance of detailed records. Doing so will uphold your professional integrity and provide your clients with the best possible service.

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About Aprio’s Professional Services

For assistance with trust account bookkeeping or other matters related to trust accounting, connect with an Aprio team member today.