IOLTA Trust Accounting for Solos: A Control System You Can Prove

Trust accounting is not ordinary bookkeeping with a different bank account. The firm is holding property for clients or third persons, and the operating system must preserve ownership, prevent one person's funds from being used for another, and produce a complete accounting when requested.

ABA Model Rule 1.15 provides a useful baseline: client or third-person property is kept separate, complete records are preserved, advance fees and expenses remain in trust until earned or incurred, interested persons receive notice, and undisputed portions are distributed while disputed funds remain separate. State rules control the firm's actual account type, recordkeeping, reconciliation frequency, retention period, and permitted disbursement practices.

The safest small-firm approach is to design the system around proof. At any point, the firm should be able to answer four questions:

1. What is the bank holding?
2. Whose money makes up that balance?
3. What transaction created every change?
4. Has an authorized person reviewed and reconciled the record?

Keep three distinct records

A reliable system maintains three views that can be compared without rebuilding them from memory.

Bank record

The statement and bank activity show what the financial institution reports. Preserve statements, images of cleared items where available, deposit records, transfer confirmations, and notices of fees or adjustments.

Trust-account journal

The journal records every receipt and disbursement affecting the account in date order. Each entry should identify the amount, payer or payee, client or matter, purpose, payment method, and related source document.

Individual client ledgers

Each client or third person has a separate running balance. The total of those ledgers is the firm's trust liability. A pooled IOLTA account does not turn the underlying ownership into a pooled obligation.

When the bank balance, adjusted journal balance, and total of individual ledgers agree, the firm has completed the core of a three-way reconciliation. When they do not agree, the reconciliation is not finished because someone noted the difference. The exception must be identified and resolved.

Control money at receipt

Every receipt should answer:

• Who provided the funds?
• For whose benefit are they held?
• What matter and purpose do they relate to?
• Are they advance fees, advance costs, settlement proceeds, disputed funds, or another category under the governing rules?
• When did the bank make the funds available, and what does the jurisdiction permit the firm to do before final settlement?

Create the client ledger at receipt, not at month end. Deposit records should connect the bank transaction to the journal entry and the individual ledger. Unidentified receipts belong in an exception queue until ownership is established.

Control every disbursement

A disbursement should not post merely because the account has enough money. The system must confirm that the particular client ledger has enough available funds and that the payment is authorized under the governing rule and matter record.

Require:

• Client or matter
• Payee and purpose
• Source of authority, such as an approved invoice, settlement statement, client direction, court order, or documented cost
• Amount available on that client's ledger
• Reviewer or approver
• Payment method and confirmation
• Resulting client balance

A no-negative-ledger control is essential, but it is not sufficient. A positive balance can still be wrong if a receipt was assigned to the wrong client or a fee was treated as earned too early.

Move earned fees through a recorded event

The moment a fee becomes earned depends on the fee agreement and governing law. Once the firm determines that funds may move from trust to operating, record the event that supports the transfer.

The entry should connect:

• The client ledger
• The invoice or fee event
• The amount earned
• The responsible lawyer's approval
• The trust withdrawal
• The operating-account deposit
• The client notice required by the firm's rules or agreement

Do not use the trust account as an operating reserve. Do not leave earned funds in trust indefinitely without checking the jurisdiction's treatment of commingling and unidentified balances.

Reconcile on the cadence the jurisdiction requires

The ABA Model Rules for Client Trust Account Records give firms a structured starting point, but state requirements vary. Many jurisdictions prescribe monthly reconciliation and specific record formats. The firm should document the actual rule it follows and the person responsible.

A monthly reconciliation packet should contain:

1. Bank statement for the period
2. List of outstanding checks and deposits in transit
3. Adjusted bank balance
4. Trust-account journal balance
5. List of every client or third-person ledger balance
6. Total of the individual ledgers
7. Explanation and resolution of every difference
8. Reviewer, completion date, and approval

Do not delete a corrected entry. Preserve the original entry, correction, reason, date, and actor so the history can be reconstructed.

Review the exception queue, not only the total

A reconciliation can balance and still conceal a control problem. Review these exceptions each period:

• Negative or zero balances with recent activity
• Stale checks
• Unidentified receipts
• Deposits not assigned to a client ledger
• Fees marked earned without an invoice or approval
• Client balances with no matter activity for an unusual period
• Bank fees or interest posted to the wrong ledger
• Manual journal entries and reversals
• Settlement funds with unresolved third-party interests
• Closed matters that still hold funds

Assign an owner and resolution date to each exception. A standing difference carried forward is not a reconciliation method.

Separate duties where possible

A solo cannot always divide every accounting task among different employees. The firm can still create checks:

• Require a second review by an outside bookkeeper or accountant who understands lawyer trust accounts
• Have the lawyer review the bank statement and exception report rather than only the summarized balance
• Use bank alerts for withdrawals and balance changes
• Restrict who can create payees, initiate transfers, and approve transactions
• Review access and signatory authority when staff or vendors change

Outside assistance does not transfer the lawyer's responsibility. It improves the control environment and makes anomalies easier to see.

Operating artifact: monthly trust reconciliation packet

Use this completion record each month:

Add the jurisdiction, governing rule, required cadence, retention period, and last rule-review date to the top of the packet. That turns “we reconcile regularly” into a control the firm can demonstrate.

Sources checked

• ABA Model Rule 1.15 – Safekeeping Property
• ABA Model Rules for Client Trust Account Records

Sources were checked on August 13, 2026. Before applying the workflow, replace the model-rule assumptions with the current trust-account and IOLTA requirements of every jurisdiction in which the firm holds funds.

DocketBuddy provides client ledgers, trust receipts and disbursements, no-negative-balance controls, reconciliation support, and a firm-wide trust view. The firm remains responsible for configuring and operating those controls under its jurisdiction's rules.