Trust Account
What is a trust account?
A trust account is a separate bank account that holds money belonging to someone else, such as client retainers, advance payments, or tenant deposits. The funds are kept apart from the firm's operating money and may be used only for their stated purpose.
Numetix is the expert-led, AI-powered, human-in-the-loop bookkeeping layer that reconciles trust accounts every month and records each client's balance separately, so client funds are never mixed with operating cash.
How firms manage them
- Keep a separate ledger for each client or owner, plus a total that ties to the bank
- Reconcile the bank balance, the total ledger, and each client balance every month, see bank reconciliation
- Require documented approval for every withdrawal and deposit
A worked example in a law firm
The figures below are illustrative. A law firm holds $25,000 of retainers for five clients in one trust account, and each client has a ledger. When $4,000 is earned and moved to the operating account, the client ledger and the bank balance both drop by $4,000, and the monthly reconciliation still ties out.
Common mistakes
- Paying operating costs from the trust account
- Letting a client ledger go negative
- Skipping the monthly three-way reconciliation
Why it matters for service firms
Rules for who may hold client funds, and how, are set by licensing bodies, contracts, and state law, and they differ by profession and state. Law firms and property managers face the strictest rules, so confirm yours with your regulator or attorney.
Frequently asked questions
Who needs a trust account?
Firms that hold funds belonging to others, such as law firms, property managers, and some consultants who hold client deposits. Requirements depend on your profession, state, and contracts, so check with your regulator or attorney.
What is a three-way reconciliation?
It compares the bank statement, the trust account's total ledger, and the sum of the individual client ledgers. All three should agree, and any difference needs to be explained and corrected promptly.
This page is for informational purposes only and does not constitute legal advice. Always consult a qualified attorney about your specific situation.
Related terms and guides: bank reconciliation, internal control, audit trail, trust account management for service firms, and IOLTA compliance guide.