Trust Transfer

What is a trust transfer?

A trust transfer is moving funds from a client trust account to the firm's operating account once fees have been earned. Until the transfer, the money belongs to the client. The transfer is the moment ownership changes, which is why it has to be supported by a bill and recorded against a specific client ledger. Loose transfer practice is the most common finding in trust account audits.

Doing a transfer correctly

Bill the client first, then transfer the exact billed amount from that client's trust balance. Never transfer a round number, an estimate, or an amount covering several clients in one movement. Record the transfer on the client ledger so the balance drops by the amount billed. Keep the invoice and the transfer record together. Many jurisdictions require notice to the client before or at the time of transfer, so check your rule.

The two errors that cause trouble

Transferring too much creates a shortage in that client's funds, even though the account total still looks right. Transferring too little leaves earned fees sitting in trust, which is its own violation in most states because the firm's money is commingled with client money. Review trust balances monthly for clients with earned but untransferred fees, and for any ledger that has gone negative. Both conditions are easy to find and awkward to explain.