Broker and attorney trust account compliance comes down to a short list of habits: hold client money in a separately titled account at an approved bank, keep your own money out of it, document every movement, and reconcile the account against your records every month. Get those right and most other requirements fall into place. Get them wrong and the consequences range from a reprimand to disbarment, license revocation, or prison.
Setting Up a Compliant Trust Account
A trust account has to live at a financial institution authorized to do business in the jurisdiction where you practice. ABA Model Rule 1.15 requires funds belonging to clients or third parties to be kept separate from the lawyer’s own property,1American Bar Association. Rule 1.15 Safekeeping Property and state real estate commissions impose parallel rules on brokers holding earnest money.
Title the account so no one can mistake what’s inside it. “Trust Account,” “Escrow Account,” or “Client Funds Account” in the name tells the bank, a court, and any creditor that this money belongs to clients, not to you. That labeling is what protects the funds if you later face personal or business debts.
The account belongs to the practice, not to a person, so opening it requires a federal Employer Identification Number. The firm designates authorized signers, and those signers carry personal responsibility for every transaction that moves through the account. Most jurisdictions limit signing authority to licensed attorneys or the broker of record.
Not every bank qualifies. Under the ABA’s Model Rules for Trust Account Overdraft Notification, a financial institution can only serve as an approved depository if it has filed an agreement with the state’s highest court or disciplinary agency to report any instance where a properly payable instrument is presented against a trust account with insufficient funds.2American Bar Association. Model Rules for Trust Account Overdraft Notification – Rule 2 The agreement covers every branch and cannot be canceled without advance written notice. Keeping client funds at a bank that hasn’t signed the agreement is itself a compliance failure.
Where Small and Short-Term Client Funds Belong
A large sum held for a single client over an extended period belongs in a separate interest-bearing trust account, with the interest paid to that client. Most client funds don’t fit that description. They’re small, short-term, or both, and the administrative cost of opening an individual account would wipe out any interest earned.
IOLTA programs exist to handle those nominal deposits. The funds from many clients are pooled into a single interest-bearing trust account, and the interest flows to the state’s IOLTA program rather than to any individual client.3American Bar Association. IOLTA Overview Your job is a good-faith judgment: can this client’s funds, after costs, generate net interest for the client? If yes, individual account. If no, IOLTA. Most jurisdictions protect that judgment from disciplinary review as long as it was made in good faith.
Real estate brokers don’t participate in IOLTA. Earnest money sits in the escrow account until the deal closes or dies, and brokers cannot keep interest on client deposits for themselves.
Records That Will Hold Up to an Audit
Trust compliance is proved on paper. ABA Model Rule 1.15 requires complete records of trust account funds, preserved for at least five years after the representation ends,1American Bar Association. Rule 1.15 Safekeeping Property and the ABA’s Model Rule on Financial Recordkeeping confirms the same floor.4American Bar Association. Model Rule on Financial Recordkeeping – Preface Some states extend retention to six or seven years, so check your own rule.
At minimum, you need three things working together. A general journal or check register logs every deposit and withdrawal chronologically with date, amount, check number, payor or payee, and purpose. An individual ledger for each client or transaction tracks that client’s deposits, disbursements, and running balance. The combined balances across all client ledgers must equal the overall trust account balance at any moment. And you need supporting documents: deposit slips, canceled checks front and back, bank statements, settlement statements, and written authorizations for every disbursement.
Most jurisdictions accept high-resolution digital check images, provided both sides are captured. Whether paper or digital, you have to produce the records on demand. Failing to produce them is a disciplinary violation on its own, independent of whatever the records would have shown.
Keeping Your Money Out of It
Two violations drive most trust account discipline. Commingling means your money and client money sit in the same account. Conversion means client money has been used for someone else’s benefit, including yours. Conversion draws the harshest sanctions, but commingling is treated as a serious breach of fiduciary duty on its own.
Moving Earned Fees Out Promptly
Model Rule 1.15(c) requires advance fee payments and unearned retainers to go into the trust account and come out only as fees are earned or expenses incurred.1American Bar Association. Rule 1.15 Safekeeping Property Once you’ve earned the fee, the money is yours and has to be withdrawn promptly. Leaving earned fees in the trust account is itself a form of commingling, because your money is now sitting alongside client funds.
Both directions create problems. Move too fast and you’ve taken unearned fees. Wait too long and you’ve commingled. Transfer earned fees within a few business days of earning them, document the basis for each transfer, and never withdraw more than you’ve earned.
Disputed Funds Stay Put
When more than one person claims an interest in the same funds, including you, the money stays in the trust account until the dispute is resolved. Model Rule 1.15(e) requires it. Any undisputed portion, though, has to go out promptly.1American Bar Association. Rule 1.15 Safekeeping Property If you receive a settlement check, deposit it, and then disagree with the client over your fee, the client’s undisputed share goes out immediately while the contested amount sits in trust.
The Bank Service Charge Exception
Model Rule 1.15(b) carves out one narrow exception to the ban on personal funds in the trust account: you may deposit your own money solely to cover bank service charges, and only in the amount needed.1American Bar Association. Rule 1.15 Safekeeping Property This matters most if you accept credit card payments for retainers. When the processor deducts its fee from the trust account, it is pulling client money to pay your business expense. Either route processing fees to a separate operating account or seed the trust account with enough personal funds to absorb them without touching client balances.
Brokers and Earnest Money
Earnest money goes into escrow promptly after acceptance, stays there until closing or contract failure, and can be released only according to the purchase agreement or with written authorization from all parties. A broker who uses one buyer’s earnest money to cover a shortfall in another transaction has committed conversion. The rules leave no room for borrowing between clients, even for a day.
The Monthly Three-Way Reconciliation
At least once a month, three numbers have to match exactly. First, the adjusted bank statement balance: ending balance on the statement, minus outstanding checks, plus deposits in transit. Second, the general journal balance as of the same date. Third, the sum of every individual client ledger.
If the bank shows $75,000 after adjustments, the journal should show $75,000, and the client ledgers combined should show $75,000. Any gap means a recording error, an unauthorized transaction, or a timing difference you need to find and document. A one-dollar variance matters, because a small unexplained difference can hide a larger problem that grows over time.
The person responsible for the account signs and dates each completed reconciliation. That signed report becomes a permanent record, and auditors ask for it early. Skipped months create gaps that are hard to explain and nearly impossible to reconstruct later.
Verifying Wire Instructions Before You Send
Trust accounts are a favorite target for business email compromise. The FBI’s Internet Crime Complaint Center documented 2025 cases in which real estate transactions were intercepted through fraudulent emails impersonating title companies and attorneys, with individual losses exceeding $1.3 million in a single incident.5Federal Bureau of Investigation. 2025 IC3 Annual Report The pattern repeats: a criminal spoofs or intercepts an email, swaps in a different account number, and the funds leave before anyone notices.
Verification has to happen outside the email thread. Before wiring client funds, call the recipient at a number you independently verified, not one lifted from the suspicious email, and speak to a person whose voice you recognize. A written reply to a voicemail does not count as verification.6United States Court of International Trade. Wire Transfer Fraud – A Growing Threat to Law Firms Any last-minute or urgent change to previously confirmed instructions is a red flag until verified on a separate channel.
Some firms add a disclaimer to outgoing emails and their website warning that wire instructions will never be sent by email alone and will always be confirmed by phone. The disclaimer doesn’t eliminate risk, but it conditions clients to question email-only requests. A five-minute phone call is trivial compared to the loss when funds reach a criminal’s account.
What Oversight Looks Like
Random and For-Cause Audits
Random audits happen without any suspicion of wrongdoing. Under the ABA’s Model Rule for Random Audit, the selection is genuinely random, the notice must certify that no grounds exist to believe misconduct has occurred, and you get at least ten business days’ notice. You cannot be randomly audited more than once every three years.7American Bar Association. Model Rule for Random Audit of Lawyer Trust Accounts – Preface Auditors sample deposit records, canceled checks, and trust transaction records, and the audit expands if they find discrepancies. Refusing to cooperate is itself professional misconduct, separate from anything the audit might find.
For-cause audits are triggered by a client complaint, a bank overdraft notification, a suspicious pattern, or other specific information. They don’t come with the same procedural protections, and the scope can be broad from the start.
When Your Bank Reports an Overdraft
Every approved depository must report to the state disciplinary agency when a trust account has insufficient funds to cover a properly payable instrument, whether or not the bank honors it.2American Bar Association. Model Rules for Trust Account Overdraft Notification – Rule 2 The agency then contacts you for an explanation.8American Bar Association. Model Rules for Trust Account Overdraft Notification – Rule 3 A bounced trust check doesn’t automatically mean misconduct, since a bank processing delay or a math error can cause one, but it guarantees scrutiny and demands a clear, quick response.
Annual Certification
Many jurisdictions require an annual certification stating either that you don’t maintain a trust account or that all client funds are held in compliance with applicable rules. These go through the state bar or real estate commission. Missing the deadline or filing an inaccurate certification can trigger a for-cause audit or administrative sanctions even if the account itself is spotless.
What Happens When It Goes Wrong
Professional discipline is graduated. Under the ABA Standards for Imposing Lawyer Sanctions, knowingly converting client property and causing injury or potential injury draws disbarment as the presumptive sanction. Knowing or reckless mishandling of client property that causes injury draws suspension. Negligent handling that causes injury draws a reprimand. Negligence with little or no injury draws an admonition.9United States Court of Appeals for the Ninth Circuit. ABA Standards for Imposing Lawyer Sanctions
The split between suspension and disbarment often turns on knowing versus negligent conduct. Sloppy bookkeeping that produces a temporary shortfall tends toward a reprimand. Deliberately using settlement funds to pay office rent tends toward disbarment. Prior discipline, a pattern of misconduct, or vulnerable victims push sanctions up; cooperation, remorse, and a clean record pull them down. Real estate brokers face parallel consequences from their licensing commissions, including suspension, revocation, and fines, tracking the same framework.
Criminal Exposure
Intentional misappropriation is theft. The Department of Justice has prosecuted real estate brokers who deposited client earnest money into personal operating accounts and spent the funds, with convictions and prison time.10United States Department of Justice. Real Estate Agent/Broker Sentenced to a Year in Prison for Embezzling Over $100,000 of Clients’ Money The criminal case runs independently of professional discipline, so the same conduct can produce both disbarment and incarceration.
Client Protection Funds
When a lawyer steals from clients and the money can’t be recovered, most state bars maintain a Client Protection Fund, sometimes called a Client Security Fund, to reimburse victims. The funds are financed through assessments on bar members and administered by a board that evaluates claims. The ABA’s model rule allows the board to set a maximum reimbursement amount and to pay in lump sums or installments, balancing individual claims against the fund’s overall capacity.11American Bar Association. Model Rules for Lawyers’ Funds for Client Protection – Rule 14
Dormant Client Funds
Sometimes a client disappears. A settlement check sits uncashed, a deal collapses, or the client stops responding. The money cannot stay in trust forever. Every state has an unclaimed property law, most modeled on the Revised Uniform Unclaimed Property Act, that requires holders of dormant funds to report and transfer the money to the state treasury after a dormancy period.
Before escheating, you have to make a reasonable effort to locate the owner, usually by written notice to the last known address. Dormancy periods vary by state and property type, but most states require reporting and remittance within three to five years of the last contact or activity. Noncompliance carries penalties. Review your client ledgers periodically for dormant balances and follow your state’s escheatment procedure rather than letting old funds accumulate.