Why Lawyers Lose Trust With Trust Accounting

Why Lawyers Lose Trust With Trust Accounting

10.6.2025

By Jordan Turk, Attorney & Director of Education, Smokeball

I know that trust accounting and IOLA compliance are not the glamorous tasks we envisioned for our future selves during our law school tenure – I expected to be in a courtroom; I expected to be researching caselaw and consuming too much coffee; I did not expect that I would be getting anxiety attacks when trying to balance financial accounts. Yet, here we are.

If you want to avoid my many trust account trials and tribulations (legal puns always intended), then I suggest you start embracing legal technology in the 21st Century. With the right tools, you can log your hours, send out invoices, collect payments, and most importantly, reconcile your trust account with a few clicks of a button. Through its partnership with the New York State Bar Association, Smokeball offers members a 10% discount on practice management software that builds trust accounting directly into your daily workflows.

Trust Accounting Does Not Have to Give You Nightmares

We are all aware of Rule 1.15 and how we need to protect and account for client funds (we are held to the standard of a fiduciary when it comes to our clients’ property). But this is easier said than done. Now we have to figure out on our own how to perform a three-way trust account reconciliation. What does that even mean?

At its core, trust account reconciliation is really about protecting yourself from…yourself. Many times, accounting errors come from an attorney’s seemingly harmless action (or inaction, we lawyers contain multitudes) and these problems could have been easily avoided had the IOLA been properly reconciled in the first place.

On its most basic level, three-way trust account reconciliation (the type most favored by state bars including New York) involves comparing three accounts: your trust ledger, your individual client ledger, and your monthly bank statement.

Scenario

Let’s say a client comes and pays you a $10,000 retainer. You deposit that into the bank, but then in a moment of butterfinger-itis, you log it as $1,000 in your individual client account, but then $10,000 into your general trust ledger. Unless you are checking these balances against each other, how would you know which figure is correct?

Enter three-way trust accounting. So now we can look at that $1,000 in the client account and notice the discrepancy in the trust ledger. Then, to figure out which figure is correct, we compare the entries to our monthly bank statement, which will reflect the $10,000 figure. Had you not caught this mistake, it could have been disastrous for your record keeping. This entire reconciliation process is really just a checks and balances system for your firm’s financials.

What if My Numbers Don’t Match Up?

Don’t freak out. Most of the time, if your trust or client ledger doesn’t match your monthly bank statement, it’s because of an uncleared check or payment. For example, a client paid their retainer on the 30th of the month, so you logged it into your system on the 30th, and deposited the check on the 30th, but the funds didn’t clear the bank until the third day of the following month. Thus the bank statement of the prior month will not reflect that check deposit, and your reconciliation will reflect that.

Technology can make this easier by allowing you to plug in your monthly bank statement balance and compare it with your trust ledgers. This helps ensure that all of your balances match up and that you are compliant.

More about the NYSBA Member Benefit

The New York State Bar Association has partnered with Smokeball to give members access to practice management software at an exclusive 10% discount. Whether you are a solo practitioner, starting your own firm, or growing a team, Smokeball helps you manage trust accounting, client matters, billing, and day-to-day operations more effectively.

Activate your 10% NYSBA member discount today.

A Note on Smokeball Bill

In addition to this NYSBA member benefit, Smokeball also offers Smokeball Bill, a free dedicated trust accounting and billing solution for NYSBA lawyers who only need support with trust compliance and invoicing. You can learn more about Smokeball Bill here.