Trust accounting

 

This topic provides an overview of how trust accounting is handled by the program.

 

Trust funds are tracked in trust bank general ledger asset accounts and in the Client Funds in Trust account, which is a general ledger liability account.  You should have a separate general ledger account for each trust bank account.  Configure trust bank general ledger accounts using G/L Accounts and Budgets.

 

When you enter a trust transaction for a client/matter, the program updates the trust bank account and the Client Funds in Trust liability account by equal amounts, and updates the client/matter.  In this way, your general ledger assets and liabilities remain in balance, and your general ledger trust bank balance remains in balance with the total trust on your clients/matters.

 

 

Receiving trust funds from clients/matters

 

When you receive trust funds from a client, enter the funds using the Trust Receipts feature.  Trust receipts debit the trust bank general ledger account and credit the Client Funds in Trust liability account, and increase the trust funds available on the client/matter.

 

 

Writing checks off client trust funds

 

When you write a check off a client’s trust, enter it using the Trust Checks feature.  Trust checks credit the trust bank general ledger account and debit the Client Funds in Trust liability account, and decrease the trust funds available on the client/matter.

 

 

Trust Requisitions

 

The Request Trust Checks feature eliminates manual check requisitions by enabling users who are unauthorized to issue checks to request checks instead.  Authorized users can use Release Trust Checks to verify the entry details and make any changes needed before finalizing and printing the checks.

 

 

Transferring trust between clients/matters

 

You may want to transfer trust funds between clients/matters.  For example, if a client/matter has multiple matters, you may want to transfer funds from one matter to another.  Use the Client Trust Transfers program to transfer trust funds.

 

Client trust transfers do not affect your general ledger; that is, they do not affect the trust bank account or the Client Funds in Trust liability account.  They affect the clients/matters only.  This means you cannot use this program to transfer money from one trust bank to another.

 

 

Using trust funds to pay client/matter bills

 

You may also want to use a client’s trust funds to pay bills.  The Trust Transfers to Pay A/R program enables you to apply trust funds to a specific bill, which reduces the client’s A/R balance just as if you entered a receipt to pay the bill.  The trust transfer program debits the Client Funds in Trust liability account by the amount of the transfer.

 

Notice that the trust bank is unaffected.  To complete the trust transfer, the administrator or assigned staff must release the transfer using Write Trust Transfer Checks.  This feature enters a trust check to credit the trust bank account and debit the trust clearing account.  In this way, a complete audit trail is maintained, including the related check number.  To finish the payment, enter a receipt to deposit the funds into your general bank account from the clearing account.

 

The System Balance report will be out of balance until the transfer is released because the trust transfer program transfers funds from the Client Funds in Trust liability account, but does not affect the trust bank account.  One of the purposes of the System Balance report is to indicate an out of balance if the Client Funds in Trust account is not equal to the sum of the trust bank accounts because, normally, these accounts should balance.  Using Trust Transfers to Pay A/R reduces the balance in the liability account without reducing the balance in the trust account – the transfer must be completed by entering the trust check and receipt to put the System Balance back in balance.

 

You can also apply trust transfers to bills using the Create Bills program.

 

Journal entries and trust funds

 

Because trust funds are always associated with client files, do not enter journal entries for trust bank accounts.  If you do, your System Balance report will go out of balance.  Trust is always related to a client, and journal entries do not affect clients/matters.

 

To record interest that is not to be deposited to a client file, create a "dummy" client/matter for this purpose, and record the interest using the Trust Receipts program.

 

The only situation in which you should enter journal entries for trust bank accounts (or for any control accounts!) is when your System Balance report is already out of balance.  For example, if a hardware failure occurs while entering transactions, the System Balance may go out of balance if the program does not complete its processing.  In this situation, you may need to enter a journal entry to correct the out of balance.  Read the topic Correcting problems with the System Balance report.

 

 

Regular and term trust

 

Trust funds are designated regular or term.  Term trust (also called special trust) refers to trust money deposited in interest-bearing accounts such as term deposits.  Regular trust refers to all other trust funds.  When you receive trust money from a client and enter it using the Trust Receipts program, you must designate the funds as either regular or term trust, and in the case of the latter, you can enter a term due date, if applicable.  You cannot write trust checks off term trust.

 

 

Trust overdrafts

 

You can choose whether to allow trust overdrafts on client files.  A client/matter in overdraft is one that has had more trust checks (or trust transfers) issued against its trust than the amount of trust that has been deposited or transferred to the file.

 

In some firms this situation is normal and operators can be sure that the client/matter really does have adequate trust funds available.  Other firms prefer not to allow trust overdrafts under any circumstances.

 

If you choose not to allow trust overdrafts, you will be unable to enter trust checks or transfers that would result in a file going into an overdraft position.  If you enable trust overdrafts, a warning message displays if a transaction will result in an overdraft, but you can override the message and continue.  Enable or disable trust overdrafts in System Settings.

 

 

Trust reports

 

The program has a variety of reports providing listings of trust balances and details on clients/matters.  You can print reports for specific date ranges, and in some cases by lawyer.  For example, to view a list of all clients/matters with trust in a specific trust bank account, print the Trust Listing by Bank.

 

Read Reports to print at month-end for recommendations on specific reports to print at month-end, and also read Guidelines for reconciling reports.