Many people choose trusts to manage their money because trust accounts offer privacy, control, and tax benefits beyond those provided by a traditional bank account. Trusts are more than just bank accounts, though.
A trust is a type of legal arrangement in which one person grants another the right to hold and manage property or funds in accordance with specific instructions. The person managing the property, called the fiduciary, has a legal obligation to manage the money and property in the best interest of the owner.
Various industries use trust accounts. In real estate, property managers keep trust accounts to have money on hand for any repairs and updates that property owners need them to carry out. In the legal profession, attorneys use trust accounts to hold and manage funds that clients intend to use to pay for legal services.
For example, a client may deposit $5,000 into a trust account as a retainer. The attorney then transfers money from the trust account into the law firm’s operating account as work is completed on the client’s case.
What Is Trust Accounting?
At its most basic, trust accounting is the bookkeeping of trust fund accounts. To protect legal clients’ best interests, the American Bar Association (ABA) and state bar associations maintain detailed guidelines and regulations about trust accounting. In addition, attorneys must follow state-mandated tax rules for managing trust accounts.
Among these rules is the ABA’s expectation that client funds and law firm operating funds should always be kept separate. Also worth considering? Law firm earnings and trust accounts are subject to different tax rules.
This is one reason why it’s so vital to monitor the fiscal movements of a trust account closely and track transactions across various categories. Proactive organization also helps attorneys apply the proper tax application to every expense and receipt.
To provide accurate reports about the status of trust accounts to clients and the ABA, attorneys should also keep detailed records and notes about all transactions.
The Basics: Trust Accounting Best Practices
Even with trust accounting software on our side, attorneys should remain in the habit of regularly reviewing their state’s trust accounting regulations to stay in compliance.
Records
When it comes to trust fund management, complete records and a reliable accounting process are crucial. The right trust accounting software will include built-in safeguards that prevent situations where necessary data isn’t readily accessible.
Keep trust accounting records separate from personal and business records, especially when you’re managing multiple trust funds at once. Listing trust funds on your law firm’s balance sheets is both confusing and unethical.
Security
Trusts are often the target of fraud and other forms of theft because they usually hold large sums of money. It is your law firm’s responsibility to protect clients’ funds from hackers and identity thieves.
Purpose
Every trust fund has a specific use in its rules. Trustees cannot withdraw money from it to cover other things. Typically, the purpose of legal clients’ trust funds is to cover the cost of legal services. Until those services are provided and the money is transferred to the law firm’s operating account, attorneys shouldn’t spend the money for any purpose.
Accessibility
Transparency is vital to successful trust accounting. Rigorous record keeping doesn’t mean that information should be buried away, hidden from view. Your trust accounting software should keep data readily accessible. Your firm should always be ready to provide each client access to their trust information.
Transactions
Trust accounting can be an area of potential malpractice issues if you aren’t careful with your process. Many attorneys choose to structure payment plans to make as few transactions as possible to minimize the risk of mistakes and getting into hot water with the bar.
Finding time to meticulously track trust accounts can be a challenge for busy attorneys. Fortunately, trust accounting software designed specifically for law firms offers a powerful solution. As part of our comprehensive range of legal software solutions, Tabs3 provides trust accounting software to help with the management and maintenance of client funds.
Tabs3: Your Versatile Trust Accounting Software Solution
Tabs3 Trust Accounting helps you organize and streamline your work, increasing productivity, billable hours, and profits.
With accounting and management features consolidated on one screen, you won’t have to worry about juggling multiple software at once. Instead, your team will enjoy a versatile platform that streamlines processes throughout your whole firm.
With legal software products designed for the way you work, Tabs3 Trust Accounting will be one less distraction from doing what you do best: serving your clients! Tabs3 Software supports thousands of legal professionals in their efforts to improve their trust accounting process and shield their work against common compliance pitfalls.
Tabs3 Software Integration
Our trust accounting software works seamlessly with other Tabs3 applications to reduce the time attorneys spend on administrative tasks. When used alongside our billing, accounts payable, and general ledger software for maximum benefit, Tabs3 offers you the most informative overview possible of your law firm’s financials.
Tabs3 Trust Accounting is simple to use because it features an easy-to-navigate user interface. Integrated with Tabs3 Billing, you can view Trust balances at a glance from various reports and the Matter Manager. For example, your trust balances can be included in the work-in-process reporting and on statements. You can review trust balances and transactions as needed from either application. With Tabs3Pay, you can also process client deposits via credit card.
Automation makes Tabs3 Software even more useful for trust accounting. Any payments made to or from a client trust account will automatically be recorded, improving the accuracy of your firm’s trust accounting records with minimal effort required.
Why Software Is Important for Trust Management
With the complex tax factors and transactions that happen within a trust, keeping track of everything can get complicated. Even an experienced attorney can easily feel overwhelmed by the sheer amount of work involved.
While a legal professional may have the training and knowledge for the job, mistakes can happen easily when managing trust accounts for multiple clients. Even minor mistakes can have major ramifications when tax laws and industry regulations are violated, even unintentionally.
Dedicated software designed to assist with all trust-related tasks can increase your firm’s accuracy. Tabs3 Software can help you avoid inconsistencies that may impact your trust accounting. Compared to manually managing the trust accounting process, Tabs3 Trust Accounting software streamlines workflows and minimizes errors, saving your firm time and money.
Your firm can become fully liable for any issues with trust accounting, and accounting software reduces errors and protects you in the event that there’s a problem. Tabs3 records all transactions and keeps them organized, so you’ll always have easy access to them and ensure that nothing falls through the cracks. The software warns you when an account goes below a minimum balance, and helps you easily reconcile your bank statements. In some states, multiple forms of proof that trust bank accounts are in balance may be required. TAS
provides this proof via the Three-Way Reconciliation Report.
Easily Manage Multiple Client Trust Accounts
With Tabs3 Trust Accounting, you’ll be able to process and track every transaction across multiple trusts with ease. With seamless integration between all Tabs3 Software applications, you can check ledgers while managing trust without the need to switch tabs. In addition, Tabs3 Trust Accounting complies with all major trust accounting regulations. Because our trust accounting is built specifically for law firms’ trust accounting needs, you’ll have no trouble keeping complete and accessible records with Tabs3.
You can also customize your software to adhere to additional in-house security protocols. Tabs3 offers an extra layer of security, which protects funds from anyone intent on stealing from your clients. The software tracks all transactions within the trusts connected to it to keep you informed.
Additional features
Dashboard
Being able to find your way around your trust accounting software is critical. With Tabs3 Trust Accounting, you can access a comprehensive overview of your firm’s trust accounts and their standing at a glance. Navigating the home page to complete a transaction or start a reconciliation is intuitive and fast. With just a few clicks, review additional account summaries and other detailed transaction information.
You’ll also be able to view recent transactions within any individual client trust, as well as a combined list of transaction information. Pin your most used actions in the dashboard to customize your process, so you can print, check, and record data all in one place.
Positive Pay
Tabs3 Trust Accounting includes a Positive Pay Export program, which offers greater security in a more streamlined workflow. Directly export approved checks and upload them to your financial institution to support the Positive Pay fraud prevention program.
Experience the difference that Tabs3 Trust Accounting software can make for your firm!
Schedule your free walkthrough demo today.
It turns out that not all trends are cyclical. Cash? Check? Like it or not, these forms of payment are going the way of the abacus and the typewriter.
Although there are good reasons to be cautious about adopting new technology, payment processing is one area where it pays to be ahead of the curve. After all, anything a firm can do to increase billable hours, reduce administrative work, and accelerate accounts receivable is good for the bottom line.
It isn’t only about improving internal workflows, either. Accepting credit cards also improves client satisfaction at the same time that it increases profit margins.
That’s why Tabs3 Software is excited to announce we’re now offering a built-in credit card processing feature, Tabs3Pay.
A valuable tool for law firms
Credit card processing, when implemented correctly, can add enough of a lift to key areas of a law firm’s success to create a competitive advantage.
Cash flow and processing time
Having an online payment option reduces the number of steps needed to make a payment, which increases the likelihood of clients paying quickly. In fact, the legal industry has become increasingly aware that accepting credit cards improves cash flow by 30 to 40%.
A few other benefits: credit card deposits often hit your bank account faster than a check, and you’ll save on the administrative time it takes to process other payment methods.
Client satisfaction and growing expectations
The legal industry is no exception to the growing customer expectation for convenience in making payments, including for business transactions. Providing the ability to make payments by credit card helps meet that demand while also creating a simple payment experience that can be completed from any device.
Overall, accepting credit cards offers greater predictability and stability, opening up opportunities to proactively plan for your firm’s future based on more accurate financial projections.
Getting legal-specific
When selecting a credit card processing service, it’s important to select a software specifically designed for legal clients.
Running your payments through a certain processor puts the pressure on them to make sure the transactions are secure, but you still have an ethical responsibility to verify what that process is. Check if the processor is certified as PCI compliant. Your firm should also vet how information is being stored to ensure privacy compliance.
Don’t forget to ask about how trust accounting is handled. Most credit card processors deposit funds into the same account from which they withdraw the transaction fee, which can land a law firm in serious trouble.
Although this practice isn’t a big deal for non-legal companies, if the account in question is a legal client’s trust account, then the transaction fee has just been paid by the client, not the lawyer. Even if you act quickly to transfer the amount from your operating account, you’ve technically already accessed client funds.
To avoid these issues, legal-specific processors like Tabs3Pay are set up to deposit charge funds into the trust account and withdraw transaction fees from the operating account. We also protect you from similar issues with voids and chargebacks.
Likewise, we can handle your firm having more than one client trust account. After all, we’ve designed our software specifically for lawyers!
Craft your own approach
Tabs3Pay is part of Tabs3 Software, which means that if you want to sidestep double data entry by having your accounting seamlessly update with new payments, you can. With flat rate options and no monthly fees, you can find an approach that works for your firm.
Visit our site to learn more about the benefits of Tabs3Pay.