Intro: If you’re an Illinois attorney setting up your practice, one of the first financial lessons you’ll encounter is IOLTA and trust accounting. These might sound like technical terms, but they boil down to a simple principle: clients’ money isn’t your money – at least, not until you’ve earned it. Law firms routinely receive funds that belong to clients or others (like advance retainers, settlement proceeds, or escrow funds). Managing this money properly is both an ethical obligation and a legal requirement. Mishandling client funds can lead to serious trouble – even accidental mistakes with a trust account can trigger a disciplinary complaint. In fact, the Illinois Supreme Court and the Attorney Registration and Disciplinary Commission (ARDC) treat the safekeeping of client funds as one of a lawyer’s most fundamental duties.
This beginner-friendly guide will walk you through what IOLTA and trust accounts are, the specific Illinois rules you must follow, some eye-opening stats and trends on compliance, common mistakes (and how to avoid them), best practices for managing client funds, and any recent updates to be aware of. By the end, you should have a clear roadmap to staying compliant and safeguarding your clients’ money (and your law license). Let’s dive in!
What Is IOLTA and Why Do Lawyers Need a Trust Account?
IOLTA stands for Interest on Lawyers’ Trust Accounts. It’s a program that allows lawyers to pool client funds in a special bank account where any interest earned goes to a charitable fund (in Illinois, interest from IOLTA accounts goes to the Lawyers Trust Fund of Illinois to support legal aid). In practical terms, an IOLTA account is simply a pooled trust account for client money.
Trust accounting, in turn, refers to the practice of managing all those client funds that you’re holding on behalf of clients or third parties. Whenever you receive money that belongs to a client (for example, an advance fee deposit, a settlement check, or funds to pay court fees), you have a duty to keep that money separate from your own. That’s where a trust account comes in. Illinois requires attorneys to use a client trust account for any funds held for clients or others in connection with legal services.
Think of a trust account as a secure holding tank: the money stays there, untouched, until it’s time to pay it out for its intended purpose. There are two main types of lawyer trust accounts:
IOLTA accounts (pooled interest-bearing trust accounts)
Used for holding short-term or small amounts of client funds. All client deposits are pooled together, and the interest that accrues (which wouldn’t be meaningful for any one client after bank fees) is forwarded to the statewide IOLTA fund for charity. For example, if Client A hands you a $500 retainer and Client B gives $1,000 for a settlement holding, both can be deposited in the same IOLTA account. Neither client’s share would earn notable interest individually in a short time, so the interest is pooled for public benefit.
Non-IOLTA separate trust accounts
Used for large or long-term funds that actually could earn net interest for the client. In such cases, you should set up a dedicated interest-bearing trust account for that particular client so the client (not a charity) gets the interest accrued. For instance, a $500,000 escrow to be held for a year would go into its own interest-bearing account, with interest payable to the client.
No matter which type, the golden rule is never mix client funds with the firm’s own money. Placing client money into your firm’s general operating account – even by mistake or “just for a day” – is called commingling, and it’s a big no-no. It can lead to discipline, large fines, or even disbarment (What is an IOLTA Account? -LeanLaw). In Illinois, commingling client funds with your own is strictly forbidden. You must maintain a separate client trust account for all funds that belong to clients or third parties, keeping those funds segregated from the firm’s funds.
In short: IOLTA and trust accounts are tools to ensure client money is kept safe, separate, and used only for its intended purpose. Trust accounting is the process of tracking every penny in and out of those accounts, so that you always know whose money is where. It might sound like extra work, but it’s absolutely essential to running a law practice ethically. (For a more in-depth primer on trust accounts, see our post Trust Accounting Pitfalls to Avoid | LeanLaw.
Illinois IOLTA Rules and Compliance Requirements
Illinois has specific rules – set by the Illinois Supreme Court’s Rules of Professional Conduct (IRPC) and enforced by the ARDC – that govern how lawyers must handle client trust funds. These rules were significantly tightened in 2011 and updated again in 2023 to protect clients and prevent mismanagement. Here are the key compliance requirements Illinois law firms need to know:
All client funds must be in an interest-bearing trust account. Illinois prohibits lawyers from holding client money in a non-interest bearing account. You have only two permissible options:
- IOLTA account: a pooled, interest-bearing checking account (at an eligible bank) with the Lawyers Trust Fund of Illinois designated to receive the interest. This is used for most routine client funds that are small in amount or will be held only briefly.
- Dedicated client trust account: a separate interest-bearing account for a specific client matter, with that client entitled to the interest earned. This is used when the amount or duration is such that the interest earned would meaningfully exceed the bank costs.
Bottom line: No interest = no good. You cannot leave client money sitting in your office safe or in a regular business checking account that earns no interest. If it’s client money, put it in either an IOLTA or a client-specific trust account.
Use an eligible bank and notify them it’s a trust account
You must hold trust funds at a bank or financial institution that is approved by the Illinois IOLTA program (an “eligible institution”) and that has agreed to report trust account overdrafts to the ARDC. When opening the account, you’ll designate it as a “Client Trust Account” (typically the account name will include “IOLTA Trust Account”) and use the tax ID of the Lawyers Trust Fund for an IOLTA. Most major banks in Illinois offer IOLTA accounts; the Lawyers Trust Fund provides a list of eligible institutions and an enrollment form to set up the IOLTA. Make sure your bank knows the account is an attorney trust account – this ensures proper handling of interest and any fees.
No borrowing or misusing client funds (no “conversion”)
It should go without saying, but Rule 1.15 now explicitly states it: if a lawyer uses client or third-party funds for their own purposes without authorization, it’s considered conversion. In plainer terms, treating client money as your personal piggy bank – even if you “intend to pay it back” – is theft. Illinois rules allow zero tolerance for dipping into client funds. The only money of yours that can be in the trust account is a minimal amount to cover bank service charges if needed. (For example, depositing $100 of firm money to an IOLTA to avoid monthly fees is permitted. Beyond that, keep your dollars out of the client account.)
Prompt notification and delivery of funds
If you receive funds that belong to a client or third party (say a settlement check), the rules require you to notify the client promptly and then promptly deliver the funds to the rightful party or into trust as appropriate. You can’t hold on to client money indefinitely. Likewise, if part of a trust balance is owed to the firm (as earned fees or reimbursement of expenses), you should withdraw those funds reasonably promptly once they are earned and an invoice is delivered.
Don’t leave earned fees commingled in trust longer than necessary – but do not withdraw them before they’re earned! Under Illinois Rule 1.15, advance fee payments (security retainers) must stay in trust until earned. Only after you do the work and bill the client can you move that money to your operating account as your fee.
Segregate disputed funds
If there is a dispute over funds (for example, a client disputes your fee and part of the money in trust is contested), the rules say you must keep the disputed amount in the trust account until the dispute is resolved. You can’t just take it because you believe it’s yours – hold it in trust or a separate sub-account, and only disburse when the entitlement is resolved (Rule 1.15(f)). This protects both you and the client until any disagreement is handled.
Overdrafts trigger ARDC alerts
Illinois implemented an overdraft notification rule in 2011: Any overdraft or bounced check on a client trust account will be reported by the bank directly to the ARDC. This means if you even accidentally overspend the account – say a check clears before a deposit does, causing a shortfall – the regulator will know. You’ll then likely receive the dreaded “14-day letter” asking for an explanation. (As one Illinois ethics expert noted, “Even going accidentally out of balance on your trust account can cause an ARDC complaint”.) The safest practice is to reconcile and monitor your trust balance meticulously (more on reconciliation below) to avoid overdrafts at all costs. If an overdraft does occur, respond honestly and fully to the ARDC inquiry – most inadvertent errors can be cleared up if you cooperate and fix the mistake.
Detailed recordkeeping is mandatory
Illinois requires strict records for all client trust transactions. Under Rule 1.15 and 1.15A, you must maintain:
- a receipts journal listing every deposit into the trust account (date, source, client, and amount);
- a disbursements journal for all withdrawals (date, payee, purpose);
- a client ledger for each client whose funds you hold, showing all deposits, withdrawals, and current balance for that client;
- bank records like monthly bank statements, canceled checks, deposit slips, etc.;
- copies of all accountings to clients or third parties, and records of any fees and expenses charged to the trust account;
- reconciliation reports. Illinois specifically mandates doing a reconciliation of the trust account at least quarterly (every 90 days), reconciling the bank statement with your internal records. Best practice (as we’ll discuss) is monthly reconciliation, but quarterly is the minimum required. This “three-way reconciliation” ensures that the total of all individual client ledgers matches the balance in the trust account and matches the bank statement.
These records must be retained for at least 7 years after the end of the representation. In other words, even if a case closed and you paid out all funds, hang onto those trust records for a good long while (Illinois Supreme Court Rule 769 also requires 7-year retention of financial records).
No cash withdrawals or third-party checks
A new Illinois rule (effective 2023) explicitly forbids certain high-risk transactions from trust accounts. You cannot withdraw trust funds as cash, nor can you write a check from the trust account made payable to “Cash”. Similarly, using ATM withdrawals from a trust account is not allowed. Every withdrawal or payment out of trust should be traceable – e.g., a check to a specific payee or an electronic funds transfer to a named account. This adds a layer of accountability and helps prevent misuse (it’s harder to hide a misappropriation if every disbursement has a named recipient).
Annual trust account reporting
As part of your annual ARDC registration, Illinois lawyers must answer questions about their trust accounts (Supreme Court Rule 756(f)). You’ll need to certify whether you or your firm maintain a trust account, and if so, provide certain information (like the account’s bank and number, and whether it’s an IOLTA). This is basically a yearly check-in to ensure lawyers are aware of and following the trust account requirements.
These are the core rules, but the message is clear: Illinois demands meticulous care with client funds. The state went as far as making Rule 1.15 (the trust account rule) one of the longest and most detailed ethics rules, reflecting how crucial compliance is. By following these requirements – using the right type of account, keeping funds separate, logging every transaction, and reconciling regularly – you’ll fulfill your duties under Illinois law and build trust with your clients. (If you’d like a handy checklist, see our article “Legal Trust Accounting Compliance Checklist” on the LeanLaw blog, which breaks down these requirements in a user-friendly way.)
Why Compliance Matters: Illinois Trends & Stats
You might be wondering, “How big of a deal is trust accounting compliance in the real world?” The short answer: very big. Mismanaging client funds is one of the fastest ways to get in trouble as a lawyer. Let’s look at a few telling Illinois stats and trends:
Trust account violations are a leading cause of discipline
The ARDC has reported that the mishandling or misappropriation of client trust funds is often the number one issue that leads to formal disciplinary action against lawyers. This means out of all the things lawyers can do wrong – missed deadlines, conflicts of interest, you name it – messing up a trust account is consistently at the top of the complaints pile. It’s a career-ender for some attorneys. As Illinois legal ethics authorities bluntly put it, commingling or misusing client money “can lead to major trouble”.
Most Illinois lawyers handle trust money
If you think you can dodge trust accounting because you won’t ever hold client funds, think again. According to the ARDC’s recent data, 87% of Illinois lawyers maintain a trust account. The vast majority of private practice attorneys will at some point receive client funds that need to be held in trust – whether it’s a classic retainer, a settlement, or just filing fee advances. In other words, this isn’t a niche issue; it’s a common part of law practice for nearly 9 out of 10 lawyers in the state.
IOLTA oversight has increased compliance monitoring
When Illinois introduced the mandatory bank overdraft reporting rule (in 2011), there was a noticeable spike in the number of investigations the ARDC opened – the highest in years. Over one-third of the increase in investigations that year was attributed directly to the new trust account overdraft notifications. What does this tell us? The system is watching. Even innocent mistakes (like a bounced trust check) now get flagged, which prompts lawyers to tighten up their practices. The good news is that many of these inquiries get resolved at the intake stage if it’s a genuine error. But the bad news is you might have to answer to the ARDC even for small errors.
High percentage of disciplinary cases involve IOLTA issues
Illinois bar leaders have noted that a large share of all disciplinary cases stem from IOLTA or trust accounting violations. This means if you end up facing the ARDC, there’s a good chance it’s because something went awry with your handling of client funds. It could be a bounced trust check, a client complaint of funds not returned, or a random audit finding records in disarray. The point is, trust accounting problems aren’t rare – they’re common enough that regulators devote significant resources to this area. On the flip side, maintaining impeccable trust records and balances is one of the best ways to stay off the ARDC’s radar completely.
To put it plainly: Trust accounting is taken extremely seriously in Illinois. It’s both an ethical obligation to your clients and a matter of self-preservation. The ARDC’s role is not just to punish wrongdoing but also to prevent it – which is why they require things like overdraft reporting and annual certifications. By staying compliant, you protect your clients’ money and protect your professional reputation.
As one ethics commentator advised, “Given the high percentage of cases that result from IOLTA violations, [lawyers should] check IOLTA records regularly”. Compliance isn’t one-and-done; it’s an ongoing habit. In the next sections, we’ll highlight the most common pitfalls that trip up lawyers in Illinois and how you can avoid becoming another statistic.
Common IOLTA & Trust Accounting Mistakes (and How to Avoid Them)
Even well-meaning attorneys can run into trouble with trust accounts. The rules are detailed, and law firms are busy – it’s easy to slip up if you don’t have good systems in place. Here are some common mistakes Illinois law firms make with IOLTA and trust accounting, along with tips on how to prevent each one:
Commingling Funds
This is the cardinal sin of trust accounting – mixing client money with firm money. It can happen intentionally (borrowing client funds to cover bills – never do this!) or accidentally (depositing a retainer into the wrong account, or paying a personal expense out of the trust account). In Illinois, even a brief commingling is an ethics violation. How to avoid it: Have a clearly labeled trust account and operating account, and double-check before every deposit or payment which account you’re using.
Many “frequent errors” result from simply grabbing the wrong checkbook or clicking the wrong account in online banking. Train yourself and your staff to be hyper-vigilant: client funds always go into trust, and law firm funds never go in or out of that trust except for allowed reasons (earned fees withdrawal or covering bank fees).
Drawing on Uncleared Funds
Lawyers sometimes deposit a check into the trust and then immediately write out a disbursement against it – only to find the deposit bounced or is still on hold. If you pay out funds that weren’t really there yet, you’ve created a deficit (other clients’ money just got used, or the account goes negative). This is a common cause of trust account overdrafts.
How to avoid it: Never assume funds are available until they’ve cleared the banking system. For check deposits, wait a prudent period (several business days, or confirm with the bank) before disbursing. It’s better to explain a short delay to a client or payee than to have an overdraft. Use reminders or flags for deposits that haven’t cleared.
Mathematical Errors and Poor Reconciliation
Simple arithmetic mistakes – transposing digits, adding instead of subtracting, or entry errors – can throw your ledgers off. If you’re not reconciling regularly, these errors can snowball, and you may not notice something’s wrong until a check bounces or an audit finds a discrepancy. How to avoid it: Reconcile your trust account monthly (even though Illinois requires quarterly).
Monthly three-way reconciliation (comparing the bank statement, your trust checkbook register, and the sum of all client ledgers) will catch most issues early. Use software or spreadsheets to reduce manual math errors, and have a second person review if possible. When you reconcile, investigate any difference down to the penny – there’s no “close enough” in trust accounting.
Mixing Up Client Ledgers
A classic mistake is accidentally using one client’s funds to pay for another client’s matter. This can happen if you don’t keep individual client ledgers and just treat the trust account as one big pool. For example, you might disburse a filing fee for Client A, thinking they had enough in trust, but in reality you used some of Client B’s money.
This inadvertent misappropriation is still a violation. How to avoid it: Maintain a separate ledger or sub-account for each client. Modern legal accounting software will do this for you (more on that later). Always check a client’s balance before issuing any payment on their behalf. If Client A’s balance is too low, do not borrow from Client B; ask Client A to replenish their retainer instead.
Failing to Promptly Pay Out or Refund Funds
Sometimes lawyers hold onto client money longer than they should. Examples: not promptly refunding an unused portion of a retainer, or delaying payment of settlement funds to a client or medical provider. In Illinois, failing to promptly deliver funds that the client or a third party is entitled to can violate Rule 1.15.
How to avoid it: As soon as it’s clear that funds are due to someone, act. If a case settles, get the client their net proceeds as soon as the check clears and you’ve resolved any liens. If a client fires you or you withdraw, immediately prepare to refund any unearned fees in trust. Don’t procrastinate on trust disbursements – it’s their money, not yours, and holding it too long can look like you’re using it for your own benefit (even if you’re not).
Using Trust Funds for Bills/Operating Expenses
It might be tempting in a cash crunch to pay a firm expense directly from the trust account (after all, you expect to earn some of those funds soon, right?). Do not do this. Every payment out of trust must be for that client’s matter – period. Writing a check from the trust account to pay your rent, salary, or any expense not directly tied to a specific client whose money is in the trust is an improper withdrawal. How to avoid it: Treat the trust account as sacrosanct.
All law firm bills get paid from your operating account using earned fees. If the trust account checkbook is sitting in your drawer, think of it as labeled “CLIENT FUNDS ONLY – hands off.” Some firms even require two signatures for trust checks or have the bookkeeper prepare them and a partner review them, to add internal oversight. Build in a buffer of firm savings for your operations so you’re not even tempted to “borrow” from client money when expenses arise.
Improper or Unallowed Withdrawals
With the new rules, certain methods of withdrawal are per se mistakes – e.g., pulling cash out of the trust or writing a check to cash. These leave no paper trail to a client or vendor and will raise red flags. How to avoid it: Follow the rule of only disbursing to named payees or by documented electronic transfer.
If you need cash for something (rare in law practice), take it from your operating account, not trust. Also, avoid making a trust check payable to yourself without clear description – it’s acceptable to withdraw earned fees to “Law Office of ___” (with an invoice as backup), but writing a check simply to “John Doe” with no client reference could look like embezzlement if not properly recorded. Always document the purpose of a withdrawal (e.g., “Withdrawal of earned fee for [Client Name] Inv#1234”).
Lack of Documentation for Retainers/Fees
Some trust accounting issues arise when lawyers aren’t clear about fee arrangements. If you treat a fee as “earned upon receipt” (like a true flat fee or engagement retainer) but still put it in trust, you might confuse yourself and the client about whether it was actually earned. Conversely, if you treat a security retainer as earned too soon, you effectively take client money prematurely. How to avoid it: Use written fee agreements that specify the type of retainer or fee (Illinois now defines fixed fees, security retainers, special purpose retainers, etc.).
If it’s a security retainer (advance fee), you and the client agree it goes in trust and you’ll bill against it as you earn it. If it’s a flat/fixed fee that you intend to treat as earned at the start (which Illinois allows in certain situations), make sure the agreement clearly says it’s a fixed fee and do not put it in the trust account. By being explicit and following the new 2023 fee rules, you’ll know exactly which funds belong in trust and which do not. When in doubt, put it in the trust account – that’s safer than mistakenly using client funds.
As these examples show, most mistakes come down to either mix-ups (using the wrong account, confusing clients’ funds) or lax procedures (not reconciling, not tracking balances). The ARDC has noted frequent errors such as “attempting to draw on deposits before they have cleared, mixing up trust and business account checkbooks, clicking on the wrong account during online banking, depositing funds to the wrong account, miscalculating distribution amounts, … and failing to maintain complete records”. The silver lining is that all of these are preventable with a bit of care and organization.
Avoiding the pitfalls means instilling good habits in your daily practice. In the next section, we’ll outline best practices that will keep your trust accounting squeaky clean.
Best Practices for Trust Accounting and Managing Client Funds
Staying compliant with trust accounting is not just about avoiding discipline – it’s also about running a trustworthy, efficient law practice. When clients know their money is handled correctly, it builds confidence and a better attorney-client relationship. Here are some best practices to implement in your Illinois law firm for rock-solid trust account management:
1. Develop Standard Operating Procedures (SOPs) for Trust Transactions
Don’t handle trust funds ad hoc; have a defined process. For example, decide beforehand who in your office is allowed to deposit or withdraw from the IOLTA, who records the transactions, and how often reconciliation happens. Having a checklist for opening a new case (e.g., “if advance fee received, deposit to trust and create new client ledger”) can ensure nothing falls through the cracks. By formalizing your trust accounting workflow, you reduce the chance of oversight. Even for a solo attorney, a written procedure (for yourself!) can help – it’s like a pre-flight checklist every time you touch the trust account.
2. Reconcile, Reconcile, Reconcile – and do it often
We can’t stress enough how important regular reconciliation is. Illinois requires a quarterly reconciliation report, but monthly is the gold standard. Set aside time at the end of each month to perform a three-way reconciliation: compare the bank statement, your trust account check register, and the total of all client ledgers. They should all match. If they don’t, immediately find and fix the error.
Regular reconciliation will catch mistakes like bank fees you forgot to record, accounting errors, or suspicious transactions. It’s your early warning system. Also, have someone else review the reconciliation if possible (even an external bookkeeper or a partner) – a fresh set of eyes might catch something you missed. Remember, maintaining accurate, up-to-date records and balancing to the penny is both a best practice and an ethical requirement.
3. Keep Individual Client Ledgers and Monitor Balances
Each client who has funds in trust should have their own ledger or sub-account. This way, you always know how much money you’re holding for that particular client. It’s a good practice to note on each ledger any planned disbursements or upcoming obligations. For instance, if Client X has $5,000 in trust, and you know $2,000 is for an expert’s fee, annotate that.
This prevents you from mistakenly thinking you have more free funds for Client X than you actually do. Also, never allow any client’s ledger to go negative – one client cannot “borrow” from another. If a client’s balance is low, get replenishment before paying further expenses. Monitoring individual balances is key to avoiding inadvertent misuse of funds.
4. Use Technology to Your Advantage
In the modern practice of law, legal accounting software can be a lifesaver for trust accounting. Programs like LeanLaw, for example, integrate with accounting software (like QuickBooks Online) to automate much of the trust accounting process. They can automatically create client ledgers, prevent commingling by separating trust and operating accounts in the software, and even produce one-click reconciliation reports.
Many tools will also alert you if a transaction would overdraw a client’s balance or if something hasn’t been recorded properly.
Using dedicated legal trust accounting software can dramatically reduce human error. LeanLaw’s trust accounting engine, for instance, tracks client trust funds in compliance with state bar rules and generates reports that make it easy to audit your accounts. The investment in a good system is well worth it compared to the cost of a mistake. (Plus, it saves time – you can spend more hours practicing law and less doing manual bookkeeping.)
5. Limit Access and Implement Internal Controls
Not everyone in the firm should be able to sign trust account checks or initiate transfers. It’s wise to limit access to the trust account to as few people as practical (while still having a backup signer if you’re away). If you have multiple attorneys or staff, consider requiring two signatures on large trust disbursements or at least a secondary review. Use sequentially numbered checks and lock up blank check stock.
The idea is to create checks and balances: one person preparing a disbursement and another approving it provides oversight that can catch mistakes or misconduct. Solo practitioners can simulate this by double-checking everything and possibly having an outside accountant do a periodic review. Also, never give out your trust account online banking password to someone you don’t fully trust, and enable notifications for any withdrawals.
6. Educate Your Team (and Yourself)
Make sure everyone handling client funds understands the basics of trust accounting and the Illinois rules. This includes legal assistants, paralegals, and anyone who might deal with the bank. Regular training or refreshers on trust procedures can reinforce why these rules matter.
The ARDC and Illinois State Bar Association provide resources – for example, the ARDC’s Client Trust Account Handbook is a great educational tool, and there are on-demand CLE courses on trust accounting. Staying up to date on best practices is easier than ever. In staff meetings, you might share a recent cautionary tale or an ethics opinion on trust accounts to keep awareness high. When everyone is informed, errors are less likely.
7. Be Diligent with Retainers and Fee Agreements
With Illinois’ recent rule changes on retainers and fees (more on that in the next section), it’s critical to clearly document and follow the agreed method. If you’re taking a security retainer (most common), always deposit it in trust and only withdraw as you earn it. If you decide to charge a true flat fee or engagement retainer that won’t go in trust, make sure the client signs a written agreement acknowledging that and that you comply with Rule 1.5’s definitions.
Ambiguity in fee handling can lead to trouble. As a best practice, many Illinois firms simply put all advance fees in trust unless it’s absolutely clear and agreed they’re non-refundable flat fees. It’s the safer route. Also, when you withdraw fees from trust, do it in conjunction with an invoice to the client detailing what was earned – this creates a paper trail showing the withdrawal was justified.
8. Conduct Periodic Self-Audits
Don’t wait for the ARDC to audit you – consider auditing yourself annually (or have an accountant do it). The ARDC provides a Client Trust Account Self-Audit checklist that you can use to review your records and procedures. This kind of proactive audit can identify weak spots. For example, you might discover a missing bank statement or a ledger that wasn’t updated.
Fix it now, and you won’t panic later if you’re randomly selected for a compliance audit. Some firms do a year-end trust account review: verifying that all client balances are correct, sending clients ledger summaries, and clearing any balances for matters that closed (either refunding to client or transferring earned fees). Treat it like an annual health check for your trust account.
9. Stay Informed on Rule Changes
Ethics rules aren’t static. Illinois updated Rule 1.15 in 2011 and again in 2023 with new provisions. Make it a habit to read ARDC announcements or Illinois Bar Journal articles about rule changes. For instance, the 2023 amendments added the ban on non-refundable fees and cash withdrawals – if you missed that memo and wrote a check to “Cash,” you’d be violating a rule you didn’t even know changed. The Lawyers Trust Fund of Illinois and ARDC often publish summaries of any new requirements (e.g., treatment of electronic payment fees, definitions of retainers, etc.). By keeping up, you can adjust your practices before any issue arises. A great resource is the LTF’s website, which outlines current Rule 1.15 and related provisions, as well as the ARDC’s ethics articles.
10. Communicate with Clients about Their Funds
This is more about client relations, but it has compliance benefits too. Let clients know when you’ve deposited their money into trust and how it will be used or held. Provide trust accountings on request or even periodically for long-running matters. When a matter concludes, send a reconciliation of the funds (e.g., “we received $X, used $Y for costs, $Z was your refund which is enclosed”). Clients who feel informed are less likely to complain to the ARDC. And if a client does raise a concern, you’ll have clear records and communications to show you handled their money properly. In short, transparency with clients about trust funds can prevent misunderstandings that lead to grievances.
By following these best practices, you’ll create a safety net around your trust account. Many of these habits overlap with what the rules already require, but going above the bare minimum (like monthly reconciliations instead of quarterly, or self-audits) will substantially reduce your risk of a misstep. Plus, a well-managed trust account can actually benefit your practice: for example, maintaining retainers in trust ensures you have funds on hand when you bill, improving cash flow (no more chasing clients for payment – the money is already there, waiting to be earned). In that sense, good trust accounting is not only ethical but smart for business!
Before we wrap up, let’s cover the most recent changes in Illinois trust accounting rules so you’re up to date.
Recent Updates and Regulatory Changes in Illinois
Illinois updated its trust accounting rules effective July 1, 2023, so even if you’ve been practicing for a while, you should be aware of what’s new. These changes were designed to clarify fee handling and modernize trust account management. Here are the highlights of what changed:
No More Non-Refundable Retainers
Illinois Rule 1.5 was amended to prohibit non-refundable fees or retainers outright. In the past, lawyers sometimes used “non-refundable” language in engagement letters, leading to confusion and potential abuse. Now the rule makes clear: you cannot charge a fee that the client has no right to a refund of if it’s unearned. Every fee must be reasonable and any unearned portion must be returnable to the client.
Along with this, Rule 1.5(d) now explicitly defines the types of fee arrangements – such as fixed fees, engagement retainers, security retainers, and special purpose retainers – so there’s less gray area. For example, a security retainer (the typical advance fee deposit) is defined and it’s clear that those funds belong in a trust account until earned. A fixed fee (for a specific scope of work, charged upfront) is permitted, but the rule reminds lawyers that even fixed fees are still subject to being reasonable and if not fully earned, the unearned part must be refunded.
Practical impact: If you take upfront fees, you need to categorize them properly. In most cases, you’ll be using security retainers which go in trust. If you opt for a flat fee that you treat as earned on receipt (and thus put in operating), ensure your agreement meets the definition and do not call it “non-refundable.” Illinois wants clients to always have the ability to get back unearned fees.
Rule 1.15 Reorganized into Subsections
The safekeeping property rule (1.15) was split into multiple parts (1.15, 1.15A, 1.15B, 1.15C) for clarity. Rule 1.15 now states general duties (like no misuse of client property, segregation of funds, etc.), 1.15A covers recordkeeping requirements (seven-year retention, the journals, ledgers, and reconciliation we discussed), 1.15B contains the core IOLTA account requirements (interest to LTF, when to use IOLTA vs non-IOLTA, etc.), and 1.15C holds various definitions. The content is largely the same as the post-2011 rules, but the reorganization makes it easier to find specific guidance (for instance, all the recordkeeping duties are grouped in 1.15A). If you haven’t looked at the new layout, it’s a good idea to read through the updated Rule 1.15 (a PDF summary is available from the ARDC).
Electronic Payments and Fees
The amended rules and comments address the handling of electronic payment methods. Lawyers increasingly use credit card processors or online payment platforms for trust deposits. Illinois now puts emphasis on the lawyer’s duties when using electronic payments – such as ensuring that credit card processing fees are not taken out of client principal (those fees should be paid by the lawyer, or the client should explicitly consent to a different arrangement) and verifying the reliability of the electronic transfer into the trust account. The comments to Rule 1.15 were updated to caution lawyers about things like charge-backs or delays with online payments.
Practical tip: If you allow clients to pay retainers by credit card or ACH into the trust account, make sure you’re using a payment solution that is set up for legal trust accounts. Many legal-specific payment services (like LawPay, etc.) have options to direct the gross amount to trust and the fees to a separate operating account. You as the lawyer should not let the bank or processor deduct their fee from the client funds in trust, because that would mean you’re effectively charging the client to receive their money – which can violate the duty to keep the full amount for the client. Stay on top of payment vendor policies and always reconcile deposits net vs gross.
No Cash or ATM Withdrawals (Codified)
As mentioned in best practices, the 2023 rule change added Rule 1.15(g) which flat-out bans cash withdrawals and ATM use on trust accounts. While prudent lawyers never did this anyway, now it’s an explicit rule. This was likely in response to a few disciplinary cases where lawyers had ATM withdrawals from trust or wrote checks to cash, making it hard to trace funds. Illinois drew a bright line: don’t do it. Use check or electronic transfers that leave an audit trail.
Explicit Definition of Conversion
The new Rule 1.15 comment [1] states that if a lawyer knowingly uses client funds for their own purposes without authority, it is conversion. This might seem obvious, but the clarification in the rule’s commentary is there to underline how serious such conduct is. Conversion of client or third-party funds often results in harsh discipline (disbarment is not uncommon for intentional misappropriation). The ARDC wanted no ambiguity that “mistakes” aside, actually taking clients’ money is theft. So, while this isn’t a change in what’s allowed (it was never allowed!), it’s a change in emphasizing the point.
In summary, the recent changes mostly reinforce best practices: require clarity with fee arrangements, ensure all advances are handled correctly (most in trust), modernize rules for electronic payments, and remove any loopholes (like cutting out non-refundable fee claims and cash withdrawals).
For Illinois practitioners, the takeaway is to review your engagement letters and trust procedures to make sure they align with the 2023 rule revisions. For instance, if your old fee contract said “non-refundable retainer,” update that language immediately. If you haven’t already, separate any credit card fees from your trust deposits. And distribute the news to your team so everyone is on the same page. The ARDC and bar associations provided education around these updates, but it’s ultimately on each lawyer to comply.
(For more detail on the 2023 rule changes, see the Illinois Lawyers Trust Fund resource explaining the rule breakdown, or the ARDC’s summary “What Illinois Lawyers Should Know: Changes to RPC 1.5 and 1.15”.)
Stay Compliant and Confident
Trust accounting in Illinois might seem daunting to beginners, but with knowledge and the right tools, it becomes a routine part of your practice. To recap, always remember the fundamental principles: keep client money separate, keep detailed records, and be proactive in managing those funds. Illinois provides clear rules – from using IOLTA for small client funds, to reconciling your accounts, to avoiding even the appearance of impropriety with client money. By following the guidelines and best practices outlined above, you can ensure compliance and build trust with your clients and regulators alike.
Illinois law firms have a wealth of resources at their disposal for trust accounting guidance. The ARDC’s publications and the Lawyers Trust Fund website are go-to references for any specific questions. Don’t hesitate to consult these if you’re unsure about something – for example, if you’re uncertain whether a particular fund should go into IOLTA or a separate account, check the rules or ask the LTF or ARDC for guidance. It’s always better to ask upfront than to fix a mistake later.
Also, consider leveraging technology and services that make trust compliance easier. Modern practice management and accounting software (like LeanLaw’s trust accounting suite) can enforce many compliance measures automatically and save you from manual errors. These tools can track every client dollar, generate reports for audits, and even integrate with billing so that trust withdrawals match invoices precisely. Many Illinois firms have found that using such software not only keeps them compliant but also saves time and reduces stress when that annual registration or random audit comes around.
Finally, make trust accounting a priority in your firm’s culture. It’s not just “bookkeeping”; it’s a reflection of your professionalism and integrity. When clients hand you their money to hold, they are placing trust in you – hence the term “trust account.” By managing their funds correctly, you honor that trust. And by complying with Illinois’ IOLTA and trust accounting rules, you uphold the honor of the legal profession.
With this beginner’s guide, you should feel more confident in tackling IOLTA and trust accounting for your Illinois law firm. Keep it handy as a reference, and share it with your team. As long as you stay informed and diligent, you can navigate these requirements successfully. Here’s to responsible trust accounting and a thriving, compliant practice!
(Need more tips on mastering law firm accounting? Check out our other LeanLaw resources, and feel free to reach out for a demo of how LeanLaw can help simplify trust accounting for your firm.)
