Client Fund Protection
Controls for preserving ownership, availability, authorization, and traceability of client money.
Ask the IOLTA Assistant
Trust-accounting and IOLTA questions, answered only from official sources with citations. Not legal advice.
Definition
Client fund protection means the firm can identify the owner, amount, purpose, source, and authorized destination of every trust dollar.
Typical Scope
- Deposits received for a client or third party.
- Funds subject to a dispute or unresolved entitlement.
- Transfers between trust, operating, and third-party accounts.
- Corrections, reversals, or returned payments.
Operational Rules
- Verify availability
- Do not disburse against uncollected funds unless the jurisdiction permits it and the risk is documented.
- Resolve disputes before release
- Disputed funds normally remain in trust until the dispute is resolved or the rules permit another handling.
- Use client-level authorization
- Each disbursement should map to a client instruction, invoice, settlement statement, court order, or other authority.
- Monitor negative ledgers
- A client ledger should not go negative. Negative balances indicate disbursement, posting, or allocation problems.
Examples
A client disputes the firm fee after settlement funds arrive.
Keep the disputed amount in trust and disburse only the undisputed amounts as permitted.
A bank deposit appears in online banking but has not cleared.
Treat availability conservatively until cleared or otherwise verified under firm policy.
Review Checklist
Confirm collected funds before release.
Check the client ledger balance before every withdrawal.
Attach disbursement authority to the transaction.
Escalate negative balances and unexplained credits immediately.
FAQ
What does client fund protection require?
The firm should be able to identify who owns each trust dollar, why it is held, whether it is available, and what authority supports any disbursement.
What should happen to disputed funds?
Disputed funds are commonly kept in trust until the dispute is resolved or the applicable rule permits another treatment.
Can I use overdraft protection, an ATM/debit card, or wire transfers on a trust account?
Trust accounts are kept deliberately simple and protected. Many jurisdictions restrict overdraft protection and ATM/debit access and require care around electronic transfers, because the account must never be overdrawn or run like an operating account. Check your state’s rules before enabling any of these.
I think there is a fraudulent or unauthorized transaction on my trust account — what do I do?
Act immediately: contact the bank, secure the account, reconstruct events from your ledgers and reconciliations, and follow your jurisdiction’s reporting obligations. Strong records let you identify and correct the problem quickly.
I am holding client funds but cannot locate the client — what happens to the money?
You cannot simply keep it. After documented, diligent efforts to find the client, unclaimed client funds are generally handled through your state’s unclaimed-property process or a client-protection fund. Follow your jurisdiction’s specific procedure.