Trust Fund Accounting in Core

A trust fund is a legal entity that holds assets like money, property, stock, etc. on behalf of another person or organization. It allows you to keep your assets in a trust fund that is managed by a third party called trustee. 

In some situations, law professionals hold money in trust funds for their beneficiary clients. The legal industry (including attorneys, paralegals, etc.) typically use interest-bearing trust fund accounts to hold the client retainers or settlements on the client's behalf. So the legal industry has an obligation to follow well-laid out conventions to manage the clients' trust funds. These funds are separate from their firm's own funds (called operative banks accounts) as they belong to their clients and they are only holding them in 'trust' as a fiduciary. This means that attorneys can only spend the funds in a manner that conforms with the laws and regulations. So attorneys who receive the trust funds must place them in a trust fund account that can be a separate bank or deposit account (Bank IOLTA) in which the money is owned by your client, managed by your company and can be used to pay off your client's liability. A Bank IOLTA account is a checking account that earns interest on the funds in the account. The interest is given to the state's IOLTA board because attorneys cannot keep the interest earned on the client's money.  Some trust fund accounts are created under the company's Tax ID while some are under the client’s Tax ID. Interest accrued on those with company's Tax ID is paid to the state. 

To handle trust funds in Core:

  1. Start by enabling the Trust Fund Accounting option in the Global Settings > Accounting panel. It is automatically turned on for the legal industry.
  2. In the Chart of Accounts screen, add a new account of type Bank (IOLTA), also called Trust Fund account. This account has another account linked with it, called Trust Fund Liability account, which can be any Other Current Liability account. Check the Core Help for more on that.

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  3. The trust fund account can then be assigned to the client's project (matter). On the Projects > General > Billing Options screen, set the default account for Trust Fund transactions at the project level. 

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  4. You cannot specify an opening balance for the Trust Fund account, that is Bank (IOLTA), through the Chart of Accounts screen because all its transaction should be linked to a project. So you can enter the opening balance for this account from the Payments screen by recording a payment as 'Accept as Trust Fund'. Check the Core Help for more on this.

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  5. Here, you can also specify the project and deposit account associated with the trust funds. Behind the scenes, the Bank (IOLTA) account and Trust Fund Liability account linked to it get posted.
  6. Now you can use these trust funds to pay the client invoices. For that, you can set the Payment Method as 'Use Trust Fund' in the Add Payment screen. It affects the balance of the Bank (IOLTA) account in order to pay the invoices. Check the Core Help for more on that.
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