22 Oct

Proper IOLTA Account Management for Personal Injury Attorneys

Estate Planning, October 22, 2025

Managing an IOLTA (Interest on Lawyers’ Trust Accounts) correctly is essential for any attorney, but it’s especially critical for personal injury lawyers handling settlements. Mismanaging these funds can lead to serious ethical and legal issues, so it’s important to understand the proper flow of money.

Here’s a clear explanation based on a recent client case we encountered.

Understanding the Proper Flow of Settlement Funds

We recently started working with a personal injury attorney who was unknowingly moving money from their trust account to their business account before distributing it to the client. This is a common mistake, but it’s not how funds should flow.

Here’s the correct process:

  1. Funds go into the trust account first
    All settlement proceeds should be deposited directly into the IOLTA or trust account. This ensures the client’s funds are properly segregated.

  2. Calculate fees and reimbursements
    Determine your attorney fee, any medical expense reimbursements, and any other costs that need to be deducted.

  3. Distribute funds appropriately

    • Your fee should be transferred to your business account only after it has been properly calculated.

    • The remaining funds should be disbursed directly from the trust account to the client, medical providers, or other parties as required.

At no point should the client’s funds pass through your business account. Doing so risks ethical violations and can create significant accounting headaches.

Key Takeaways for Law Firm Bookkeeping

  • Always maintain strict separation between trust account funds and business account funds.

  • Process settlements in the correct order: deposit → calculate → distribute.

  • Regularly review your IOLTA practices to ensure compliance and avoid costly mistakes.

Conclusion

Proper IOLTA account management isn’t just bookkeeping — it’s a professional responsibility. By following the correct flow of settlement funds, you protect your clients, your firm, and your license. For personal injury attorneys, this is non-negotiable.

Stay diligent, stay ethical, and let your trust account work for you — not create problems.