Law Firm Trust Accounting and Conflicts Checklist: A Practical Checklist

Summary. This checklist covers the two systems that generate the most discipline and malpractice exposure in law practice: client trust accounting and conflicts of interest. It supplies the monthly trust routine including the three-way reconciliation, the prohibitions that produce most shortages, the setup requirements, and the response to a shortage. It then covers the conflicts system from intake screening through imputation on a lateral hire, the informed consent that resolves most conflicts, and the letters that document the relationship.

What this checklist is for. Running the two systems that produce most disciplinary matters. For the rules, see Legal Ethics in Practice. For the broader operations, see Running an Ethical and Profitable Law Practice.

A note on authority. These items track the ABA Model Rules. Your state's rules control, and they differ materially — especially on screening for imputed conflicts, on whether a flat fee may be deposited to operating, and on trust record retention. Verify each item against your jurisdiction.

Phase 1 — Trust account setup

IOLTA / client trust account opened at an institution approved by the jurisdiction, styled exactly as the rules require.
Overdraft notification to the disciplinary agency enabled, as most jurisdictions require.
Separate interest-bearing accounts established for funds large enough or held long enough to earn net interest for a specific client.
Operating account entirely separate.
Payment processor configured so processing fees debit operating, never trust.
Only the amount the rules permit for bank charges is the lawyer's own money in trust.
Client ledger system in place — one ledger per client per matter.
Trust journal (receipts and disbursements) in place.
Signature authority defined; dual authorization for outgoing wires.
Monthly reconciliation date fixed on the calendar, recurring.
Record retention period confirmed against the rule (commonly five to seven years).

Phase 2 — The monthly trust routine

Run on the same date every month, without exception.

Reconcile the bank statement to the trust journal.
Reconcile the trust journal to the sum of all client ledgers.
Confirm all three agree — the three-way reconciliation.
Confirm no client ledger is negative. Ever. Not for a day.
Confirm earned fees have been withdrawn promptly.
Confirm no unearned funds are sitting in operating.
Review stale balances and identify funds subject to escheat.
Review outstanding checks and follow up on any not presented.
Sign and date the reconciliation, and retain it.
Confirm any disputed funds remain in trust.

Phase 3 — The prohibitions that prevent shortages

Never disburse against an uncollected deposit. Wait for actual collection, not availability. This is the leading cause of inadvertent shortages.
Never pay an operating or personal expense from trust, even temporarily.
Never move funds between client ledgers.
Never deposit an advance fee into operating where the jurisdiction treats it as client funds.
Never disburse settlement funds before resolving identified liens and third-party claims.
Never leave earned fees in trust beyond a prompt withdrawal.
Never disburse to a client funds a third party has a matured claim to without resolving it.
Document every transaction with the client, matter, and purpose.

Phase 4 — If a shortage occurs

Fund it immediately from personal or firm funds; document the amount, source, and date.
Reconstruct: when it arose, which client ledger, and what caused it.
Self-report where the jurisdiction requires it.
Notify the malpractice carrier if a client was affected.
Fix the system — the reconciliation, the uncollected-funds rule, the ledgers.
Consider a call to the ethics hotline; prompt correction and disclosure are treated very differently from concealment.
Never alter records.

Phase 5 — Wire fraud controls

Never accept or act on wire instructions received by email without independent verbal verification.
Verify by calling a number obtained from a source other than the email.
Document the verification: who was called, at what number, on what date, and what was confirmed.
Warn clients about wire fraud in the engagement letter and again before any transfer.
Require dual authorization for outgoing wires.
Confirm receipt with the recipient after sending.
Confirm the firm's cyber and crime coverage addresses social engineering and funds transfer fraud — many policies exclude it.

Phase 6 — The conflicts system

Conflicts database exists and is searchable, containing: every client; every adverse party; every related entity, subsidiary, affiliate, and principal; every prospective client consulted; every party in every matter; matter type and dates.
Check runs before any substantive conversation, including with a prospective client — Rule 1.18 protects information from a consultation and can create a disqualification.
Intake script begins with names, not facts.
Website contact form warns that no relationship is created and that confidential information should not be sent.
Check runs again whenever a new party, entity, or affiliate appears in a matter.
Database updated at intake, at party addition, and at matter close.

Phase 7 — Conflicts analysis

Current clients (Rule 1.7):

Is the representation directly adverse to another current client?
Is there a significant risk the representation will be materially limited by duties to another client, a former client, a third person, or the lawyer's own interests?
If a conflict exists: can the lawyer reasonably believe competent and diligent representation can be provided to each?
Is the representation prohibited by law?
Does it involve asserting a claim by one client against another in the same litigation? (Not waivable.)
Informed consent, confirmed in writing, from each affected client.

Former clients (Rule 1.9):

Same or substantially related matter?
Materially adverse interests?
Would confidential information from the prior representation materially advance the new client's position?
Informed consent confirmed in writing, if proceeding.

Imputation (Rule 1.10):

Is any lawyer in the firm conflicted?
Does the jurisdiction permit screening for a lateral hire? (This varies sharply.)
If screening: timely implemented, no fee apportionment to the screened lawyer, written notice to the affected former client, and periodic certification.
Run an onboarding conflicts check for every lateral lawyer and staff member.

Specific situations (Rule 1.8):

Business transaction with a client — fair terms, written disclosure in understandable language, written advice to seek independent counsel, written informed consent to the terms and the lawyer's role.
Third-party payment — client informed consent, no interference with independence, confidentiality preserved.
Aggregate settlement — informed consent in a writing signed by each client, after disclosure of all claims and each person's participation. See Practicing in an MDL.
No prospective limitation of malpractice liability unless the client is independently represented.
No financial assistance to a litigation client beyond permitted costs and expenses.

Entity clients (Rule 1.13):

Engagement letter states the firm represents the entity, not its constituents individually.
Constituents given the "corporate Miranda" explanation when interests diverge.
Reporting-up obligations understood.

Phase 8 — Engagement documentation

Engagement letter, every matter:

Client identified precisely; for an entity, constituents expressly excluded
Scope stated affirmatively and by exclusion
Fee structure, rate or percentage, and any change by stage
Costs by category, and whether deducted before or after a contingent fee
Retainer characterized — advance held in trust, or earned on receipt where permitted
Billing frequency and payment terms
Communication expectations
Termination, withdrawal, unearned fees, and the file
File retention and destruction period
Wire fraud warning
Dispute resolution, including any fee arbitration program
Signature and date — required in writing for contingent fees

Non-engagement letter, every declined matter:

States plainly that the firm is not representing the person
States that no opinion on the merits has been given
Warns that a limitations period may apply and may be short
Advises prompt consultation with other counsel
Returns any documents provided

Closing letter, every completed matter:

Matter concluded; what was and was not done
Any deadlines the client must observe going forward
No further representation absent a new engagement
Return of client property and papers
Refund of any unearned fee and a final trust accounting
File archived with a destruction date calendared

Phase 9 — Docketing and neglect prevention

Every deadline entered by the person who learns of it and confirmed by a second person or system.
Two reminders minimum per deadline; three for jurisdictional deadlines.
Every limitations period entered at intake, for every potential claim.
File review cadence — monthly for active litigation, quarterly for dormant matters — with a written next action and date.
Calls returned within one business day, even with no news.
Status updates at defined intervals in long matters, in writing.
Significant decisions confirmed in writing.
Open matters per lawyer tracked — the best single predictor of a neglect complaint.

Phase 10 — Technology, supervision, and succession

Multi-factor authentication on email, practice management, cloud storage, and banking.
Full-disk encryption; encrypted backups; password manager.
Vendor terms reviewed for data ownership, retention, breach notification, and access.
Incident response plan, including client notification obligations.
Generative AI policy: approved tools, prohibited uses, confidentiality screen, and a mandatory rule that no citation or factual assertion reaches a client or a court without independent verification. See Hallucinated Citations, Rule 11, and Generative AI in Legal Filings.
Supervision under Rules 5.1 and 5.3: written policies, documented training, defined review points, and a route for raising concerns.
Malpractice coverage bound, with the retroactive date confirmed and notice-of-circumstances obligations understood.
Succession plan: a named, currently practicing successor lawyer; documented access to the client list, calendar, trust account, and credentials; instructions for client notice and file transfer; reviewed annually.