If you run a law firm in New Jersey, your trust account is where small bookkeeping mistakes turn into ethics problems. The state has some of the strictest attorney trust-accounting rules in the country. They are set by the New Jersey Supreme Court, and they are enforced by random audit.
This guide explains what those rules require and how to keep books that pass. It is written from the accounting side. The rules themselves come from Court Rule 1:21-6, RPC 1.15, and the IOLTA program under Court Rule 1:28A. Every point below is sourced to the NJ Court Rules or the IOLTA Fund of the Bar of New Jersey, current as of June 29, 2026.
Key takeaways:
- NJ lawyers in private practice must keep two accounts: an attorney trust account and a separate business account.
- Client money is held in trust. It can never be mixed with the firm’s own funds.
- You must run a three-way reconciliation every month — book, bank, and client ledgers must all match.
- Trust records must be kept for seven years.
- The Office of Attorney Ethics audits firms at random, and a missing reconciliation is a top finding.
What is an attorney trust account in NJ?
An attorney trust account holds money that belongs to clients or third parties. Retainers, settlement funds, and escrow all go there. It is not the firm’s money, so it stays separate.
New Jersey requires at least two accounts under Court Rule 1:21-6:
- An attorney trust account, held at a New Jersey bank approved by the Supreme Court.
- An attorney business account for the firm’s own operating funds.
Lawyers who hold client funds must also register with the IOLTA Fund of the Bar of New Jersey. Participation has been mandatory since 1993 under Court Rule 1:28A (IOLTA Fund of the Bar of New Jersey).
No commingling — RPC 1.15
The core rule is simple to state and easy to break. Under RPC 1.15 (Safekeeping Property), client funds must be held separate from the lawyer’s own property. Mixing the two is called commingling, and it is a violation even if no client loses a dollar (IOLTA Fund of the Bar of New Jersey, Court Rules).
Common ways firms slip:
- Leaving earned fees in the trust account after the work is billed.
- Paying a firm expense straight from the trust account.
- Depositing a client retainer into the business account by mistake.
The fix is a clean system. Earned fees move to the business account promptly. Client funds never pay firm bills.
The records Rule 1:21-6 actually requires
Rule 1:21-6 spells out the books you must keep. They must follow generally accepted accounting practice and be retained for seven years:
- A receipts and disbursements journal for the trust account.
- A separate ledger for each client, showing that client’s running balance.
- Records for the business account as well.
- Monthly bank statements and the reconciliations you perform.
The separate client ledger is the part firms forget. Every client’s money has to be tracked on its own. The trust account is never allowed to “borrow” one client’s funds to cover another.
The monthly three-way reconciliation
This is the single most important habit, and the most common audit finding when it is missing. Rule 1:21-6 requires that your records be reconciled with each other at least once a month.
A three-way reconciliation checks that three numbers agree:
- The book balance — your trust checkbook or accounting software.
- The bank balance — the trust account statement.
- The total of all client ledgers — every client’s balance added up.
When all three match, the account is in balance. When they do not, something is wrong — a posting error, an uncleared item, or a shortage. You find it in the same month, not a year later in an audit.
Where IOLTA interest goes
On a pooled trust account, the interest does not belong to the lawyer or the client. It goes to the IOLTA Fund of the Bar of New Jersey, which uses it to fund legal aid. The IRS does not treat that interest as taxable income to the attorney or the client (IOLTA Fund FAQ).
This is why the bookkeeping matters but the tax treatment is simple. You are not reporting trust interest as firm income. You are accounting for client funds you hold in trust.
IOLTA vs. a separate trust account: which one?
Not every client deposit belongs in the pooled IOLTA account. New Jersey asks the lawyer to use professional judgment (IOLTA Fund FAQ):
- Pooled IOLTA account. Use it for funds that are nominal or held only a short time. The rule of thumb: if less than about $150 in interest is expected, the cost of running a separate account would exceed the interest earned.
- Separate interest-bearing account. Use it when a client’s funds are large enough, or held long enough, to earn meaningful net interest. That interest belongs to the client, and the account uses the client’s own tax ID.
The $150 figure is a guide, not a hard line. The idea is simple: small, short-term money is pooled, and large, long-held money should earn interest for the client. Either way, each client’s balance still gets its own ledger and its own line in the monthly reconciliation.
The OAE random audit
The New Jersey Office of Attorney Ethics runs a Random Audit Program. It selects firms and reviews their trust and business records against Rule 1:21-6. You do not have to do anything wrong to be picked.
The findings that come up most often are bookkeeping failures, not theft:
- No monthly three-way reconciliation on file.
- No separate ledger for each client.
- Old, uncleared balances sitting in the account.
- Commingled funds.
Firms that reconcile every month and keep clean ledgers tend to clear an audit quickly.
How a CPA supports law-firm trust accounting
The accounting side and the ethics side work together. A CPA or qualified bookkeeper builds and runs the books; ethics counsel and the Office of Attorney Ethics handle the disciplinary rules. Law firms in this situation often use outside help to:
- Set up the trust ledgers and a clean chart of accounts.
- Post receipts and disbursements and keep each client ledger current.
- Run the monthly three-way reconciliation and flag any mismatch.
- Keep the seven-year records organized and audit-ready.
ProAxis provides bookkeeping for professional-services firms, monthly law-firm bookkeeping, and payroll setup and filings across NJ, NY, and PA. For growing firms weighing entity structure and partner pay, our fractional CFO support models the numbers. We keep the books that the rules require and coordinate with your ethics counsel on the rules themselves.
NJ attorney trust account FAQ
What bank accounts must a New Jersey law firm keep?
At least two. New Jersey attorneys in private practice must keep an attorney trust account and a separate attorney business account under Court Rule 1:21-6. The trust account must be held at a New Jersey financial institution approved by the Supreme Court, and lawyers who hold client funds must register with the IOLTA Fund of the Bar of New Jersey.
What is a three-way reconciliation for an attorney trust account?
It is a monthly check that three numbers match: the trust account checkbook (book) balance, the bank statement balance, and the total of every individual client ledger balance. All three must agree at least once a month under Rule 1:21-6. A mismatch usually means a posting error or a shortage that needs to be fixed right away.
How long must NJ attorneys keep trust account records?
Seven years. Rule 1:21-6 requires attorneys to keep the trust and business account records — journals, client ledgers, bank statements, and reconciliations — for seven years and to maintain them in accordance with generally accepted accounting practice.
Can a lawyer keep the interest earned on a client trust account?
No. Under the IOLTA program (Court Rule 1:28A), interest on pooled client trust funds goes to the IOLTA Fund of the Bar of New Jersey, not to the lawyer or the client. The IRS does not treat IOLTA interest as taxable income to either the attorney or the client.
What happens in an OAE random audit?
The Office of Attorney Ethics runs a Random Audit Program that selects NJ law practices and reviews their trust and business account records for compliance with Rule 1:21-6. Common findings include a missing monthly three-way reconciliation, no separate ledger per client, commingled funds, and stale balances. Clean monthly bookkeeping is the best preparation.
Does a CPA or a bookkeeper handle attorney trust accounting?
A CPA or qualified bookkeeper handles the books — setting up the trust ledgers, posting receipts and disbursements, and running the monthly three-way reconciliation. The ethics rules themselves are set by the New Jersey Supreme Court, and disciplinary questions belong with ethics counsel or the Office of Attorney Ethics. The accounting and the ethics review work together.
This article is general information for New Jersey law firms. It is not legal, tax, or accounting advice, and it does not create a CPA-client relationship. Attorney trust-accounting and ethics rules are set and enforced by the New Jersey Supreme Court and the Office of Attorney Ethics — direct compliance and disciplinary questions to ethics counsel. Rules are current as of June 29, 2026 and are sourced to the NJ Court Rules and the IOLTA Fund of the Bar of New Jersey. Confirm your specifics with a licensed professional before you act.