I hope you are working with more than one client for your firm’s sake. Well, to run a successful practice it is necessary to work with more than one client but when it comes to trust accounting it creates confusion.
To satisfy your legal and business requirement on the behalf of your clients you need a solution. I have already told you about Trust Accounts in detail. But again, let have a little idea about the trust accounts.
What are Trust accounts?
Trust accounts are established to hold the fund for another entity or an individual on the behalf of someone. The person who manages the trust account is called trustee. For setting a trust account one should consult a lawyer or financial advisor to get right information according to their specific situation.
Reasons to set up a Trust account
If a grantor realizes that beneficiary of the trust is not able to deal with the treasuries independently. A simple example is that parents set up such trust for their child which deposit money for the financial security of the children until they reach a certain age limit. In the case of death of one or both parent, the children will have access to their funds secured in the trust account.
Some types of trust give you a tax advantage. For e.g. the trustee relinquishes the right to the funds then he can avail a tax break. But one must consult a tax professional before taking any such step as the specification of the tax can get very complicated to the trust accounts. It is also necessary to ensure that tax professional has an experience of dealing with trusts accounts represented on tax filling.
Client Trust Funds
Not any fund can be deposited to the client’s trust funds. It is very important to ensure that deposit into the client trust funds is limited to few selected funds. Funds associated with real estate, personal injury, judgment and settlements, and unearned retainer can go to the client’s trust. Funds that attorneys try to deposit in trust fund mistakenly include earned income, personal capital and payroll funds.
Maintaining multiple Clients’ Fund
Usually, a single trust account held by the firm keeps the funds from multiple clients. To maintain all of these funds in a single account you must know each client’s balance and should be able to create a client transaction report which demonstrates all the activities associated with client’s fund.
Try to maintain your client’s balance in positive figures as you cannot utilize another client’s balance to cover the funds of the client who has reached a negative balance. If it happens then you have to use personal funds to cover a negative balance and it would result in forfeits of your firm during an audit.
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