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Setting Up Trust Accounting in LeanLaw

How to set up trust accounting in LeanLaw — including QuickBooks account configuration, trust payee setup, operating account connection, client vs. matter accounting, and opening balances for migrating firms.

Trust accounting in LeanLaw automates the complex bookkeeping that IOLTA compliance requires — syncing directly with QuickBooks Online to create all necessary journal entries when you deposit, disburse, or apply trust funds. This guide walks through the complete setup process.

⚠️ Do this before billing: Trust accounting setup should be completed before you begin billing clients whose funds are held in trust. Setting up trust mid-cycle can require manual QuickBooks Online adjustments to reconcile existing balances.

 

Part 1: Prepare QuickBooks Online

Before configuring trust accounting in LeanLaw, verify that your QuickBooks Online account has the correct accounts set up:

 

Operating Bank Account

Your operating (checking) account must be set up in QuickBooks Online as Type: Bank, Detail: Checking. This is the account where trust payments are disbursed when paying invoices from trust. LeanLaw auto-populates this during setup.

 

Trust / IOLTA Bank Account

Your trust account must be set up in QuickBooks Online with specific detail settings:

  • Account Type: Bank
  • Detail Type: Trust Account — NOT Checking, even if it is a checking account

⚠️ Critical: LeanLaw maps to the Trust Account detail type specifically. If your IOLTA account is set up as a Checking account, change it: click the dropdown arrow to the right of the account row in QuickBooks Online Chart of Accounts → Edit → change the Detail Type to Trust Account.

 

Trust Liability Account

A 'Funds Held in Trust' liability account is required to track how much you owe each client from their trust balance. LeanLaw will create this automatically during setup if it doesn't already exist. If you already have a liability account:

  • Account Type: Other Current Liabilities
  • Detail Type: Trust Accounts Liabilities

📋 Best practice: Use a separate liability sub-account for each client (or matter, if using matter accounting). This ensures accurate per-client trust balance tracking and avoids the complications that arise from shared liability accounts.

 

Part 2: Configure Trust Settings in LeanLaw

  1. Click the gear icon ⚙️ and go to Settings.
  2. In the left-hand menu, find Trust Accounting under Firm Setup.
  3. Your Operating Account should auto-populate from your QuickBooks Online connection. Verify it is the correct account.
  4. Under Trust Payee Vendor, click Create Vendor and select your firm's name. This sets your firm as the payee when funds move from trust to your operating account.
  5. Click Add Trust Account. LeanLaw will recognize your QuickBooks Online trust account automatically and connect it. A green dot confirms the connection.
  6. LeanLaw will connect to (or create) the trust liability account. Confirm or select the correct account.
  7. Review and customize the default Trust Memo text if needed (see callout below).
  8. Click Save Changes.

📋 Trust memo: The default trust memo appears on invoice memos when trust is applied. If you use LeanLaw's invoice PDF or email account summaries, clear the trust memo text to avoid duplication — LeanLaw's summaries are based on actual payments and are more accurate than the projected trust memo.

 

⚠️ Trust Payee error: If you see 'Failed to create trust payee called [firm name],' your firm's name is already used by a customer or employee in QuickBooks. Rename that QuickBooks Online contact's display name to something else, then return to LeanLaw and complete the trust payee setup.

 

Part 3: Client Accounting vs. Matter Accounting

Before enabling trust accounting for individual clients, decide whether your firm uses Client Accounting or Matter Accounting. This choice affects how trust balances are tracked in QuickBooks.

Accounting Type

How Trust Works

Client Accounting (default)

Trust funds are tracked at the client level. One trust liability sub-account per client covers all their matters. Simpler setup, less clutter in QuickBooks Online. Best for firms where clients typically have one active matter at a time.

Matter Accounting

Trust funds are tracked at the matter level. A separate trust liability sub-account is created for each matter. More granular but more complex. Best for firms where clients have multiple simultaneous matters with separate trust pools.

 

💡 Tip: Client Accounting is simpler and the default for most firms. Choose Matter Accounting only if your clients regularly have multiple matters with separate trust balances that must be kept distinct. Changing between the two after trust transactions exist requires manual QuickBooks Online cleanup.

 

To set the default accounting type: Settings → QuickBooks → change the accounting type. You can also override per-client in the client's record.

 

Part 4: Enabling Trust for a Specific Client or Matter

After firm-level setup, enable trust accounting for each client or matter that will hold trust funds:

  1. Open the matter from the Matters tab.
  2. Go to the QuickBooks tab within the matter.
  3. Click Setup Trust Accounting.
  4. In the modal, verify the client and matter, then select or create the liability account.
  5. If the client already has a trust balance in QuickBooks Online (e.g., from before LeanLaw was set up), enter the Opening Balance — the funds already deposited in the trust bank account. 
  6. Click Save.

⚠️ Opening balance: Only enter an opening balance if the funds are already in your trust bank account and accounted for in QBO. Do not use opening balance as a substitute for recording a deposit — use the deposit workflow instead.

 

Troubleshooting: Trust Liability Disconnected

If you see a 'Fix Trust Accounting' button on a matter's QuickBooks tab (instead of the normal trust section), the trust liability account has become disconnected — typically because the account was renamed, reassigned, or archived in QuickBooks Online.

  1. Open the matter → QuickBooks tab.
  2. Click Fix Trust Account.
  3. Select the correct client and matter from the dropdowns to reconnect the liability account.
  4. Click Save Changes and refresh.