What is an IOLTA Account & 5 Mistakes to Avoid Bench Accounting

iolta bank account

The IOLTA comparability rule only requires a financial institution to pay its own IOLTA customers the highest interest rate generally paid to its own non-IOLTA customers with comparable accounts. It does not require a bank to pay rates other than that which the bank itself has established. Rules of Professional Conduct mandates that all lawyers with a trust account must file a written directive with their bank requiring the bank to report any non-sufficient funds transactions. If you have an IOLTA account, please confirm with your bank that you have a directive filed. If the Office of Disciplinary Counsel discovers an overdraft that was not reported by the bank, the lawyer may be disciplined for both the Rule violation that caused the overdraft and the failure to file a directive with the bank.

“Interest on Lawyers’ Trust Accounts,” or IOLTA, is a program mandated by the Supreme Judicial Court. It requires lawyers and law firms to establish interest-bearing accounts for client deposits which are nominal in amount or expected to be short-term. First approved as a voluntary program in 1985, the SJC adopted a comprehensive IOLTA program in 1989 requiring all eligible lawyers to participate. Let’s imagine that your law firm has agreed to provide legal services to Doris, a local orthodontist, representing her in a lawsuit.


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Earn Interest to Help Those in Need Cover Legal Fees

Doris sends you a $5,000 check to cover your retainer fee, which you deposit into Doris’ client trust account. There should be no change to the rate paid on IOLTA accounts until the Federal Funds target rate exceeds 1.00%. If and when that time comes, the benchmark rate would be greater than 0.65%. The SCBF will notify financial institutions and the information would be posted to the SCBF website. The rule says the benchmark is 0.65% or 65% of the Federal Funds rate, whichever is greater.

  • In addition, the lawyer could not earn interest on the account because it is unethical for attorneys to derive any financial benefit from funds that belong to their clients.
  • Funds of a substantial amount or that are to be held for long periods of time should be invested in an interest-bearing medium for the individual client’s benefit in an account established specifically for that client.
  • An account designed to meet the everyday banking needs of small businesses with moderate transaction activity.
  • Look for legal practice management or accounting software that helps you automate and stay on top of IOLTA recordkeeping.
  • Proper management of a lawyer’s IOLTA (also commonly referred to as a “trust account”) is highly regulated by each respective state bar.

Attorneys routinely receive client funds (commonly referred to as “trust money”) to be held in trust for future use. If the amount is large or the funds are to be held for a long period of time, the attorney customarily places these funds in an interest-bearing account for the benefit of the client.

Canadian practices

Nearly all New Mexico financial institutions are cooperating partners in the IOLTA program. However, if an attorney wishes to establish an IOLTA account at a nonparticipating institution, the State Bar would be happy to provide assistance to both the attorney and the bank. You may learn more about the IOLTA Program by visiting or e-mailing Attorneys routinely receive client funds to be held in trust for future use. Funds of a substantial amount or which are to be held for a long period of time are usually placed in an interest-bearing account for the individual client’s benefit. If funds are small in amount or to be held for a short period of time, they are usually pooled in a noninterest-bearing checking account. This is done because the interest generated by these funds, after bank charges and administrative fees, would not be enough to benefit the individual client.

Financial institutions should review their entire portfolio of products to make sure there are no other comparable products, including tiered or preferred rate product for which IOLTA accounts would qualify. If your institution only offers a NOW account, then you will simply need to certify this fact to the SCBF to be in compliance with the Rule. Lawyers must notify NC IOLTA when opening IOLTA accounts; however, lawyers do not need authorization from NC IOLTA prior to opening an IOLTA account. Notification can be made electronically through the North Carolina State Bar Member Portal or by submitting the NC IOLTA Information Update Form. Changes in employment or contact information should also be reported. You can’t, for example, pay for your firm’s operating expenses directly out of an IOLTA account.

Nevada Supports Community Reinvestment Act (CRA) Credit for IOLTA

Lawyers and law firms are responsible for complying with any of their institution’s minimum balance and fee requirements. Please contact the IOLTA Committee for a list of financial institutions in your area that waive service fees. All interest record-keeping is done by the financial institution. The lawyer or law firm receives a periodic report from the financial institution summarizing the amount of interest generated and paid to the charity. Through IOLTA, attorneys and firms may pool otherwise unproductive client funds in interest bearing accounts. Only those funds that are either nominal in amount or held for a relatively short period of time (making investment on the client’s behalf impractical) are eligible to earn interest for the IOLTA program. That interest is then paid to the State Bar of New Mexico, the administrator of IOLTA, for distribution to programs that provide legal services to poor people, public law-related education or improvements in the administration of justice.

After an account is opened or service begins, it is subject to its features, conditions and terms, which are subject to change at any time in accordance with applicable laws and agreements. M&T is developing Nota, a digital tool that allows attorneys to easily organize & reconcile client funds in real-time. Since IOLTA’s inception, a number of court cases have arisen in which parties argued that IOLTA programs violated the Fifth Amendment by resulting in an unconstitutional taking. https://quickbooks-payroll.org/ Your state bar foundation requires you to be able to show how much money each client has in their account at any given point in time. The funds deposited in your client’s accounts don’t belong to you—in fact, they are funds you owe your clients. Recording them as anything but that could land you in hot water with regulators and mess up your taxes. You can’t pay operating expenses directly from your IOLTA account, even if you have already earned the money you are using.

An Easier Way to Manage Your IOLAs & IOLTAs

All net yield equivalent rates must be approved by SCBF in advance. Interest On Lawyers Trust Accounts 1 are limited to attorneys and law firms that maintain escrow funds for multiple clients. An IOLTA Checking Account pools the funds into a single, interest bearing account. Interest earned, less any permitted service fees, is forwarded by BankFinancial to the Lawyers Trust Fund of Illinois to fund legal expenses for those who are unable to afford legal services, and other justice related projects of the board. In the United States, lawyers are allowed to place client funds in interest-bearing lawyer trust accounts.

iolta bank account

For ACH and wiring instructions, please contact the IOLTA office. For example, an appropriate title for a general trust account might be “The Trust Account of John Smith, Attorney” or “Smith, Jones & Williams Real Estate Trust Account” iolta account or “Smith, Jones & Williams IOLTA Account.” AccountDebitsCreditsTrust Bank Account $5,000.00Client Trust Liability $5,000.00Let’s say on that same day, your firm completes four hours of work on Doris’ file, at a rate of $100/hr.


Since the IOLTA Committee is a non-profit organization, they will not pay tax on your interest. All client funds received must be segregated from lawyer funds, except funds to comply with any minimum balance requirements or bank charges. Whenever appropriate, sums large enough to generate net income to individual clients should be placed in interest-bearing accounts benefiting the client unless the client specifically directs otherwise. All typical monthly service fees (other than special fees charged for cashier’s checks, insufficient funds, etc.) are paid by your bank and/or HJF.

  • Funds arising from a Nevada matter must be kept in an approved financial institution in Nevada.
  • A separate operating account or credit card has to pay all fees so that the customer’s money is never touched.
  • Financial institutions play a significant role in the success of the IOLTA program.
  • If you’d prefer we can work with you to create a single blended rate or tiered rates that are based on the current portfolio of products, without establishing IOLTA accounts in those different product types.
  • Your state bar foundation requires you to be able to show how much money each client has in their account at any given point in time.
  • Money that you have received but have not yet earned goes into the IOLTA account.