From hiring employees to handling clients, there are hundreds of tasks that need to be completed, kept up with and carefully thought through. But…when a client’s retainer is not significant enough to make opening a separate bank account a reasonable option, this is when an IOLTA account comes into play. As a trusted legal professional, it’s important to understand Interest on Lawyer Trust Accounts (IOLTA) accounts and how they work. With wire fraud cases and check forgery on the rise, real estate agents want to know a real estate closing attorney who has stringent safeguards in place to protect the funds held in escrow for closing.

Under Rule of Professional Conduct 1.15B, Illinois lawyers are required to deposit short-term or nominal funds of clients and third persons into IOLTA accounts. Attorneys routinely receive client funds that must be held in trust for future use. If there is a large sum of money involved, or it will be held for a long time, an attorney can hold the client’s funds in an individual account, designated as a Client Trust Account, and the interest earned belongs to the client. Clearly, IOLTA accounts are a great benefit for the communities they serve. They also are helpful to law firms in that they allow short period client funds to be pooled together, instead of having to continuously open new trust accounts for each new client.

How Do I Make Sure I Manage My IOLTA Account Properly?

As was the case prior to IOLTA, lawyers must exercise their discretion in determining whether a given client’s trust deposit is of sufficient size or will be held for sufficient duration to justify the cost of being individually invested for a client. When client funds cannot practically earn income for the client, the funds are deposited in a pooled account, an IOLTA account. The income generated on the pooled funds is used for civil legal aid and other programs that support access to justice for low-income people. If you are an attorney in private practice and receive client funds, you may need to establish an IOLTA bank account.

Law firms need to follow very specific rules on how client funds are handled, and maintaining an IOLTA account ensures you are compliant with ethical and legal obligations. Interest generated by IOLTA accounts forms an important source of funding for civil legal aid in Illinois. IOLTA stands for Interest on Lawyer’s Trust Accounts and Interest on LLLT’s Trust Accounts. An IOLTA account is an interest-bearing trust account, for deposit of client funds, with the interest paid to the Legal Foundation of Washington. We will establish the IOLTA trust account in the name of the attorney or law firm, with their address.

About IOLTA Accounts

Every state has an IOLTA program, and it’s likely that the financial institution where you opened your regular business checking account also offers IOLTA accounts. By taking the extra time to understand what an IOLTA is, best practices, and the available tools for managing them – your law firm can ensure perfect compliance and spend more time focusing on serving your clients. Request and track IOLTA funds electronically with our Gravity Legal integration.

Better understand how funds are flowing in and out of trust and bank accounts with convenient, clear reporting. Law firms and lawyers who do not follow the stringent guidelines of the IOLTA program protocol of their state are at risk for receiving large fines and even possible disbarment if inappropriate accounting practices are discovered. As long as your accounting department can keep track of whose funds belong to whom, IOLTA accounts will save you time and resources while also keeping your banking needs to a minimum.

What is the abbreviation for Interest on Lawyers’ Trust Accounts?

Though first approved as a voluntary program that states could choose to participate in if they wished, IOLTA programs were eventually adopted by all 50 states and the District of Columbia. Though opening an IOLTA account is fairly straightforward, making sure that it’s being managed correctly is a bit more of a challenge. There are IOLTA programs throughout ten Canadian provinces and three territories and all United States jurisdictions—including the District of Columbia, Puerto Rico and U.S. Also at the ABA Commission on IOLTA’s request, the ABA filed two amicus curiae briefs in support of the Washington state IOLTA program, one before the Ninth Circuit Court of Appeals and one before the U.S. Supreme Court, as well as one in support of the Massachusetts IOLTA program before the First Circuit Court of Appeals.

IOLTA programs were established after much consideration and review to ensure adherence to the law. During the 1990s a series of cases challenged the IOLTA program concept, but law firm bookkeeping in 2003, the United States Supreme Court upheld the constitutionality of IOLTA. Think of all the good you can help support by way of simply doing your job and helping clients.

accounting compliance

1A Business Member Share Savings account is required to establish membership and not all will qualify. Today, every state has some version of IOLTA, although it is mandated in some states and done on a volunteer basis in others. The Texas Access to Justice Program (TAJP) administers IOLTA funds in the Lone Star State. Whatever the reason, borrowing from an IOLTA account carries stiff penalties, and is one of the most common ways to get disbarred. The idea behind an IOLTA program is pretty straightforward, but the actual mechanics are a bit more complicated when put into practice.

• Better understand how funds are flowing in and out of trust and bank accounts with convenient, clear reporting.
• From the abused woman trying to find safety for herself and her children to the elderly woman being unlawfully evicted from her home, civil legal aid exists to ensure that all people have access to the civil justice system.
• Even a well-meaning law firm can find themselves in an ethics violation if their IOLTA account records are not well-maintained.
• (For example, state Supreme Courts have made IOLTA mandatory in some states and voluntary in others.) That’s why it’s important to consult your State Bar Association and a professional accountant before finalizing your accounting setup for IOLTA.
• Legal accounting is notoriously tricky and, truthfully, not enough time is spent training attorneys on the various intricacies that go into correctly managing their finances.

That said, given that an IOLTA raises money for a number of worthy causes, it’s almost always beneficial to use them. An IOLTA – sometimes called an IOLA – is an interest-earning trust account that is specifically used to hold money that belongs to a legal professional’s clients. Using a trust account to handle things like retainers, settlement checks, and court fees ensures that the client’s money is kept separate from the professional’s business account. In other words, unearned money held in an IOLTA account cannot be used for operating expenses, or a lawyer’s personal expenses.

Failing to keep your client and business accounts separate

Provide clients with a written agreement on how funds are distributed, as well as all retainer fees. Some attorneys fail to keep detailed and specific records, and that shows they are disorganized and may be judged as incompetent to handle a trust account. Basically, it’s easy to make the mistake to forget to write your client’s reference number on their trust account checks. Another common way that breaks IOLTA rules is that you fail to keep a separate ledger for each client, or simply by misplacing a record.