IOLTA Basics for Financial Institutions The Lawyers Trust Fund of Illinois

IOLTAs were first established in Australia and Canada in the late 1960s and early 1970s, and later in the United States after changes to federal banking laws in 1980 allowed certain types of checking accounts to bear interest. Today, IOLTAs play a crucial role in generating funds for legal services for those in need. Up until 1980, it was customary for law firms to hold clients’ money in non-interest-bearing iolta stands for checking accounts. When a firm establishes an IOLTA account, they can then pool their short term client funds together. Any interest generated from an IOLTA account is then transferred to the state’s IOLTA program which is then used for various purposes as established by each individual state. An attorney plays a crucial role in managing Interest on Lawyers’ Trust Accounts (IOLTAs).

Lawyers routinely receive client funds that are held in trust accounts for future use. When the amount is large or if the funds are to be held for a long time, lawyers place these funds in interest-bearing accounts for the benefit of their clients. An IOLTA account is a pooled, interest- or dividend-bearing business checking account (such as a NOW account) for the deposit of client funds which pays all interest earned to the Lawyers Trust Fund. Under Rule of Professional Conduct 1.15B, Illinois lawyers are required to deposit funds of clients and third persons into IOLTA accounts unless those funds can otherwise earn net income for the client or third person. For smaller cases or short term client funds, it is not prudent for a firm to constantly be opening banking accounts for short periods of time.

Information for Financial Institutions

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. For any law firm that is holding short term client funds, you’ll need to set up an IOLTA account with a local financial or banking institution in your area. Short term client funds will be put into client trust accounts which are usually referred to as lawyer trust accounts, or IOLTA accounts. When client funds cannot practically earn income for the client, the funds are deposited in a pooled account, an IOLTA account.

IOLTA became prevalent in the United States following changes to federal banking laws passed by Congress in 1980, which allowed some checking accounts to bear interest. This led to the establishment of IOLTA to serve the purpose of raising money for charitable causes, primarily the provision of civil legal services to low-income populations. While this all may seem simple enough on paper, in practice, properly handling an IOLTA can be incredibly complex and time consuming.

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IOLTAs play a significant role in supporting access to justice for those who may not otherwise have the financial means. By directing the funds collected to civil legal aid initiatives, IOLTAs contribute to alleviating barriers that may prevent low-income individuals from accessing the legal system. Interest on Lawyers’ Trust Accounts (IOLTA) programs operate under a legislative and regulatory framework. This framework serves to ensure the proper management of client funds and to support legal services for underserved communities. Each state has its own rules and regulations for IOLTA accounts and most of the interest generated is used for civil legal services for those who can’t afford legal representation in that state.

• If you are trying to set up an IOLTA for your law firm, it’s important you understand what is an IOLTA account, what purpose it serves, and why it’s vital you follow the appropriate protocol to ensure you’ve done it legally.
• By pooling the interest earned on client trust accounts, IOLTAs help generate revenue that supports legal initiatives for vulnerable populations.
• Even though work has been technically completed, you still cannot take any money directly from Client A’s retainer until they review and approve the billed amount.
• In all provinces IOLTA generated from pooled trust accounts is remitted to the applicable law foundation of the province.
• An IOLTA account is a specific type of trust account designated for client funds that are small in amount or held for a short period of time.

The interest which is remitted is combined with that from all other lawyers’ trust accounts in Iowa and distributed by the Iowa Supreme Court on an annual basis as part of the IOLTA grant process. Last year the Court distributed almost a quarter of a million dollars to tax-exempt law-related charitable and educational entities across the State of Iowa. Many of these entities provide legal services to low-income Iowans with civil legal problems. Since the inception of the program in Iowa back in 1985, Iowa’s lawyers and financial institutions have worked together to contribute more than $24,200,000 in funding. IOLTA programs were established in the early 1980’s to give lawyers a way to pool smaller payments and short-term funds from multiple clients into a single, interest-earning trust. Before IOLTAs, law firms had to hold any combined client funds in special checking accounts that could not earn interest.