IOLTA Accounts: What New Lawyers Need to Know

You’ve graduated law school, passed the bar and are now in the process of establishing yourself as an attorney, but when it comes to the crucial jobs of handling client money and managing Interest on Lawyer Trust Accounts (IOLTAs), do you feel uneasy?

You’re not alone.

Mismanaging a trust account can have severe repercussions for lawyers, ranging from fines and financial losses to ethics violations and potential disbarment. But according to William Pfeifer, an attorney and former freelance writer for The Balance, many law schools “do an abysmal job of training law students on how to handle IOLTAs.” In his article, “Trust Account Mistakes that Lawyers Often Make,” Pfeifer notes that this lack of knowledge results in lawyers with “little to no training on how to manage a trust account before opening one of their own.”

Fortunately, Town and Country Bank is here to help. As an experienced IOLTA depository and an eligible financial institution with the Lawyers Trust Fund of Illinois, our staff can help you open an IOLTA account and answer any questions you may have when it comes to managing it.

What is an IOLTA account?

An Interest on Lawyer Trust Account, or IOLTA, is “a pooled, interest- or dividend-bearing client trust account, established with an eligible financial institution with the Lawyers Trust Fund of Illinois designated as income beneficiary, for the deposit of nominal or short-term funds of clients or third persons” according to the Illinois Rules of Professional Conduct, Section 1.15(i)(2). Any interest generated by an IOLTA account is remitted to the Lawyers Trust Fund of Illinois, where it is primarily used for the provision of civil legal aid for low-income and underserved residents through the state’s IOLTA program.

With the inception of the Lawyers Trust Fund in 1983, Illinois became the 11th state to benefit from IOLTA income. Millions of dollars in IOLTA interest are used each year to make grants to non-profit organizations throughout the state that provide legal assistance to those who could otherwise not afford it.

IOLTA vs Client Trust Account

Under Rule 1.15 of the Illinois Rules of Professional Conduct, which provides for the safekeeping of property belonging to clients and third persons, lawyers must deposit all funds belonging to clients and third persons into client trust accounts, but whether it is more appropriate to use an IOLTA account as opposed to a client trust account that earns interest for the client often depends on the amount of the client funds to be held, as well as the duration of time the lawyer anticipates holding those funds.

In her June 29, 2017 American Bar Association article, “IOLTAs and Client Trust Accounts,” attorney Carole J. Buckner explains that if the client funds to be held are “significant in amount, [a] lawyer should open a CTA (client trust account) that earns interest for the client, especially if the funds will be held for a significant period of time. Conversely, when the client funds are relatively small in amount or will not be held for a time period long enough to earn interest, an IOLTA account is appropriate.”

Buckner also notes that while is it usually permissible to hold funds from multiple clients in a single IOLTA client trust account, in situations where a lawyer is “acting in a fiduciary capacity, holding escrow funds or administering an estate, a separate client trust account may be warranted.”

What can we offer your law practice?

From IOLTA accounts and other client trusts, to operating accounts, loans, lines of credit and investment services, we understand the needs of law firms and are proud to offer both expertise and competitive pricing.

As an eligible Illinois financial institution, Town and Country Bank and Peoples Prosperity Bank offer an IOLTA checking account with tiered interest based on the minimum account balance. Comparable, competitive rates are paid on IOLTA and non-IOLTA accounts with similar balances and account requirements.

Maintaining an IOLTA account is a requirement for attorneys under the Illinois Rules of Professional Conduct, and failure to do so could result in disciplinary action. We recognize the importance of this professional duty, so if you have any questions about keeping your IOLTA account in compliance, our experienced staff is always happy to help. Additionally, we help make managing your IOLTA account easier by sending interest earned directly to the IOLTA program.

Our goal with every law firm client is to be a full partner in providing value to the firm, as well as its clients. To learn more about IOLTAs, client trust accounts or to set up a meeting, contact our Trust and Investment Services team today at 1-866-787-3100.