IOLTA Basics The Lawyers Trust Fund of Illinois

Keep in mind that even unintentional client fund misappropriation is still misappropriation. Attorneys frequently handle client monies, ranging from settlement checks to court fee payments. When the amount of money held for an individual client is substantial, the funds are placed in an interest-bearing trust account.

Regardless of which state you’re in, you can’t, under any circumstances, use an IOLTA account as a savings account or an operating account, even if the money you withdraw from the IOLTA has already been earned. We will complete the IOLTA Notice to Financial Institution form and send it. The IOLTA account uses the TAJF tax identification number, not that of the attorney or law firms.

Establishing an IOLTA Account

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. Additionally, to maintain ethical and legal standards, attorneys cannot profit off of any interest generated by these accounts.

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. Some firms will also intentionally use their IOLTA accounts to hide assets, or will leave funds in their IOLTA even after they’ve been earned, using it as a “savings” account. While each IOLTA program follows similar guidelines, rules do vary by state. There are no tax consequences to the attorney or the client for the interest or dividend remitted to the State Bar from an IOLTA account that bears the State Bar’s taxpayer identification number.

What is IOLTA?

Legal fees that are not part of a retainer can generally go directly into an operating account, since the payment is not for future work. While any unearned client money is required to be deposited into a trust, it may or may not be mandatory to use an IOLTA, depending on the rules iolta account in your state. To confirm whether or not using them is required, it’s best to check in directly with your state bar association or a legal account expert. That said, given that an IOLTA raises money for a number of worthy causes, it’s almost always beneficial to use them.

Without taxing the public and at no cost to lawyers or their clients, interest generated on certain funds in lawyers’ trust accounts—IOLTA—is used to support civil legal aid and improvements in the justice system. The Rules of Professional Conduct related to lawyers’ handling of client funds, client trust accounts, and IOLTA are located here. Find more information about IOLTA and trust accounting requirements on the Rules and Resources page. IOLTA accounts are maintained for the deposit of client funds that are nominal in amount or be held for a short period of time.

Keeping IOLTA Accounts Separate

Lawyers may not deposit client funds in accounts that do not bear interest, and all property of clients should be kept separate from lawyers’ business accounts. 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. An IOLTA account is a pooled, interest-bearing demand deposit account used by lawyers to hold client funds. The interest earned on IOLTA accounts is remitted to the Lawyers Trust Fund, a charitable foundation designated as the recipient by the Illinois Supreme Court.

IOLTA trust account rules are quite specific, and failing to adhere to them can result in significant penalties. As a trusted legal professional, it’s important to understand Interest on Lawyer Trust Accounts (IOLTA) accounts and how they work. These consultants usually have experience dealing with IOLTA, and rules in most states don’t require them to report ethics violations to the bar. If you’ve made the switch from paper cheques to electronic billing (e-transfer, credit card payments, that kind of thing), you can’t pass along the payment fees to your client’s IOLTA. Regardless of how your law firm does its accounting, the system that you use to keep track of an IOLTA account must conform to the principles of double-entry accounting. As an IOLTA eligible financial institution, Texas Security Bank can handle all of your firm’s IOLTA account needs.