To understand an IOLTA account, it is crucial to know about what is required to be in compliance as well as provisions surrounding the accounts. Interest on Lawyers Trust Accounts
IOLTA are specialized accounts that attorneys or law firms establish for holding client funds. Typically, the interest generated from these accounts is used to fund legal aid programs
for those who cannot afford to pay for legal services. Section 6212 outlines the compliance requirements for establishing and maintaining an IOLTA account. Which are crucial for
ensuring the proper management of client funds and supporting the legal community on a broader scale.
There are specific institutions that are considered eligible to retain IOLTA accounts. And the banking institution must follow certain rules to remain eligible to maintain trust
accounts as well as IOLTA accounts specifically. The responsibility of selecting the appropriate deposit or investing product of the IOLTA account rests with the lawyer or law firm,
not the financial institution.
In ensuring the regulation of IOLTA accounts, there are certain guidelines for how the interest works. One of which being there should be comparable rates between accounts.
Meaning, that the payable rate of interest or dividends on IOLTA accounts generally should not be less than what is paid to non- attorney customers with similar account types
by the same banking institution.
When determining dividend payable and interest rate on an IOLTA, the institution will take into consideration risk factors considered when setting interest rate for non-IOLTA
accounts and the balance of the IOLTA account. The banking institution should calculate interest and dividends in accordance with its non-IOLTA standard practices. The fact that
the account is an IOLTA does not change the way the institution operates, so there are very similar criteria for all accounts. These are referred to as non-discriminatory factors. So,
while eligible institutions will consider various factors when determining rates, these cannot discriminate against IOLTA accounts or be based on the fact that the account being
opened is an IOLTA.
Reasonable fees may be deducted from the interest or dividends
earned on an IOLTA account. The reasonable fees are also in line with
the eligible institution's practice for non-IOLTA customers. No
additional service charges or fees can be deducted from the interest
or dividends earned on an IOLTA. The exception to this is if the State
Bar sets new regulations exempting form compliance with subdivision
(a) of Section 6211, which allows for an institution to deduct fees in
excess of the dividends or interests paid. The eligible institution may
deduct any fees and service charges exceeding the interest or
dividends on an IOLTA from total remitted to the State Bar. Not
everything may be deducted. Fees aside from reasonable fees and
charges are solely the responsibility of the attorney or law firm. The
fees are not assessed against the principal of the IOLTA trust account.
As is known, compliance reporting is important. Similar to CTAPP, there’s reporting guidelines to be followed in order to be in compliance with maintaining IOLTA accounts
on the part of the banking institution. IOLTA account compliance must be given to the State Bar of California as specified by the organization. These specifications include:
While there is no obligation for institutions to offer investment products to IOLTA customers, if they do so for non-IOLTA customers, they must also make them available to
IOLTA customers or offer comparable interest rates. Are you finding the minutiae of maintaining an IOLTA trust account, representing clients and remaining in compliance with
the Business and Professions Code and other regulations a lot to balance? Consider enlisting the assistance of experienced bookkeepers. Call Smartbean® today for a free
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