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The first is an IOLTA account and the second is a separate non-IOLTA client trust account. IOLTA – Interest on Lawyers’ Trust Accounts – is a method of raising money for charitable purposes, primarily the provision of civil legal services to indigent persons. The establishment of IOLTA in the United States followed changes to federal banking laws passed by Congress in 1980, which allowed some checking accounts to bear interest. IOLTA programs currently operate in 50 states, the District of Columbia, Puerto Rico, and the U.S. The Alabama Law Foundation IOLTA program, authorized by the Supreme Court of Alabama in 1987 is one way lawyers have to provide access to justice for the poor. Financial institutions remit the interest earned on lawyer trust accounts to the foundation, which makes grants of it for law-related charitable purposes.
While keeping track of this manually can be a logistical nightmare, legal billing software can significantly streamline and simplify the process. This is where the right legal accounting software can make an enormous difference for your firm. An IOLTA account is an interest bearing trust account and what is done with that interest we will discuss in more detail. Just know that it is highly important that the interest generated from an IOLTA account is accurately accounted for and used appropriately.
American Bar Association TM
As of January 1, 2008 it was required that all commingled client funds be held in IOLTA accounts. Let’s imagine that your law firm has agreed to provide legal services to Doris, a local orthodontist, representing her in a lawsuit. Doris sends you a $5,000 check to cover your retainer fee, which you deposit into Doris’ client trust account. While this all may seem simple enough on paper, in practice, properly handling an IOLTA can be incredibly complex and time consuming. There are strict rules for how the money in them must be used and recorded.
2Any interest earned on IOLTA accounts is automatically forwarded by BECU to the Legal Foundation of Washington, a local non-profit that distributes funds to civil legal aid programs in WA state. An IOLTA account for each individual attorney rather than each individual client provides the solution. Avoid this possibility by using the latest trust accounting software to ensure a clear audit trail.
The History of IOLTA Accounts
LeanLaw is the legal billing software for law firms built on QuickBooks Online that makes running a profitable law firm straightforward and simple for everyone involved. Smaller law firms and solo attorneys have more pressure to be diligent—just the slightest mistake can have career-limiting consequences. It’s important to understand that different states will have different requirements.
- 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.
- IOLTA programs have taken a leading role in funding a number of innovative programs that have had a positive impact on the delivery of legal services to those living in poverty.
- To prevent misappropriating funds from other clients, remember to only charge your clients for fees directly relating to their trust account.
- While it may seem simple on paper, the reality is that maintaining a compliant and ethical IOLTA account can be incredibly complex and time consuming, especially without the proper tech stack.
- While keeping track of this manually can be a logistical nightmare, legal billing software can significantly streamline and simplify the process.
IOLTA is a unique and innovative way to increase access to justice for individuals and families living in poverty. 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. IOLTA accounts are a useful way to keep client funds separate from a law firm’s operating expenses, all while benefiting the community. However, as previously mentioned, trying to administer them manually using spreadsheets, or non-specialized accounting software can open you up to risk. This gets even more complex as more law firms modernize by offering digital payments for their clients, since even small payment processing fees have to be handled correctly to stay IOLTA compliant. Law firms have to follow very strict rules concerning how client funds are handled, where the money is kept, and when it can be used.
How Do I Make Sure I Manage My IOLTA Account Properly?
Specifically, Rule of Professional Conduct 1.15 provides for the safekeeping of property that belongs to clients or third persons. Additionally, even if client funds are billed and earned, the money must be law firm bookkeeping transferred to the business account first before being withdrawn. Should an IOLTA account issue a debit card, be very careful it is not used to withdraw money directly for the account in those circumstances.
Unlike the criminal justice system, people with civil legal problems are not guaranteed an attorney. 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. Working with an accountant and the right legal practice management software will help ensure you have accurate record-keeping, and avoid the nightmare situation of malpractice. Real estate attorneys have a separate IOLTA escrow account to receive and disburse all funds involved with a real estate closing.
Support Legal Aid with a PA IOLTA Account at a Platinum Leader Bank
Furthermore, many malpractice claims arise from minor human errors such as missed deadlines, small accounting errors, and miscommunication. IOLTA stands for Interest on Lawyers Trust Account and it means that the money in that account does not belong to the attorney. The interest earned, minus bank fees, goes to fund legal aid programs in the state of Georgia.
- One of the easiest and most impactful ways to support legal aid is to open an IOLTA account at a Platinum Leader Bank.
- Here’s what Doris’ individual ledger would look like after the transaction we mentioned above.
- Since IOLTA’s inception, a number of court cases have arisen in which parties argued that IOLTA programs violated the Fifth Amendment by resulting in an unconstitutional taking.
- Participation in IOLTA can be seen as a community service by banks and can result in favorable coverage by the news media.
- That is not something any lawyer wants to be publicized about their practice.
- This gets even more complex as more law firms modernize by offering digital payments for their clients, since even small payment processing fees have to be handled correctly to stay IOLTA compliant.
Rule 1.15B(a) requires lawyers to deposit all nominal or short-term client funds in an IOLTA account. Funds that are capable of generating net interest for an individual client must be deposited into a separate interest-bearing trust account with interest paid to the client. Client funds that are too small in amount or held for too short a period of time to earn interest for the client, net of bank charges and administrative fees, are commingled in a pooled checking account known as an IOLTA account.