Published 5/1/2011
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Interest on Lawyer Trust Accounts (IOLTA) is one of the most fundamental financial and ethical concerns of any law firm, and any law firm administrator. Managing IOLTA accounts involves highly technical issues (many of which we discussed in a February 2009 Legal Management article), which center on depositing into the account a client’s payment for work that will be performed, and withdrawing that payment from the account when the work has been performed. Funds in IOLTA accounts belong to the client, and must be strictly safeguarded until the lawyer and firm are entitled to them by virtue of services performed.
Two years ago, at the depths of the financial crisis, this safeguarding requirement was creating big worries for the legal profession. With many banks in danger of failing or actually being taken over by the government, IOLTA accounts that exceeded the Federal Deposit Insurance Corporation’s (FDIC) guaranteed limit appeared to be at risk – and lawyers and law firms, with fiduciary responsibility for the acts of banks as their agents, could have been held responsible. That risk has passed thanks to specific action by the federal government. But new questions and new requirements continue to arise on IOLTA account management in today’s complex financial environment, particularly in regard to electronic banking. In this article we’ll take a brief refresher course on IOLTA account basics, and look at what’s new and what’s next regarding the impact of governmental policy and new Rules of Professional Conduct.
