An Update on IOLTA

Published July 12, 2011

About IOLTA Accounts

Because “Interest on Lawyer Trust Accounts,” more commonly and simply called IOLTA accounts, is so fundamental to law firm operations, any change in IOLTA regulation is worth noting – especially since the Rules of Professional Conduct and the regulations of all State Bar associations hold lawyers to strict compliance in managing them. During the past year several major developments have lightened the IOLTA management task for most lawyers.

IOLTAs Are Fully Insured through Dec 31, 2012

As the financial crisis peaked in the fall of 2008, when Congress raised the FDIC insurance limit on bank accounts for the first time in 28 years to a “temporary” $250,000, the FDIC ruled that all amounts in client IOLTA trust account with proper identification and accounting safeguards would be protected for two years, through December 31, 2010. When Congress passed the Dodd-Frank financial reform act in the latter part of 2010, it extended the higher FDIC limits – but did not include IOLTA accounts. This led to the usual Congressional brinksmanship until an IOLTA extension was passed just as the year, and Congressional session, ended. The FDIC has now issued a final rule revising its deposit insurance regulations to reflect this. The final rule requires that each insured depository institution that offers noninterest-bearing transaction accounts such as IOLTA accounts must post prominently an amended notice in its office lobbies and on its Web sites explaining that IOLTAs will be fully insured through December 31, 2012.

Accessible and Confidential Recordkeeping

A broader issue involves account recordkeeping in the era of electronic banking. Strict interpretation of Rule 1.15 had required lawyers to maintain original canceled checks drawn on IOLTA accounts as “complete records,” even though few banks issue them anymore. Recognizing this, the ABA’s House of Delegates has adopted Model Rules for Client Trust Account Records to replace the Model Rule on Financial Recordkeeping, which had been in effect since 1993. The new Model Rules permit lawyers to keep records using substitute checks or electronic images of checks and confirm that lawyers may maintain IOLTA account records in electronic, photographic, computer or other formats, either at the lawyer’s office or at an off-site storage facility. In all instances the records must be readily accessible and fully confidential, and be available in printed form if clients request it.

In all these changes, one theme remains constant: IOLTA account management by lawyers is taken very seriously as a professional responsibility by every legal governing body.

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Audience type: Large Law Firms, Small Law Firms