In the District of Columbia, a lawyer’s responsibility for client funds that are entrusted to him or her is governed by the D.C. Rules of Professional Conduct, specifically Rules 1.15 and 1.19. Under those rules, client funds must be placed in a trust account for the benefit of the client. In addition to the ethical requirements, the District of Columbia Court of Appeals requires that certain trust accounts comply with additional requirements as set forth in Rule X of the Court Rules Governing the D.C. Bar. Members of the District of Columbia Bar must make sure they are in compliance with both the Rules of Professional Conduct and the court rule. In fact, a violation of the court rule may be an ethical violation. See Rule 1.15(e).

Rule X of the Court’s Rules Governing the Bar of the District of Columbia created the Interest on Lawyers Trust Accounts (IOLTA) program, whereby interest from common–client trust accounts (described below) is paid to the District of Columbia Bar Foundation to distribute for charitable purposes.

Not every client trust account is covered by this rule—only a common–client or “pooled” trust account. A common–client trust account exist when one trust account is used by a lawyer or law firm to receive fee advances and settlement funds for multiple clients. Pursuant to court rule, lawyers may not earn interest on client trust funds. In the past, common–client accounts were non–interest–bearing, with the financial institution retaining all of the earned interest. Under Rule X, the interest that would otherwise be retained by the financial institutions is forwarded to the Bar Foundation to be used to support the community’s legal aid programs and such administration of justice projects as are approved by the Court of Appeals.

Upon opening the account, the lawyer must instruct the financial institution to forward the earned interest to the foundation in accordance with Rule X. IOLTA sign–up forms may be obtained from any financial institution participating in the IOLTA program, the Bar Foundation or on the D.C. Bar’s website. The financial institution where the trust fund account is located is required to transmit these interest payments directly to the Bar Foundation. Appendix B of the D.C. Court of Appeals Rules sets forth the requirements for the program:

• A lawyer or firm (with which the lawyer is associated) who receives client funds shall maintain a pooled interest–bearing account for the deposit of the client funds that are “nominal in amount” or “expected to be held for a short period of time.” The determination of whether client funds are nominal or to be held for a short period of time rests in the sound judgment of each lawyer or law firm.
• The lawyer or law firm cannot receive the interest from these IOLTA accounts, and is not required to notify the client that the funds are in an IOLTA account.
• The IOLTA trust account must be:
  • in a financial institution which is authorized by federal, District of Columbia, or state law to do business in the District, or
  • in the state in which the lawyer’s or law firm’s office is located, and
  • in a financial institution which is a member of the Federal Deposit Insurance Corporation or Federal Savings and Loan Insurance Corporation or successor agencies.
• Upon establishing the account, the lawyer shall direct the depository institution to:
  • Remit the interest or dividends, net of any service charges or fees, on the average monthly balance in the account, or as otherwise normally accounted by the institution for other depositors, to the D.C. Bar Foundation (the interest payment transfer must occur at least quarterly), and
  • Include a statement from the financial institution with each remittance indicating the name of the attorney or law firm on the account and the interest rate applied.
• Lawyers may decline to participate in the IOLTA program by filing a “Notice of Declination” by the first of March in any year with the Chief Judge of the D.C. Court of Appeals. The notice may be sent in care of the Bar Foundation. Few lawyers decline to participate.

Am I required to have an IOLTA account?

You are not required to have any client trust account until you begin to receive client funds. When you begin to receive funds on behalf of clients, you must maintain either a separate trust account for each client or an interest bearing common–client or “pooled” trust account to hold the funds of more than one client. This pooled account should be designated an IOLTA account. With the change in Rule 1.5 of the D.C. Bar Rules of Professional Conduct, fee advances from clients must, in most circumstances, be placed in a trust account. Most firms place these fee advances in a common–client trust account that is designated as an IOLTA account. A lawyer may decline to participate in the IOLTA program by following the proper “opt–out” procedure, but few lawyers, if any, decline to participate.

How do I set up an IOLTA account?

The same financial institution where you have your business (operating) account should be able to help you set it up using the proper forms, but you may choose any financial institution that meets the requirements of Appendix B and is on the list of approved financial institutions. The list of approved financial institutions is available from the Board on Professional Responsibility (202–638–4290). If the person you are dealing with at the financial institution does not know what an IOLTA account is, go to another person, branch, or financial institution, or call the IOLTA program administrator for help (202–467–3750).

IOLTA Form
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Note: Many banks use this form. However, take the form with you when you open an IOLTA account, then forward it to the D.C. Bar Foundation. Do not send it directly to the Bar or attempt to fill it out online.

Do all of my trust accounts have to be IOLTA accounts?

No, just the common–client trust account to which you deposit client funds of more than one client that are nominal in amount or to be held for a short period of time. Other trust accounts that you may choose to open for a single client ordinarily will not be IOLTA accounts; the client will get all interest on the funds held. Whether to set up a separate trust account is a matter between the lawyer and client. The separate account is generally set up when the funds are more than “nominal” and/or to be held for longer than a “short” duration.

What do the terms “nominal in amount” and “short duration” mean?

These terms are expressly not defined in the rule, and are left to the lawyer’s sound discretion. Many firms place advance fees from multiple clients into a common–client trust account, knowing that the funds will be removed as earned. Some firms also place settlement funds into a common–client trust account, knowing that the funds will be distributed to the client and other recipients within a few days or weeks. Other lawyers, knowing that they will be receiving large amounts of funds for a client, or must hold funds for weeks or months, decide to open a separate interest–bearing trust account for the benefit of that one client. The client then receives the benefit of the interest earned while those funds are being held by the lawyer. Again, the final determination is left to each lawyer to use sound reason to decide where to place the funds.

I already have an IOLTA account, but the interest goes to another bar. Do I have to have an IOLTA account for D.C. clients?

If your principal place of doing business is outside of the District of Columbia, you need not change your IOLTA account to the D.C. IOLTA program. However, if your principal office is in the District, you should be participating in the D.C. program.

What are the benefits of having an IOLTA account?

The main benefit is that you do not have to calculate and divide the accrued interest between clients who have funds in the account. For example, if one client had $2,361.45 in your account for 25 days and another had $10,100 for 13 days, who would be entitled to the $27.13 interest? Not a fun chore.

The second benefit is that the interest that would otherwise accrue to this account and be retained by the financial institution is now transferred to the foundation to be used for the worthy charitable purpose of supporting the community’s legal aid programs.

How do I contact the IOLTA program if I have questions?

For more information about the IOLTA program, please visit www.dcbarfoundation.org or contact the IOLTA administrator at the D.C. Bar Foundation at 202–467–3750.

For additional information about client trust accounts or handling client funds, contact the D.C. Bar Practice Management Advisory Service at 202–737–4700, ext. 212. The Practice Management Advisory Service is a free and confidential service of the District of Columbia Bar to help members with a wide range of practice management issues. For assistance with ethical concerns, please contact the D.C. Bar’s legal ethics counsel at 202–737–4700, ext. 231 or 232.

This article was originally written by Reid F. Trautz, former director of the Practice Management Advisory Service. It was revised in July 2007 to reflect updates to the District of Columbia Bar Rules of Professional Conduct, effective February 1, 2007.