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IOLTA Account

Am I required to have an IOLTA account?

Yes, if you receive IOLTA eligible funds. You are not required to have any client trust accounts until you begin to receive trust funds. For example, lawyers who are not in private practice may never receive IOLTA eligible funds. When you begin to receive funds on behalf of clients, such as advance fees or unearned costs, you must maintain either a separate trust account for each client (if the amount is expected to earn interest for the client in excess of the cost of maintaining the account), or an interest bearing common–client or “pooled” trust account to hold the funds of more than one client. Advance fee payments such as flat fees or sums against which an hourly rate will be applied are typically deposited into the D.C. IOLTA account. Absent informed consent from the client, a fee advance from a client must be placed in a trust account. Most firms place these fee advances in a D.C. IOLTA account because the advances are considered either nominal in amount or to be held for a short period of time and therefore any interest earned in an individual trust account would be consumed by the expense of administration. Therefore, if you receive IOLTA eligible funds, you must have a D.C. IOLTA account. If money you receive as a lawyer is for payment of legal services you have already provided, for example, you performed the work, sent a bill and were paid, then you do not need a trust account of any kind.

Are there any exceptions to the new, mandatory IOLTA account rule?

Yes, there are two limited exceptions. Trust funds are not deposited into a D.C. IOLTA when the lawyer is otherwise compliant with the contrary mandates of a tribunal. In other words, if a court order directs the lawyer to place trust funds in an account other than a D.C. IOLTA account, the lawyer must comply. The second exception occurs when the lawyer is participating in and compliant with the IOLTA program of another jurisdiction where the lawyer is licensed and principally practices. For example, if the lawyer is licensed in and principally practices in Maryland, IOLTA eligible funds from D.C. clients can be deposited into the Maryland IOLTA account and the lawyer would not need a D.C. IOLTA account.

Lawyers may seek additional guidance from the D.C. Bar’s legal ethics counsel, at 202-737-4700, ext. 3231 or ext. 3232, or at [email protected].

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 is on the list of approved financial institutions. The list of approved financial institutions is available from the D.C. Bar Foundation (202-467-3750) or 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 (202-467-3750) or the Practice Management Advisor of the D.C. Bar (202-626-1312) for help.

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 rests in the sound judgment of the lawyer (see Rule 1.15, Comment [5]). 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, such that the interest earned will not be consumed by the cost of administering the account.

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. Comment [5] to Rule 1.15 states in part: “The determination, under paragraph (b), whether trust funds are not expected to earn income in excess of costs, rests in the sound judgment of the lawyer. The lawyer should review trust practices at reasonable intervals to determine whether circumstances require further action with respect to the funds of any client or third party.”

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?

It depends upon where you principally practice. When the lawyer is participating in, and compliant with, the trust accounting rules and the IOLTA program of another jurisdiction in which the lawyer is licensed and principally practices, the lawyer is not required to have a D.C. IOLTA account and can place D.C. eligible trust funds into the IOLTA account of the other jurisdiction. However, always check to make sure you are compliant with the IOLTA rules of the jurisdiction in which you principally practice.