Business and Professional Codes on IOLTA Accounts

Trust Account Bookkeeping
June 24, 2024

To understand an IOLTA account, it is crucial to know about what is required to be in compliance as well as provisions surrounding the accounts. Interest on Lawyers Trust Accounts

IOLTA are specialized accounts that attorneys or law firms establish for holding client funds. Typically, the interest generated from these accounts is used to fund legal aid programs

for those who cannot afford to pay for legal services. Section 6212 outlines the compliance requirements for establishing and maintaining an IOLTA account. Which are crucial for

ensuring the proper management of client funds and supporting the legal community on a broader scale.

Establishment and Maintenance of IOLTA accounts

There are specific institutions that are considered eligible to retain IOLTA accounts. And the banking institution must follow certain rules to remain eligible to maintain trust

accounts as well as IOLTA accounts specifically. The responsibility of selecting the appropriate deposit or investing product of the IOLTA account rests with the lawyer or law firm,

not the financial institution.

Interest Rates and Dividends

In ensuring the regulation of IOLTA accounts, there are certain guidelines for how the interest works. One of which being there should be comparable rates between accounts.

Meaning, that the payable rate of interest or dividends on IOLTA accounts generally should not be less than what is paid to non- attorney customers with similar account types

by the same banking institution.

When determining dividend payable and interest rate on an IOLTA, the institution will take into consideration risk factors considered when setting interest rate for non-IOLTA

accounts and the balance of the IOLTA account. The banking institution should calculate interest and dividends in accordance with its non-IOLTA standard practices. The fact that

the account is an IOLTA does not change the way the institution operates, so there are very similar criteria for all accounts. These are referred to as non-discriminatory factors. So,

while eligible institutions will consider various factors when determining rates, these cannot discriminate against IOLTA accounts or be based on the fact that the account being

opened is an IOLTA.

Fees aside from reasonable fees and charges are solely the responsibility of the attorney.

Fees and Service Charges

Reasonable fees may be deducted from the interest or dividends

earned on an IOLTA account. The reasonable fees are also in line with

the eligible institution's practice for non-IOLTA customers. No

additional service charges or fees can be deducted from the interest

or dividends earned on an IOLTA. The exception to this is if the State

Bar sets new regulations exempting form compliance with subdivision

(a) of Section 6211, which allows for an institution to deduct fees in

excess of the dividends or interests paid. The eligible institution may

deduct any fees and service charges exceeding the interest or

dividends on an IOLTA from total remitted to the State Bar. Not

everything may be deducted. Fees aside from reasonable fees and

charges are solely the responsibility of the attorney or law firm. The

fees are not assessed against the principal of the IOLTA trust account.

Reporting and Remittance

As is known, compliance reporting is important. Similar to CTAPP, there’s reporting guidelines to be followed in order to be in compliance with maintaining IOLTA accounts

on the part of the banking institution. IOLTA account compliance must be given to the State Bar of California as specified by the organization. These specifications include:

  1. Eligible institutions must remit interest of dividends, minus the reasonable fees, to the State bar of California on at least a quarterly basis
  2. Transmit a statement with the name of he firm or lawyer for whom the remittance is sent. The rate of interest, amount of and types of fees deduct dividends paid, and average balance should be included
  3. Provide detailed statements to the attorney client showing how much was paid for the period to the State Bar

Investment Products:

While there is no obligation for institutions to offer investment products to IOLTA customers, if they do so for non-IOLTA customers, they must also make them available to

IOLTA customers or offer comparable interest rates. Are you finding the minutiae of maintaining an IOLTA trust account, representing clients and remaining in compliance with

the Business and Professions Code and other regulations a lot to balance? Consider enlisting the assistance of experienced bookkeepers. Call Smartbean® today for a free

consultation on our Trust Account Bookkeeping services for attorneys and law firms.

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