Escrow vs IOLA Accounts: What’s The Difference?

The lawyer is responsible to determine the best way to safeguard the funds according to Supreme Court guidelines. IOLTA accounts are a useful way to keep client funds separate from a law firm’s operating expenses, all while benefiting the community. However, as previously mentioned, trying to administer them manually using spreadsheets, or non-specialized accounting software can open you up to risk. This gets even more complex as more law firms modernize by offering digital payments for their clients, since even small payment processing fees have to be handled correctly to stay IOLTA compliant. Financial institutions are not mandated by the IOLTA rule to participate. Approval to hold attorney trust funds is automatic provided the financial institution files an agreement with the Supreme Court to report overdrafts to the Office of Attorney Ethics and to cooperate with the IOLTA program.

• Lawyers can support COLTAF and Colorado’s civil legal aid delivery system by maintaining their COLTAF accounts at COLTAF’s Leadership Banks.
• It may also need to be titled as an “attorney-client trust account.” Whatever the rule for your jurisdiction is, do not deviate from it.
• While each IOLTA program follows similar guidelines, rules do vary by state.
• The interest earned from pooled IOLTA benefits nearly 100 nonprofit legal service organizations throughout California.

(a) An attorney shall have discretion, in accordance with the
code of professional responsibility, to determine whether moneys
received by an attorney in a fiduciary capacity from a client or
beneficial owner shall be deposited in non-interest, or in interest
bearing accounts. If in the judgment of an attorney any moneys
received are qualified funds, such funds shall be deposited in an IOLA
account in a banking institution of his or her choice offering such
accounts. Sometimes, a client’s bill will be more than the amount of money in the IOLTA account. If the client pays the remainder of the balance after you’ve earned fees, do not put the money into the trust account.

More about Rule 1.15

As we discuss below, the interest earned on funds maintained an IOLA benefits our fellow New Yorkers. We strongly encourage our clients to use IOLA accounts when possible. In 2021 alone, the IOLA fund assisted over 6,500 veterans and 26,000 victims of domestic abuse.

The Colorado Lawyer Trust Account Foundation (COLTAF) administers Colorado’s Interest on Lawyers’ Trust Accounts (IOLTA) program. This program is an innovative partnership between the legal community and the banking community, whereby the interest on lawyers’ pooled trust accounts is used to improve access to civil justice. IOLTA programs operate in all fifty states and in the District of Columbia, and provide essential funding for civil legal aid. When the amount is large or if the funds are to be held for a long period of time, lawyers invest those funds for the benefit of the client.

Canadian practices

It is also, however, an unpredictable revenue stream because IOLTA income is entirely dependent on the current interest rate environment and economic conditions. An Interest on Lawyer Account (IOLA account) is a type of attorney escrow account in which lawyers can pool the small or briefly held deposits of multiple clients. Collectively, the interest from IOLA accounts is used for grants to civil legal aid organizations across New York State. COLTAF’s only regular source of revenue is the interest earned on COLTAF accounts at banks across the state. Lawyers can support COLTAF and Colorado’s civil legal aid delivery system by maintaining their COLTAF accounts at COLTAF’s Leadership Banks. COLTAF’s Leadership Banks maximize resources for civil legal aid by providing a premium rate of return on COLTAF deposits.

The information is subject to change, and it is important to consult a specialist before making any decisions. Law Ledgers provides accounting services to New York lawyers and law firms, including escrow protection, tax advice and bookkeeping administration. COLTAF was established in 1982 by the Colorado Supreme Court, in response to dramatic cuts in federal funding for civil legal aid. From 1982 through 2018, COLTAF has made grants of over $50 million dollars. Approximately 80% of these funds have gone to Colorado’s federally-funded legal aid programs. The other 20% have gone to pro bono programs, domestic violence programs, and other justice-related programs.

Financial Overview

A «low-balance» account category has been established to accommodate those attorneys who make infrequent deposits to their trust accounts. Usually, trust accounts of new sole practitioners (and usually those of part-time and occasional practitioners) fall into IOLTA’s «low https://kelleysbookkeeping.com/ balance» category. The IOLTA Fund trustees reserve the right to exempt from active IOLTA participation those trust accounts with small balances (generally under $2,500) that will cost the IOLTA fund more in service charges than will be generated in interest by the account.

• Rule 1.15 requires that all funds be held at interest, with the interest payable either to the client or to the Arkansas Access to Justice Foundation.
• If you don’t have time to manage your own bookkeeping and are thinking of hiring outside help, make sure to hire a bookkeeper who has experience with law firms.
• And the penalties for breaking these rules can be severe, sometimes even leading to disbarment.
• Check printing charges, wire transfer fees, cashier’s checks, cash management services and overdraft costs are not considered normal service charges by IOLTA and are not paid by IOLTA.
• IOLTA accounts are a useful way to keep client funds separate from a law firm’s operating expenses, all while benefiting the community.
• In other words, unearned money held in an IOLTA account cannot be used for operating expenses, or a lawyer’s personal expenses.

If you’re just starting out and think you’ve set up your accounting the wrong way, talk to a professional accountant with experience dealing with IOLTA. Let’s say that one day you discover a small shortfall in your IOLTA account, and you can’t account for how it got there. Whatever the reason, borrowing from an IOLTA account carries stiff penalties, and is one of what is an iola account used for the most common ways to get disbarred. Also at the ABA Commission on IOLTA’s request, the ABA filed two amicus curiae briefs in support of the Washington state IOLTA program, one before the Ninth Circuit Court of Appeals and one before the U.S. Supreme Court, as well as one in support of the Massachusetts IOLTA program before the First Circuit Court of Appeals.