Trust Accounts Basics: What Belongs in Your IOLTA?

Lawyers are required to keep certain funds and property separate from their own. Rule 1.15 lays out the requirements, but here are some highlights each practitioner needs to be cognizant of.

Lawyers are required to put client funds or third party funds in their IOLTA whenever the funds are held in connection with a representation, but not otherwise. For example, if a lawyer is working on a transaction for a client and that client asks the lawyer to put funds into the lawyer’s trust account and those funds are completely unrelated to the transaction (read- money from soon to be ex-spouse), those funds do not belong in the lawyer’s trust account.

Client funds that belong in the IOLTA include:

  1. advances on fees;
  2. retainers to be drawn down as work is performed; and
  3. costs advanced by the client.

Once all or part of a retainer is earned, those funds no longer belong in the IOLTA. And more than just client funds belong in the IOLTA. For example, if the funds belong to a third person/entity (read – funds to pay medical providers), these also belong in the lawyer’s IOLTA. As a fiduciary for the client, the lawyer holds third party funds in connection with the representation, maintains records and distributes the funds as though they are client property.

Not only are certain funds to be placed in the IOLTA, but the lawyer is required to (1) promptly notify the client of the receipt of the funds; (2) promptly deliver the funds upon demand (3) provide a full accounting upon request; and (4) maintain complete trust account records for seven years after the conclusion of the representation.

Whenever a lawyer is holding non-fungible property (stocks, bonds, etc.) for a client, Rule 1.15 requires the lawyer to create and maintain a record that identifies the property, the date received, the client associated with the property, and the date of distribution. These records must also be kept for seven years.

Mixing attorney funds and client funds in an IOLTA constitutes commingling. Nonetheless, lawyers are allowed to put their own funds into an IOLTA but only for one specific purpose – to cover the costs of maintaining the account. So, attorneys are allowed to deposit an amount sufficient to cover the costs of opening and maintaining the account. While a lawyer cannot keep funds in the IOLTA to cover overdrafts, it is permissible to maintain an amount that the financial institution requires for a waiver of bank costs.

The basic rule on what belongs in an IOLTA is simple – if it is someone else’s money and it is related to a representation, it belongs in your IOLTA.