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To view the Guidebook for Lawyers and Law Firms, please visit here. Q: What is the basic concept of IOLTA? A: Clients often transfer money to an attorney to hold. 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. But, when the funds are small or expected to be held for a short time, they cannot practically be invested to benefit the owner of the funds. The IOLTA program allows attorneys to convert these accounts into interest-bearing accounts that generate interest income. The financial institution sends the interest directly to the Foundation which distributes the funds as grants to a variety of initiatives that support the justice system.
Q: How are IOLTA eligible funds determined? A: “Nominal” or “short-term” funds are those of a client or third party that the lawyer has determined cannot provide a positive net return to the client or third party. An attorney shall exercise good faith judgment in determining whether or not funds belong in an IOLTA account. No lawyer shall be charged with ethical impropriety based on the exercise of good faith judgment.
Q: Do all attorneys need IOLTA accounts? A: Only attorneys that handle client trust funds that are nominal in amount or held for a short time are required to establish IOLTA accounts. Licensed attorneys in South Carolina who do not handle client trust funds are not required to establish an IOLTA account.
Q: Who qualifies for exclusion? A: The following Bar members are excluded: lawyers who do not maintain the practice of law; those employed in a corporate capacity; those employed by local, state or federal government; law clerks, professors or members of the judiciary; retired attorneys; lawyers whose practices do not require the maintenance of trust/escrow accounts and those who do not have an office or maintain funds in depository institutions in the state. Exclusions may be noted on the annual SC Bar license fee statement.
Q: Who is exempt? A: An IOLTA account that has or may have the net effect of costing the IOLTA program more in fees than earned in interest over a period of time may, at the discretion of the Foundation, be exempted from the IOLTA program. Lawyers may also request exemption if participation would work an undue hardship or would be extremely impractical. Attorneys desiring exemption due to hardship should make their request in writing to the Bar Foundation Board of Directors. Contact the Foundation for exemption forms.
Q: Where do attorneys deposit client trust funds that do not meet the short-term or nominal fund requirements of IOLTA? A: Client trust funds that do not meet the nominal or short-term fund requirements of an IOLTA account should be deposited in a separate demand account to earn interest for the benefit of that client. The attorney must use that client’s tax ID number instead of SCBF’s tax ID number.
Q: What taxpayer ID number should be used when opening an IOLTA account? A: SCBF’s TIN is 23-7181552. This is the TIN that must be used when opening an IOLTA account. The attorney’s or law firm’s TIN should never be used when an IOLTA account is opened.
Q: Are IOLTA accounts subject to service charges? Who pays the services charges? A: If the financial institution assesses service charges and fees on the IOLTA account, they should be reasonable and customary. Certain reasonable fees as defined in the Rule may only be deducted from interest or dividends that are earned on IOLTA accounts; they may not be deducted from the IOLTA principal. All other fees and service charges are the responsibility of the attorney or law firm maintaining the account. The financial institution may choose to waive any and all fees on an IOLTA account.
Q: How can financial institutions assist attorneys or law firms in opening IOLTA accounts? A: The financial institution can have on hand a copy of the Enrollment Form for Lawyers and Law Firms, which instructs the financial institution on how to establish an IOLTA account. The financial institution or attorney must fax or mail a copy of the completed form to the Foundation.
Q:
What should I do
if I change firms or go into private practice?
Q: Are there any tax consequences for the client or for the attorney? A: There are no tax consequences for the attorney or client. Financial institutions should not issue IRS 1099 forms to anyone including the attorney, law firm nor the attorney’s client.
Q: How can my financial institution become a Prime Partner? A: Contact the SCBF staff about how your financial institution can become a Prime Partner.
Q: Would attorneys have to change to banks paying higher rates? A: No. IOLTA comparability rule only requires a bank to pay its own IOLTA customers the highest interest rate generally paid to its own non-IOLTA customers with comparable accounts. It does not require a bank to pay rates other than that which the bank itself has established.
Q: What if a financial institution doesn’t offer higher rates of interest to non-IOLTA customers with comparable accounts? A: The bank would be in compliance with the rule as long as the bank is paying comparable rates to its IOLTA and non-IOLTA customers. The financial institution is required to do no more than pay the same rates on IOLTA accounts as it already pays on similarly situated non-IOLTA accounts. For example, most financial institutions offer non-IOLTA depositors preferred interest rates for larger balances. However, many of these same institutions do not distinguish between very small and very large balance IOLTA accounts. The rule simply requires that they now pay the large balance IOLTA account the same rate it would otherwise qualify for, were it not an IOLTA account.
Q: How will attorneys know if their financial institution an eligible IOLTA institution? A: The SCBF will maintain a list of eligible institutions on its Web site. Institutions will be certified as eligible by SCBF upon a finding that they are in compliance with the rule and based on the documentation and ongoing reporting the institution will file with SCBF.
Q. Where are insufficient funds notices sent? A. NSF notices should be sent to the Commission on Lawyer Conduct. Their address is PO Box 12159, Columbia, SC 29211. A copy does NOT need to be sent to SCBF.
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