IOLTA FAQ's

Are my client funds safe?

What is the basic concept of IOLTA?
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, the when 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 standard trust checking 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.

Do IOLTA programs operate elsewhere?
Yes! Fifty states and the District of Columbia operate IOLTA programs in addition to a number of British and Canadian jurisdictions.

How do I comply with Rule 412?
Use an Enrollment Form for Lawyers and Law Firms to direct your financial institution to convert all of your pooled fiduciary trust accounts to interest-bearing IOLTA accounts. Submit a copy of the enrollment form, along with a list of all lawyers who use the IOLTA accounts, to the Bar Foundation. Each member will certify on their annual license fee statement that they are in compliance with Rule 412, that they are excluded or that they have been approved for exemption.

Who qualifies for exclusion?
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.

Who is exempt?
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.

How does a mandatory program affect financial institutions?
Financial institutions are not required to participate in IOLTA. However, the Foundation is available to work with banks on establishing the program at their institutions. Currently, more than 90 financial institutions participate in SC’s IOLTA program. If the bank of your choice is unable to participate, the Foundation can assist you in locating a bank that does offer IOLTA accounts.

Are there any tax consequences?
No – SC’s IOLTA Program is designed to avoid any tax consequences. No participating attorney, law firm or client is required to report IOLTA interest as taxable income.

How much of my time will this involve?
Virtually no additional time is required. The mechanics of converting an account are simple and, once that is done, there is no additional effort on your part. The process of determining where to place client funds is the same—the only difference is that eligible funds should be placed into an IOLTA account as opposed to a non-interest bearing trust account.

How do I determine what are IOLTA eligible funds?
“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.

What should I do if I change firms or go into private practice?
If you join a firm, you may participate through their IOLTA account(s) and should indicate your change on the Change of Status form. If you are opening your own practice, you should complete an Enrollment Form for Lawyers and Law Firms and refer to the above procedures on compliance with Rule 412.

How will my clients be affected?
They won’t – from the clients’ perspective, placement of funds is irrelevant because the program only involves funds which an attorney would not otherwise invest on the clients’ behalf

Can I still open a separate account for clients’ funds?
Certainly – as in the past, lawyers have soundly exercised discretion in determining whether a given trust deposit was of sufficient size or duration to justify placement in a separate interest bearing account. Rule 412 does not affect the lawyer’s discretion in this matter. The Rule requires lawyers to decide whether a separate interest-bearing account should be established to benefit the client or owner of the funds

Does IOLTA affect current trust account practices?
No – once you open an IOLTA account, you will go about your client trust business as usual. The confidential, fiduciary relationship between you and your clients remains unchanged and there are no new records to keep.

What about service charges and handling fees?
Fees for wire transfer, insufficient funds, bad checks, stop payment, account reconciliation, negative collected balances and check printing are not considered customary account maintenance charges and may not be assessed against an IOLTA account. Such non-routine fees must be brought to the attention of the lawyer or law firm, who in turn may absorb these specific costs or pass along those fees to the client(s) being served by the transaction (in accordance with attorney/client agreements). Negative interest earnings resulting from service charges which exceed interest earned are prohibited on IOLTA accounts. Service charges may only be imposed to the extent of interest earned on an individual account.