Lawyers and Legal Fees - Lawyers Trust Account (IOLTA)
What is a Lawyer Trust Account?
Most money held by lawyers on behalf of clients or third parties is held in a trust account. Lawyers commonly hold two types of funds in their trust accounts: client payments for work the lawyer has not yet performed and money which may be owed to a third party (such as a medical provider). Lawyers must safeguard these funds in an account at a financial institution. These types of accounts are called IOLTA (Interest on Lawyers Trust Accounts).
What happens to the interest earned on IOLTA accounts?
Under Arizona Supreme Court rules (Rule 43), the interest earned on IOLTA accounts is entrusted to the Arizona Foundation for Legal Services and Education, a non-profit organization that exists to improve justice and education about our justice system. The IOLTA program has generated more than $2 billion for people in need of legal services.
Why don't the clients receive the interest generated by IOLTA accounts?
If a client's funds are a large amount, and will be held for a long time, the lawyer may keep the client's funds in a separate account and the client may receive the interest earned. However, an individual client's funds are often not large enough, nor held long enough, to earn any interest in a trust account. The IOLTA program provides a cost-effective way for lawyers to safeguard these funds in a pooled account. The interest from these pooled accounts is then used for the public good.
How do the clients know the money in the pooled accounts is safe?
Lawyers must comply with Supreme Court rules relating to their conduct, including how they manage their IOLTA accounts. They must maintain Iolta accounts only at a regulated and approved financial institution whose deposits are federally insured, who agree to comply with required reporting and to transmit funds as required to the foundation. In rare instances, clients have been concerned that their attorneys took funds to which he/she was not entitled. Those occurrences should be reported right away to the State Bar by calling 602.340.7280.
Who makes sure the Foundation receives the interest?
Lawyers are responsible for making sure the financial institution sets up the IOLTA accounts so that it pays the interest directly to the foundation.