With the relatively recent addition of IOLTA, states have placed new accounting, management, and fiduciary responsibilities upon attorneys. Violations of IOLTA rules can result in disciplinary action. This week we'll explore the basic IOLTA landscape, what is necessary for compliance, and some common pitfalls to avoid, as well as common questions and concerns.
IOLTA (Interest on Lawyers' Trust Accounts Program) allows attorneys to place nominal or short-term client trust funds into an interest-bearing IOLTA account. Traditionally, it was not permissible for these funds to earn interest. However, with a change in banking regulations in the early 1980s, banks may now remit the interest earned to certain nonprofit organizations - IOLTA nonprofit foundations.
Depending upon your state's stance on IOLTA, participation may be comprehensive (mandatory), voluntary, or you may be able to opt out. Two states now have voluntary, 28 have mandatory, and 22 have opt-out programs. If you are unsure of your state's stance on IOLTA, check with your IOLTA foundation.
How is the interest utilized?
Your state's foundation determines how IOLTA program funds may be used. Generally, funds are distributed to legal public-service programs. Some common grants include: programs providing legal assistance
to disadvantaged or low-income persons, legal clinics, law school clinical programs, educational programs and brochures, pro bono attorneys, legal education student loans, and programs designed to improve the administration of justice.
Since the first IOLTA program was created in Florida in 1981, state foundations have donated more than $2 billion to designated programs. Each year IOLTA programs generate more than $164 million. If you are involved in one of your state's designated IOLTA grant programs or are included on its list of eligible grantees, you may be eligible for IOLTA monies. See your state foundation for details.
In the 2 remaining voluntary states, attorneys must proactively volunteer to participate in the program. Generally, participation in these states is lacking. For this reason, the majority of states utilize either opt-out or comprehensive programs. For example, on May 10, 2004, Oklahoma switched from a voluntary to a comprehensive program. Prior to this, only 24% of OK attorneys particpated in that state's voluntary program, which prompted this change. South Dakota and the Virgin Islands are the 2 remaining voluntary states/territories.
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