Attorney FAQ

Q. What is IOLTA?

IOLTA is an acronym for "Interest on Lawyers' Trust Accounts," a program which collects and uses interest from certain attorney trust accounts for charitable law-related activities.

Q. Who created the Massachusetts IOLTA program?

The program was created in 1985 by the Supreme Judicial Court, acting under its constitutional power to regulate lawyers and the practice of law.

Q. What types of client funds are held by lawyers?

Lawyers often hold money that belongs to clients — such as settlement checks, fees advanced for services not yet performed or money to pay for various court fees. When the amount of money that an attorney handles for a client is relatively large and is held for a lengthy period of time, the lawyer deposits the money in a separate bank account. The funds then earn interest for the client. But when the amount of funds held for a client is relatively small, or large amounts held for only a short period of time, the funds are deposited into an IOLTA account.

Q. How does the IOLTA program work?

In accordance with the Rules of the Supreme Judicial Court, lawyers are prohibited from collecting and keeping interest earned on client funds. Before the IOLTA program was established, lawyers placed short term and small amounts of client funds into non interest-bearing bank accounts. Clients did not receive any interest and the financial institutions holding these funds benefitted by not having to pay interest on these funds. Now, just as before the establishment of IOLTA, when an individual client's funds are large enough to generate interest for the client, the client must receive the interest.

Q. If IOLTA accounts hold enough money to earn interest, why doesn't the client receive the interest?

IOLTA accounts hold funds belonging to many clients in a single account. It is the combined average balance in the account that earns the interest. While the money in an IOLTA account belongs to many separate clients, the interest generated by all their combined accounts does not. If the amount of funds is relatively small, or the funds will be held for only a short period of time, the client's funds would earn less than the cost of opening and closing an account or a sub-account. The costs would exceed the interest generated, and the client would lose money.

Q. Why don't the recent advances in data processing technology make it possible to track even the smallest amounts of money and compute the interest?

The technology has been there for many years. The problem is that financial institutions charge more to open and close these individual client fund accounts than the amount of interest the account will generate, so it would cost the client more to track the interest than he or she would earn.

Q. Where does the combined interest go?

The money is used to provide civil (non-criminal) legal services to the poor and to fund improvements in the administration of justice. In every city and town in the Commonwealth, IOLTA money is used to provide advice and representation for low income families for their housing, consumer, family, income maintenance, employment, education, disability and other civil matters. Specifically, the money is used to fight domestic violence, homelessness and hunger.

Q. Are there IOLTA programs in every state?

Yes. IOLTA programs operate in all 50 states and the District of Columbia.

Q. What are attorneys required to tell their clients?

Attorneys are required to notify a client that funds have been received, to maintain records concerning the funds and to pay to the client promptly any funds in the attorney's possession. As before IOLTA, attorneys are required to open separate accounts for clients when the client could earn more interest than it would cost to open, maintain and close the account. When this occurs, the clients are asked where to direct any net interest earned on funds the client deposits with the lawyer.

Where the client would not earn interest, the funds are placed into a pooled account. As before IOLTA, the lawyer is not required to but may tell the client that the money goes into a pooled account.

In summary:

Although IOLTA creates income, lawyers satisfy their ethical and fiduciary duty to place client funds in a secure account; there is on-demand access to the client's money; and, as in the past, the client realizes no interest income because the nominal or short term clients' funds that are pooled in IOLTA accounts are funds that would have earned no net interest were they deposited in separate, individual accounts on the client's behalf.