IOLTA Basics

"Interest on Lawyers' Trust Accounts," or IOLTA, is a program created in 1985 by the Massachusetts Supreme Judicial Court, acting under its constitutional power to regulate lawyers and the practice of law. It requires lawyers and law firms to establish pooled interest-bearing accounts for client deposits that are nominal in amount or expected to be short-term. First approved as a voluntary program in 1985, the SJC converted IOLTA to a “comprehensive” program in 1990 and required all eligible lawyers to participate.  The interest generated on IOLTA accounts is used to support civil legal aid programs that provide legal advice and help to people who cannot afford a lawyer and to fund projects that work to improve the administration of justice across the Commonwealth.

Lawyers holding funds on behalf of a client must place the funds either in an account that pays interest to the client or in a pooled IOLTA account that pays interest to the IOLTA Committee to be used to fund civil legal aid and administration of justice programs. An IOLTA account may be selected if the funds are relatively modest or will be held by the lawyer for only a short time.
Examples of client funds that may be appropriate to put in an IOLTA account include settlement checks, retainers and other fees advanced for services not yet performed, and funds related to real estate transactions.

Although each IOLTA deposit earns a very small amount of interest, the pooled IOLTA accounts accumulate enough interest to make a substantial contribution to improving the administration of justice and to providing civil legal services to families and individuals in Massachusetts who cannot afford a lawyer. In fiscal year 2021, interest on IOLTA accounts totaled more than $7 million.

Massachusetts Rule of Professional Conduct 1.15 and the 2009 IOLTA Guidelines provide rules and guidance regarding the Massachusetts IOLTA program and IOLTA accounts.

• Review the Client Funds Manual for Attorneys and the Operations Handbook for Financial Institutions.
• The BBO regularly conducts a free Trust Account Training that explains the records required to be maintained for IOLTA accounts and other trust accounts. See the IOLTA Committee’s Calendar-Upcoming Events for upcoming dates and details.
• Follow the IOLTA Committee on social media for updates and helpful hints about IOLTA accounts:

Not at all. The first IOLTA program in America was established in Florida in 1981. Since then, all 50 states and the District of Columbia have adopted IOLTA programs.

The mission of the IOLTA Committee is to increase access to justice for all residents of the Commonwealth by funding and supporting programs that provide civil legal services to low- and moderate-income esidents and initiatives that improve the administration of justice. Interest earned from IOLTA accounts is used to support these law-related public service programs. Specifically, IOLTA funds are received by the IOLTA Committee and then distributed among three charitable entities: The Boston Bar Foundation, The Massachusetts Bar Foundation, and The Massachusetts Legal Assistance Corporation. These three entities use the IOLTA funds to make grants to local civil legal services programs that employ staff attorneys, paralegals, volunteer lawyers, law students, and community advocates to represent clients in family, housing, consumer, employment, education, disability, and similar legal matters. Grants to improve the administration of justice include such efforts as alternative dispute resolution projects, lawyer- for-day programs at courthouses, and legal clinics.

Unlike criminal defendants, people facing serious civil legal problems—such as domestic violence, housing insecurity, employment, government benefits, consumer debt, and elder issues—generally do not have the right to an attorney if they cannot afford one. Legal aid programs provide free civil legal services but, due to insufficient funding, legal aid organizations in Massachusetts are forced to turn away nearly 60% of eligible people seeking help. The interest earned on IOLTA accounts and other funds distributed by the IOLTA Committee are essential to helping to close this justice gap. Since its inception in 1985, the IOLTA Committee has distributed more than $358 million.

More information about how IOLTA funds are used in the public interest is available in the IOLTA Committee’s annual report.

No one pays any taxes on the interest earned on IOLTA accounts. The IRS has ruled that the interest generated on these accounts is not taxable to the lawyer, law firm, or client. Financial institutions are instructed to report the income to the IRS as received by the IOLTA Committee. Any lawyer who receives a 1099 for interest earned on the IOLTA account should contact the IOLTA Committee.