IOLTA Information for Lawyers
-General Information About IOLTA-
Which of my law practice accounts must be established and maintained as IOLTA accounts?
All general client trust accounts must be established and maintained as interest-bearing IOLTA accounts, interest from which is remitted to NC IOLTA at the State Bar. General client trust accounts are those accounts that hold nominal and short-term deposits of client funds.
How do I comply with the NC State Bar rules regarding NC IOLTA?
All active members of the North Carolina State Bar who maintain general client trust accounts in North Carolina must ensure that all their general client trust accounts are established as interest-bearing IOLTA accounts. Lawyers must certify annually when paying their NC State Bar Dues—either on the Dues Notice form or electronically—that all general client trust accounts maintained by the lawyer/law firm are IOLTA accounts. Lawyers must be in compliance with this requirement no later than June 30.
Lawyers must also inform NC IOLTA when opening or closing IOLTA accounts. The NC IOLTA Status Update Form should be used for this purpose. It should also be used to report employment or address changes.
As of July 1, 2010, lawyers may hold IOLTA accounts only at “eligible” banks that will agree to pay IOLTA accounts the highest rate available to that bank’s other customers when the IOLTA accounts meet the same minimum balance or other account qualifications (comparability requirement). NC IOLTA maintains a list of eligible banks.
Does maintaining my general client trust accounts as interest-bearing IOLTA accounts affect my trust account practices?
No. Maintaining general client trust accounts as interest-bearing IOLTA accounts does not affect a lawyer's trust account practices. The depository bank will calculate and remit all accumulated interest, less any service charges, directly to NC IOLTA. The principal balance of the account will never be affected. Of course, lawyers still retain complete discretion to determine whether a trust deposit is of sufficient size or duration to justify placement in a separate (dedicated) interest bearing account.
How are bank service charges on IOLTA accounts handled?
NC IOLTA pays routine service charges on IOLTA accounts. Some banks waive service charges on IOLTA accounts. It is permissible for banks that do not waive service charges on IOLTA accounts to deduct from interest or utilize earnings credit for routine service charges associated with the account. Routine service charges include monthly account maintenance charges, per item check or deposit charges, etc.
Business costs or costs billable to others are the responsibility of the law firm and should not be charged against client funds in the IOLTA account or against the interest or the earnings credit of an IOLTA account. These charges may be deducted from the firm’s operating account, billed to the firm, or deducted from funds maintained or deposited by the lawyer in the IOLTA account for that purpose. Examples of such costs include but are not limited to check printing, NSF/OD fees, stop payment orders, wire transfer fees, account reconciliation, remote capture capability, on-line banking, digital imaging, CD Rom statements, or interest charged on uncollected balances (float).
Are there tax consequences to maintaining IOLTA accounts?
According to the Internal Revenue Service, maintaining IOLTA accounts imposes no tax consequences to the client or the lawyer. See Revenue Ruling 81-209. Each IOLTA account bears the tax identification number of the NC IOLTA Board of Trustees to ensure that all accumulated interest is reported as income of the IOLTA program. If your bank needs IOLTA's tax id number, please contact the IOLTA office at 919-828-0477.
How are clients informed about NC IOLTA?
In 1988, the North Carolina Supreme Court approved the posting of a Client Notice Certificate to inform clients about the IOLTA program. NC IOLTA provides Client Notices to attorneys at no charge.
Does maintaining IOLTA accounts deprive clients of any funds to which they are entitled?
No. Trust moneys of the type placed in IOLTA accounts (nominal in amount or expected to be held for a short duration) have traditionally been deposited in lawyers' trust accounts. Prior to the IOLTA program, such accounts did not earn interest. The North Carolina State Bar now requires general trust accounts to earn interest, which is remitted to NC IOLTA for funding law-related charitable purposes.
Of course, lawyers still retain complete discretion to determine whether a trust deposit is of sufficient size or duration to justify placement in a separate (dedicated) interest bearing account.
Should funds be placed into a general client trust account in error, NC IOLTA has policies and procedures through which the amount erroneously remitted is refunded.
What if I want to open my general trust account at a bank that does not currently have IOLTA accounts?
A list of North Carolina banks eligible to hold IOLTA accounts is maintained by NC IOLTA. If you wish to establish an IOLTA account at a bank that is not listed, please have the bank contact the IOLTA office at 919-828-0477.
If a law firm holds funds of NC clients in an out-of-state account, how should that account be set up?
Under the Rules of Professional Conduct, all general trust accounts must be maintained at a bank in North Carolina or a bank with branch offices in North Carolina. As the comment to the trust account rules notes, a law firm with offices in another state may send a North Carolina client’s funds to a firm office in another state for centralized processing; however, the client funds are still subject to the requirements of the NC Rules of Professional Conduct. Therefore, the NC client funds should be placed into a general trust account, the interest from which will be remitted to NC IOLTA.
How can I get questions answered about my trust account when I call the NC State Bar?
A number of staff people in different departments
at the NC State Bar may be able to assist with your trust account question
depending upon the type of question. If you let the receptionist know the
type of question you have, we can better assist you in reaching the
correct staff person in the first instance.
Questions about trust accounts generally fall into one of three categories:
- Questions regarding trust account practices: Peter Bolac for technical advice. Nicole McLaughlin and Suzanne Lever for ethics questions.
- Questions, explanations, or issues regarding a NSF (non-sufficient funds) notification: Sonja Puryear.
- Questions regarding IOLTA compliance, such as how to establish an IOLTA account or certify as to compliance: Evelyn Pursley, Claire Mills, Aaliyah Pierce, and Mary Irvine at 919-828-0477.
How can I find out whether a bank’s policies are favorable to IOLTA accounts?
As of July 1, 2010, lawyers may hold IOLTA accounts only at “eligible” banks that will agree to pay IOLTA accounts the highest rate available to that bank’s other customers when the IOLTA accounts meet the same minimum balance or other account qualifications. NC IOLTA maintains a list of eligible banks.
Many banks waive service charges on IOLTA accounts, and some banks apply a policy to IOLTA accounts that results in a higher income yield from that bank. Banks that waive service charges are noted on the list. Some banks have agreed to be Prime Partners for NC IOLTA by going above and beyond the eligibility requirements of the IOLTA Rule to support the NC IOLTA program in its mission to ensure that low-income North Carolinians have access to critically needed legal aid. These banks pay a net yield of 75% of the Federal Funds target rate or 0.75%, whichever is higher. These banks are specially recognized on the Eligible Bank list.
If you would like to have more information about IOLTA policies or accounts at a particular bank, you may call the NC IOLTA office at 919-828-0477.
How are IOLTA funds used?
The North Carolina State Bar and the North Carolina Supreme Court allow IOLTA funds to be used, after administrative expenses, to fund grants under the following four categories:
- providing civil legal aid to indigents;
- enhancement and improvement of grievance and disciplinary procedures for lawyers;
- development and maintenance of a fund for student loans for legal education on the basis of need; and
- such other programs designed to improve the administration of justice as may be proposed by the IOLTA Board of Trustees and approved by the North Carolina Supreme Court.
IOLTA administrative costs are paid from program income and are under ten percent of income since its inception.
Who makes the IOLTA grant decisions?
Grant decisions are made annually by the NC IOLTA Board of Trustees, who administer the program according to the rules promulgated by the NC State Bar Council and approved by the NC Supreme Court. 27 NCAC 1D .1301-21 The board is a standing committee of the NC State Bar Council, the representative governing body of the State Bar, whose members are elected by the bar membership through the judicial districts. IOLTA trustees are appointed by the NC State Bar Council. NC IOLTA grants are for the calendar year, and all grant applications are reviewed annually by all the trustees.
A current list of members of the IOLTA Board of Trustees, along with a list of past board members, can be found here.
Where can I find rules governing NC IOLTA?
What happens if I don’t comply with the IOLTA rules for trust accounts?
A lawyer who fails to comply with the NC IOLTA Rules shall be reported to the NC State Bar’s Administrative Committee which may initiate proceedings to administratively suspend the lawyer’s active membership status and eligibility to practice law.
For more information, please contact IOLTA.