Interest on Lawyers' Trust Accounts


The premise underlying IOLTA is ingenious and compelling— client trust funds which are nominal in amount and held for a short period can constitute an economic resource that can be used to generate income which would not otherwise exist. The revenue created can be used to fund a variety of law-related public service programs.

During the representation of a client, a lawyer may hold the client's money for a period of time. For example, a client may give the lawyer money for court costs or an insurance company may send a settlement check for a client drawn to a lawyer.  Lawyers are ethically bound to hold all client money in separate accounts reflecting the fiduciary responsibility of a lawyer to his or her client.

Until the 1980s, client funds were held in non-interest bearing checking accounts. Since the funds were usually nominal in amount or held for a short term, lawyers routinely and appropriately commingled client funds in one account, as it would have been prohibitively expensive to open and maintain a separate account for each client.  The financial institutions were able to use the money until it was actually demanded from the account, so the "float" realized on these accounts benefited the financial institution. The question arose, "Can these accounts earn interest for beneficial purposes without violating ethical principles?"

After five years of study in Florida, an IOLTA program was recommended that would allow attorneys to open interest-bearing trust accounts. That work culminated in the adoption of this country's first IOLTA program in 1978. The following February, the Conference of Chief Justices of the fifty states adopted a resolution endorsing the Florida program and recommending its initiation in other states.

In 1981, the Internal Revenue Service issued Revenue Ruling 81-209, which found that interest earned on client's nominal and short-term funds deposited in a lawyer's trust account is not included in the gross income of the client if it is paid over to a bar foundation, pursuant to a plan established by the state. The ruling cleared the way for IOLTA programs to become operational and, currently one exists in every state and the District of Columbia.

Interest income is created, but nothing else is changed — the lawyer has satisfied the ethical and fiduciary duties to place client funds in a secure account, there is on-demand access to the client's money and the client realizes no income because each individual client's share of interest produced is offset by permissible charges and fees. A positive result, however, occurs — IOLTA earnings are made available to fund such worthy goals as providing representation to those unable to afford a lawyer and/or improving the administration of justice. 

The Missouri Experience


In 1982, the President of The Missouri Bar appointed a Special Task Force on Interest on Lawyers' Trust Accounts. That group, headed by Kansas City attorney Stanley P. Weiner, worked with The Bar and local bar associations to recommend the Supreme Court of Missouri establish a Missouri program. The Court amended Disciplinary Rule 9-102 of the Code of Professional responsibility in October of 1984, making Missouri the 30th state in the nation to adopt such a program. The Missouri Lawyer Trust Account Foundation, the entity responsible to implement and administer Missouri's IOLTA program, was created by the same Court Order.

In 1990, the Supreme Court of Missouri amended Rule 4-1.15 to convert Missouri’s IOLTA from a voluntary to an opt-out program. Then in 2007, the Court further amended Rule 4-1.15 to require financial institutions participating in the IOLTA program to pay interest rates on IOLTA accounts comparable to those paid to non-IOLTA customers and to require comprehensive participation by lawyers.  Revenues generated by the program are then distributed to grantees by the Foundation's 13 member Board of Directors.  In recent years, funds were distributed to Missouri legal services programs, bar association-sponsored pro bono programs, alternative dispute resolution programs, victim services, court appointed special advocates, school-based mock trial programs and other law related education projects.

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