What Is an IOLTA Account and How Does It Work?

1. What an IOLTA Account Is

An IOLTA (Interest on Lawyers’ Trust Account) is a trust account used to hold client funds that are too small or short-term to earn interest for the client. Any interest earned is automatically sent to the state’s IOLTA program to fund legal aid services.

2. Why Law Firms Must Use an IOLTA

Ethics rules prohibit lawyers from mixing client funds with firm money. IOLTA accounts keep client funds separate, traceable, and properly safeguarded.

3. When Funds Go Into an IOLTA

Client money held temporarily such as retainers, settlements awaiting disbursement, filing fees, or transaction deposits must be placed in an IOLTA.

4. How IOLTA Interest Works

Neither the firm nor the client earns the interest. Banks automatically remit it to the state’s IOLTA program to support access to legal services.

5. Recordkeeping Requirements

Firms must maintain detailed client ledgers and trust records with monthly three-way reconciliations.

6. Common IOLTA Mistakes

Depositing earned fees into IOLTA, failing to remove earned fees, poor client tracking, or allowing bank fees to hit the trust account.

7. Why IOLTA Matters

Proper IOLTA management protects client funds, ensures ethical compliance, and reduces audit risk.

📩 Need help cleaning up or maintaining your IOLTA or Escrow accounts?

Reach out to Lazar Accounting Solutions

Sandra@lazaraccounting.com