WHAT IS IOLTA?
Currently, Interest on Lawyers Trust Accounts (IOLTA) programs are operating in 50 states, the District of Columbia, and the U.S. Virgin Islands. IOLTA programs are methods of raising money for charitable purposes, with most of the money going to organizations that provide civil legal services to indigent persons. States and other jurisdictions in the United States have been developing IOLTA programs since 1981, when Congress changed the banking laws to allow some checking accounts be bear interest.
Lawyers often handle money that belongs to clients – such as settlement checks, fees advanced for services not yet performed or money to pay various court fees. Sometimes the amount of money that an attorney handles for a single client is quite large. In such cases, lawyers deposit the funds into accounts, where the funds can earn interest for the client.
Very often, however, the amount of money that a lawyer handles for a single client is quite small or held for only a short period of time. Traditionally, lawyers have placed these deposits into combined, or pooled, trust accounts that contained other nominal or short-term client funds.
Before state laws and supreme court rules created IOLTA programs, trust funds pooled in this manner earned no interest. This is because trust accounts typically are checking accounts (to allow easy access to the funds) and, until the 1980s, checking accounts did not earn interest. In addition, these trust funds earned no interest because it is unethical for attorneys to derive any financial benefit from funds that belong to their clients.
Now, by virtue of IOLTA, attorneys who handle nominal or short-term client funds are required to place these funds in a single, pooled, interest-bearing trust account. Banks in turn forward the interest earned on these accounts to the state IOLTA program, which uses the money to fund a variety of charitable causes.
Although IOLTA creates income, nothing else is changed: 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 client funds that are pooled in IOLTA accounts are funds that cannot earn net interest for the client.
Most banks treat IOLTA accounts as Negotiable Order of Withdrawal or other Business Interest Checking accounts. Banking regulations hold that attorneys can set up the accounts as NOW accounts even though the attorney-depositor may be a for-profit corporation, because the interest goes to a not-for-profit charitable entity.
Since 1986, over 90 percent of the grants awarded by IOLTA programs nationally have supported the delivery of legal services to the poor through staffed legal services programs and bar association-sponsored pro bono programs. IOLTA funds a variety of other activities including: alternative dispute resolution programs, young lawyer special public service projects, victim services programs, foreclosure issues and prevention, and Law Related Education programs.
The Rhode Island Foundation IOLTA program makes significant grants in four main areas:
1. Providing legal services to the poor in Rhode Island;
2. Improving the delivery of legal services;
3. Promoting knowledge and awareness of the law;
4. Improving the administration of justice.
Since its inception, the IOLTA fund has allocated millions of dollars to RI organizations for legal services for the poor as well as help in the improvement of the administration of justice.
IOLTA grants currently range from $4,500.00 to $ 224,976.00. Click on IOLTA GRANTS for more information.
Notice of Certification of Compliance Form for IOLTA