IOLTA & Escrow Business Checking

FAQs

• What is an IOLTA account?
  IOLTA stands for "Interest on Lawyers' Trust Account". Some states such as a Virginia and North Caroline, require that attorneys who handle client funds, including settelment checks, fees advanced for services not yet performed or, money to pay court fees, deposit the funds in one or more clearly identifiable trust accounts. All funds received or held for the benefit of clients by a member or law firm, including advances for costs and expenses, shall be deposited in one or more identifiable bank accounts labeled "Trust Account," "Client's Funds Account" or similar. If the amount is large or the funds are to be held for a long period of time, the attorney must place the money at interest for the benefit of the client. However, if the client funds are not capable of earning income for the client in excess of the costs of securing such income, including staff time and expenses to segragate those amounts, then they are pooled in a single account with simliar funds of other clients. In states that don't require attorneys to manage client funds in IOLTA accounts, funds can be deposited into non-interest bearing check accounts. Currently under rules and/or statues in every state, an attorney may or must pool nominal or short-term client funds in an interest-bearing account.
• Why was the IOLTA program created?
  States that have authorized the IOLTA program are responding to the need for increased access to civil legal representation by legal aid programs for constituents whose incomes fall below the poverty level. The charitable purposes of the IOLTA program are:
  (a) To provide legal assistance to the poor;
  (b) To provide student loans, grants, and/or scholarships to deserving law students;
  (c) To improve the administration of justice; and
  (d) For such other programs for the benefit of the public as are specifically approved.
• Does TowneBank offer IOLTA accounts?
  Yes, TowneBank offers IOLTA accounts in Virginia, North Carolina and South Carolina. You can learn more about our offering here.
• How does an IOLTA work?
  Under the Supreme Judicial Court's Interest on Lawyers' Trust Accounts (IOLTA) program, lawyers holding funds on behalf of a client must place the funds either in an account which pays interest to the client or in an IOLTA account. An IOLTA account may be selected if the funds are relatively nominal or will be held by the lawyer for only a short time. In either of these situations, the interest earned for the client above the applicable cost of establishing and maintaining an account for the benefit of the client are sent to the state bar. Although each IOLTA deposit may earn 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 individuals who cannot afford to hire a lawyer.
• What states participate in the IOLTA program?
  North Carolina and Virginia are among 47 jurisdictions (including Washington D.C.) to require IOLTA program participation.
• What IOLTA rule changed in Virginia in July 2022?
  The new rule, effective July 1, 2022, makes participation in IOLTA by lawyers and law firms mandatory in Virginia. Lawyers holding IOLTA eligible funds may no longer "opt-out" of the program as they were previously able to do. The rules also define institutions "eligible" to hold IOLTAs as only those banks which have IOLTA programs approved by the applicable state bar.
• Is an IOLTA account and an escrow account the same thing?
  An escrow account is a specialized account designed to simplify and secure legal arrangement of funds. They are often associated with mortgages but they can also be used in addressing mergers, litigation, collateral and more. An IOLTA account, or Interest on Lawyer Trust Account, is a focused interest-bearing account that allows a law form to handle nominal or short-term funds and the interest earned on these accounts is remitted to the state IOLTA program for charitable purposes.
• Is an IOLTA account a checking or savings account?
  IOLTA accounts are savings accounts or an operating account.
• Are IOLTA accounts interest bearing?
  Yes, IOLTA accounts are interest-bearing; however, any interest earned on the account, in excess of deposit fees, are submitted by the bank to the legal bar association in your state. The interest from IOLTA accounts are used for charitable purposes by your state.
• Are funds in IOLTAs FDIC insured?
  Yes. The FDIC provides unlimited insurance coverage for funds in IOLTAs up to $250,000 per client whose funds are held in the pooled trust account.
• Where can attorneys deposit client trust funds that are not nominal in amount or that will be held for a long period of time?
  Client trust funds that do not meet the "nominal" or "short term" requirements of an IOLTA should be deposited in a separate client trust account to earn interest for the benefit of the individual client. The attorney must exercise her/his independent judgment in assessing whether opening a separate interest-bearing account on behalf of a particular client will provide income for the client after considering the amount of interest that will be earned versus the costs of maintaining the separate account including the fees and charges that might be associated with it and the administrative cost to the lawyer or law firm The attorney can contact their applicable start bar association to get further clarity on the rules to determine if they should deposit client funds into an IOLTA or trust account.
• What are the tax consequences of my participation in IOLTA?
  There are no tax consequences to the client, attorney, or law firm. No one will pay any taxes on this money. The IRS has ruled that the interest generated on these accounts is not taxable to the lawyer, law firm, or client. Any lawyer who receives a 1099 for interest earned on the IOLTA account should contact the IOLTA Committee immediately to reconcile the problem. Financial institutions are instructed to report the income to the IRS as received by the IOLTA Committee. Attorneys have no tax withholding or reporting responsibilities as to the interest earned on IOLTA accounts.
• How do lawyers who practice in a firm setting comply with IOLTA rules?
  While each lawyer is required to comply with the IOLTA rule, laywers who practice in a firm may meet those requirements using a shared, law firm IOLTA. Each lawyer at a firm is not required to maintain a separate account solely for his or her own clients.
• To whom are the IOLTA funds distributed?
  In every state, there are designated organizations that will help to distribute funds to the appropriate groups. For example, in Virginia, The Legal Services Corporation of Virginia distributes the funds to legal aid programs to provide civil legal assistance to low-income Virginians.
• Must lawyers have new checks printed for IOLTAs?
  No. Lawyers may continue to use their checks as they did prior to establishing the account, if the financial institution converts it to an IOLTA that meets the requirements of the Rules.
• Do I have to pay to maintain an IOLTA?
  A financial institutions may charge reasonable handling fees for the maintenance and remittance of IOLTA funds. Service charges and handling fees for IOLTA accounts are deductible solely from the interest earned. Some firms may require additional services that have charges and/or fees that are not applicable to be offset against the IOLTA account interest dividends. Other fees and charges, such as check printing charges, funds transfers, etc., are considered ordinary business expenses of the attorney or law firm. These are fees would need to be charge to another non-IOLTA account in which the lawyer or law firm can pass on to their clients