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January 13, 2021   /   Nick Noufer

Interest on Lawyer Trust Accounts (IOLTAs) have strict rules.  Lawyers are not allowed to earn interest on its clients’ funds by law so the interest generated on these accounts is automatically funneled to the respective state IOLTA board which will apply those funds to help a charity or educational program, improve the administration of justice, and pay for legal aid for low-income residents.  To make managing IOLTAs even more complex, the rules vary state-by-state.  Plus, all IOLTA accounts (regardless of state) must conform to the principles of double-entry accounting.  However, with the right diligence, you can avoid potential problems, financial losses and disciplinary action.

If you have a good understanding of IOLTA account rules, keep careful records, and ensure that a CPA and reputable bank are overseeing your business and client trust accounts, you can avoid the mistakes that many lawyers make.

Here are five of the most common.

1. Commingling Funds

IOLTA accounts need to be reserved for the client’s account only.  You can’t, for example, pay for your firm’s operating expenses directly out of an IOLTA account. You need to move those funds into a business account first.  This rule is upheld for each IOLTA board for every state.

2. Charging Payment Fees

The passing on of bank service charges for wire transfers, paper statements and re-ordering checks, as well as fees pertaining to other clients’ cases, is another other common and inadvertent mistake lawyers can make when managing trust accounts.

3. Borrowing Money

Sometimes attorneys use trust account funds before they have a right to do so.  They might take trust account money before it’s earned because they’re having cash flow problems. There’s no legitimate way to borrow from a trust account, but some attorneys try.  It’s often intentional and it’s the quickest way to find yourself in hot water.

4. Poor Record Keeping

Attorneys are required by their bar associations to keep records showing how much money each client has in trust at any given time, but they don’t always keep true and accurate records.  Deposits and disbursements must be clearly tracked in a way that makes it easy to determine each client’s trust account balance and transaction history.

5. Not Getting Help

This last and potentially most costly mistake is related less to IOLTA account rules, and more to humans being humans.  When some attorneys realize they’ve made a mistake, instead of seeking out professional help, they try fixing it themselves.  Which can often create a whole new set of problems. Be smart, get help.

Now you know some of the most common IOLTA mistakes.  You may even have experienced one of them yourself.  With so many IOLTA account rules, mistakes are not hard to make.  The good news is, there are plenty of great options to help you steer clear of these mistakes in the future.

  • If there’s the possibility of a mismanaged account, contact a practice management advisor in your state.  These consultants usually have experience dealing with IOLTA account rules, and most states don’t require them to report ethics violations to the bar.
  • If the account was setup incorrectly and you’re just starting out in early growth stages, talk to a CPA or bank with experience dealing with IOLTAs.
  • If you simply don’t have the time to worry about managing these accounts, consider hiring a bookkeeper with law firm expertise.
  • If you may have accidentally charged your client bank fees, speak with a reputable bank about ways they can assist in setting fees to be debited directly from operating accounts instead.

As you work within the IOLTA account rules, the last thing you want to do is to commit a mistake that could turn into more time worrying about the accounts, instead of taking the valuable time you’d like to spend growing your business.

Mismanaging these accounts is actually quite common and there are plenty of great resources to help you.  Start with a trusted resource like a bank that’s steeped in IOLTA knowledge, to help you set up and manage your accounts in compliance.  If you have any questions, or for more information, please call me at (708) 871-4995 or send me a note at [email protected], to learn more.


About West Town Bank & Trust

West Town Bank & Trust is an Illinois state-chartered bank headquartered in North Riverside which provides traditional banking services to its personal and business clients within the greater Chicagoland area. Primary deposit products are checking, savings, and certificate of deposit accounts, and primary lending products are government guaranteed lending, residential mortgage, commercial and installment loans.

Whether solutions come from surprisingly innovative tools, or trusted products you’re familiar with, our single-focused purpose is to understand your goals and challenges so we can make you can feel unquestionably confident banking with us.

Kevin Kosobuki headshot

About the Author: Kevin is the Regional Executive Vice President for West Town Bank’s branch banking network throughout the western part of the city of Chicago, a role he has held for over 20 years.  During his tenure, Kevin has worked from the North Riverside location where the Bank’s official charter is held. Prior to joining West Town Bank & Trust (formerly West Town Savings Bank), Kevin worked as a Commercial Lender at Citizens Bank.  Kevin is currently responsible for oversight of the North Riverside location, which includes supervision of all branch banking employees.  Kevin’s primary niche has been within the Commercial Real Estate lending space, serving all industries within his footprint in need of either refinancing or purchase opportunities.