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IOLTA: Lawyers{ Banks | Lawyers : Trust Account Guidelines | Prime Partners : Eligible Financial Institutions (PDF 84K) | Open an Account : Account Request (PDF 24K), Notice of Insufficient Funds (PDF 92K) | Grant Guidelines } IOLTA Questions and AnswersOn September 27, 2007, the Supreme Court of Alabama amended Rule 1.15 of the Alabama Rules of Professional Conduct, which governs safekeeping of property by attorneys. The rule change was effective January 1, 2008. Attorneys routinely receive funds to be held in trust for future use. If a client’s funds are large enough or to be held long enough to generate interest for the client, net of bank charges and administrative fees, they should be placed in an interest-bearing account for the individual client's benefit. Client funds that are too small in amount or held for too short a period of time to earn interest for the client, net of bank charges and administrative fees, are commingled in a pooled checking account. As of January 1, 2008 it was required that all commingled client funds be held in IOLTA accounts. The preamble to the Alabama Rules of Professional Conduct states that “a lawyer is a representative of clients, an officer of the legal system and a public citizen having special responsibility for the quality of justice;” and further that “A lawyer should be mindful of deficiencies in the administration of justice and of the fact that the poor, and sometimes persons who are not poor, cannot afford adequate legal assistance, and should therefore devote professional time and civic influence in their behalf.” The Alabama Law Foundation IOLTA program, authorized by the Supreme Court of Alabama on May 5, 1987, which allows attorneys to convert their noninterest-bearing commingled trust accounts to interest-bearing IOLTA accounts is one way lawyers have to provide access to justice for the poor. The interest from these IOLTA accounts is remitted at least quarterly to the Alabama Law Foundation, Inc., a charitable, tax-exempt entity, which was established by the Alabama State Bar in 1987 as its charitable arm. What does the new IOLTA rule do?
What is the purpose of the rule amendments?To increase revenue for the charitable purposes of the IOLTA program established by the Supreme Court of Alabama:
Do other states have mandatory IOLTA programs?Thirty-four other states have mandatory IOLTA programs. If I already maintain an IOLTA account does the rule change affect me?You will maintain your IOLTA account as you always have. However, if you have more than one commingled client trust account all must now be IOLTA accounts. All attorneys will also certify trust accounts to the Secretary of the Alabama State Bar on an annual basis. Must real estate closing accounts be IOLTA accounts?Yes. All client funds that are not placed in an account for the benefit of an individual client must be placed in an IOLTA account. What if I do not have a commingled non interest-bearing client trust account?Lawyers who do not hold client funds in trust are exempt from the provisions of this Rule. Those lawyers will simply signify this on their annual certification form, which will be sent out in the fall. Will attorneys or law firms have to move their IOLTA accounts to institutions paying higher rates?No. The rule only requires institutions to pay IOLTA accounts the highest interest rate or dividend generally available to similarly-situated non-IOLTA account customers at their own institution. Is this voluntary for attorneys and law firms?No. The new rule requires attorneys and law firms to maintain their IOLTA account only at eligible banks, savings & loan associations or investment companies which comply with the interest or dividend requirement of the new rule. Are attorneys and law firms responsible for monitoring their institution’s compliance with the interest or dividend requirement of the rule?No. The foundation is. Who pays service charges and fees on IOLTA accounts?The IOLTA rule defines Reasonable Allowable Fees that may be charged against the interest earned on IOLTA accounts. Allowable fees are (1) per check charges, (2) per deposit charges, (3) a fee in lieu of minimum balance, (4) Federal deposit insurance fees, (5) sweep fees and (6) a reasonable IOLTA account administrative fee. Check printing charges, wire transfer fees, bank checks or certified checks, cash management fees, and overdraft costs are not considered normal service charges and are not paid by IOLTA. Each account holder should make arrangements with the financial institution regarding these costs. How does the Alabama Law Foundation use the interest?Since the first grants of IOLTA funds were awarded in 1989, the Alabama Law Foundation has awarded over $13 million for charitable, law related purposes. The existence of IOLTA has allowed us to make progress in meeting the needs of the poor for civil legal aid through funding of pro bono projects and Legal Services. The foundation has also funded projects to improve the administration of justice and to provide law related education for the public. 80% of IOLTA funds will be going to groups that provide legal assistance to the poor in civil cases. Alabama ranks 51st in the country in civil legal aid funding per poor person. This places our state behind even Puerto Rico. Increased IOLTA revenue will allow the foundation to help close the gap. What is the process to participate in the Alabama Law Foundation IOLTA program?Attorneys wishing to participate in the program need to complete an IOLTA account form, which is available at the foundation’s web site www.alfinc.org. Send a copy to your financial institution, keep one copy for your files and send the third copy to the Alabama Law Foundation to notify us of your plans to participate. For more information contact the foundation at (800) 354-6154 or (334) 269-1515, or e-mail Tracy Daniel at tdaniel@alfinc.org.
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