The Lawyers Professional Repsonsibility Board has additional frequently asked questions on its website. Any questions about the maintenance of trust account records should be directed to the Office of Lawyers Professional Responsibility.
I am an out of state attorney, but am licensed in Minnesota. Do I need a Minnesota trust account?
Not so long as the number of Minnesota cases you handle where a trust account is required is insignificant. So long as only an insignificant portion of your practice involves Minnesota cases, you may maintain a trust account in your home state in accord with their rules.
My bank has closed my trust account for lack of activity. What should I do?
You are not required to have a trust account unless you have appropriate client funds to deposit under Rule 1.15. If you do not regularly represent clients, it is fine to go without a trust account until one is needed. If you want to have an account open and ready, you can shop for a bank that does not have as strict of an account activity policy.
Which banks do not charge service fees for IOLTA accounts?
There are many banks that waive service fees for IOLTA accounts. Go to the list of approved banks and look for a bank that does not have an asterisk by its name. An asterisk indicates that the bank charges fees.
I want to close my trust account. What should I do?
Check your records to determine whether any checks are outstanding. If there are none, arrange for the bank to send the final interest payment (if any) to the IOLTA program and follow your bank's procedures for closing the account. If there are checks outstanding, the account must remain open until the checks clear. If the checks are old, you should follow the steps for handling stale checks, described above.
When the account has been closed, fill out the IOLTA notification request form with your name, the firm name, the bank name, the last four digits of the account number and the date the account was closed.
What is the effect of the IOLTA program on the typical lawyer or law office? For example, what trust accounts must be maintained?
For the typical lawyer or law firm which maintains one account for pooled client funds, the rules require that the account be used only for client or third person deposits which are of nominal amount or expected to be held for a short period of time (Rules of Professional Conduct, Rule 1.15(e)), and that it bear interest payable to the IOLTA program established by the Minnesota Supreme Court.
Under IOLTA, if a client's funds are not nominal in amount or are not to be held for a short period of time, the lawyer should establish a separate trust account paying interest to the client. As the Supreme Court pointed out in its opinion, opening individual accounts in these cases is a standard (and sound) practice in many Minnesota law offices. IOLTA does not change this practice.
How does a lawyer or law firm decide which client funds should go into the general pooled trust account with interest payable to the Board, and which should go into separate accounts with interest payable to the client?
The rules allow lawyers to continue what is already the best practice in this area. Rule 1.15(g) states: "In determining whether to use the [pooled IOLTA trust] account..., a lawyer shall take into consideration the following factors:
- "The amount of interest which the funds would earn during the period they are expected to be deposited;
- The cost of establishing and administering the account, including the cost of the lawyer's services;
- The capability of financial institutions ... to calculate and pay interest to individual clients."
Under this rule, a client's funds should be deposited at interest for that client if it appears to the attorney that the probable costs of maintaining such an account (including the lawyer's time and office expense), over the time period the funds are reasonably expected to be on deposit, will not exceed the interest the funds can be expected to generate.
As the attorney makes the arrangements for an IOLTA account, s/he should consider the various accounts that the financial institution may have available as well as the amount of client funds the attorney expects to have in the account and the number of transactions anticipated to be processed through the account during a specified period.
Rule 1.15 (O) specifies the types of accounts into which the lawyer or law firm may deposit client funds including: 1) an interest bearing checking account; 2) a money market account with or tied to check-writing; 3) a sweep account which is a money market fund or daily overnight financial institution repurchase agreement invested solely in or fully collateralized by U.S. Government Securities; or 4) an open-end money market fund solely invested in or fully collateralized by U.S. Government Securities. Financial institutions that do not offer the higher rate products to non-IOLTA customers do not have to do so for IOLTA accounts.
Are banks, savings and loans, and other financial institutions generally aware of this program and willing to participate?
Yes, they are. Most banks, savings and loans, and other institutions offer accounts which are specifically set up to comply with the IOLTA requirement that interest be submitted directly by the financial institution to the IOLTA program. In 1990, the Supreme Court required attorneys to maintain their IOLTA accounts only in financial institutions that have agreed to report trust overdrafts (Rule 1.15(k)). The Lawyers Professional Responsibility Board maintains a list of approved financial institutions.
Who calculates the interest on the IOLTA accounts and makes the interest payments to the Board?
The financial institution in which the accounts are maintained calculates the interest, in all cases. It will forward periodically to the Minnesota IOLTA Program accumulations of interest along with remittance advice, reporting the amounts of interest earned in each law firm's pooled account, the account number, and the period during which the interest accrued. The Minnesota IOLTA Program continues to work with the financial community to see that the procedures adopted are as convenient as possible for attorneys, law firms and banking institutions.
Who pays any costs of maintaining these accounts, for example, bank service charges, if imposed?
The rules provide that the interest on the pooled trust accounts paid to the IOLTA program is "net of any transaction costs." (Rules of Professional Conduct 1.15(f)(1)). Thus, any transaction costs the financial institution may impose for maintaining the account would be deducted by the institution from the interest that was paid over to the IOLTA program. Transaction costs do not include the cost of printing checks or NSF charges. The Minnesota IOLTA Program urges attorneys to familiarize themselves with service charges applied by the financial institution to IOLTA accounts.
What about income tax consequences for attorney and/or clients?
In considering IOLTA programs in Minnesota and other states, the Internal Revenue Service has ruled that there are no income tax consequences, either to attorneys or to clients whose funds are deposited in pooled accounts.
What notice will lawyers and law firms have to give to their clients about IOLTA?
Lawyers are not required to give any notice to clients whose deposits are nominal in amount or to be held for a short period of time. However, the Supreme Court, in its opinion establishing IOLTA, said that "many, if not most, lawyers will, as a matter of good client relations and courtesy, want to notify their clients of their participation in this program in some manner, and we encourage them to do so."
What records will lawyers and law firms have to maintain and/or file with the Court to demonstrate their compliance with IOLTA?
Rule 1.15(h) of the Rules of Professional Conduct provides for the maintenance of appropriate books and records. Rule 1.15(i) provides that attorneys are required to certify that they maintain proper books and records as a condition of license renewal.