While multiple client funds can be held in a law firm’s IOLTA account, the interest that is earned on this type of trust account is then directed to a state’s IOLTA program. The good news is this can be alleviated by using a sophisticated legal practice management software. Clio’s legal trust accounting management software makes IOLTA easy for lawyers.

Create client ledgers and maintain appropriate bookkeeping of account balances with LeanLaw’s automated trust reports. Many are based in nonprofit foundations, while others are operated by the courts or other public entities. IOLTA programs have also operated successfully in a number of Canadian and British jurisdictions for many years. Provide monthly details to clients as part of their bill to limit any allegations of mismanagement. Only in the fact that due to its dependence on interest rates, a low-interest-rate environment results in fewer monies going to these charitable causes. The revenue stream from IOLTA changes considerably from year to year and is not predictable.

IOLTA Basics

Before IOLTA was implemented, these nominal and short-term funds were combined and placed into a pooled, non-interest-bearing checking account. At the time, prior to 1981, commercial banks were prohibited by federal law from paying interest on demand deposits, and lawyers were https://www.bookstime.com/articles/iolta-account prohibited from earning interest on such accounts for ethical concerns. Nevertheless, some attorneys are trying to take trust account money maybe because they’re having cash flow problems, or simply they might think “I will pay it back in the trust account before it’s earned”.

Never record client trust account deposits as income, even if that is the easiest way to do so with your accounting software. It is always a BEST practice to review and discuss the local bar rules with your attorney-client regarding maintaining the records surrounding trust accounts, as they can be complex. A fantastic link from the folks at MyCase that provides you links to most of the state’s Bar Association rules. If you simply don’t have time to learn the rules and handle these accounts, consider hiring an online bookkeeping service.

LeanLaw is software designed for the specific needs of law firm accounting and management.

After IOLTA, law firms could deposit these funds in interest-bearing checking accounts. The interest is then pooled and forwarded by the fiduciary to the state’s IOLTA board for distribution to legal aid programs and related charities. An IOLTA – sometimes called an IOLA – is an interest-earning trust account that is specifically used to hold money that belongs to a legal professional’s clients. Using a trust account to handle things like retainers, settlement checks, and court fees ensures that the client’s money is kept separate from the professional’s business account.