An IOLTA account is an Interest on Lawyers' Trust Account. Most lawyers must have IOLTA accounts in order to hold client funds because lawyers may not deposit a client's money with their own money. IOLTA accounts are interest-bearing checking accounts. The interest on all IOLTA accounts in a state is pooled together, and is then used to help low income individuals afford legal help.

Interest-earning Checking Account

An IOLTA account is a checking account that earns interest on the funds in the account. The interest rate is not a special interest rate, but is the interest rate offered by the bank on like accounts. The interest is given to each state's IOLTA board because attorneys may not keep the interest earned on client money. Further, the IOLTA account is a checking account so that the lawyer can easily return the client money to her client, or use it as necessary. Not all banks must offer IOLTA accounts, however, there are more than 5,500 banks that offer them.

Using an IOLTA Account

An IOLTA account is used when an attorney receives money from a client to perform legal services, the attorney receives money from a settlement that must be paid to a client or the attorney is otherwise holding property for the client that the attorney has not yet earned or must return. Attorneys are not allowed to mix their funds with the funds of their clients, and IOLTA accounts are used to hold smaller amounts of money for a client, or some amount of client money for a short period of time.

A very large sum of money, or money that is held for a client for a longer period of time should not be put in an IOLTA account, but should be put in an account to be held in trust for the particular client.

IOLTA or Not?

When to use the IOLTA account as opposed to an individual client trust account is left to the attorney's best judgment. Because the dollar amounts involved and the banks' interest rates are variable, attempting to set a specific standard would be difficult or impossible. Instead, attorneys are directed as always to consider the client's interest. If the interest amounts involved would constitute a noticeable benefit to the client, they merit a separate account. Otherwise, they can be pooled into the IOLTA account.

Opting Out of IOLTA

Only Alaska, Kansas, Nebraska and Virginia allow attorneys to opt out of IOLTA completely, at the time this article was written. Attorneys must still account for client funds separately, and the penalties for commingling the firm's funds with client funds are severe and can range from heavy fines to disbarment. Individual attorneys in the other states can opt out of IOLTA on a case-by-case basis if they don't handle client funds in the course of their duties, or under other specific criteria. This includes retired or non-practicing attorneys, for example, who maintain a license but have no active clients.

Real-World Benefits of IOLTA

IOLTA accounts have been used by attorneys in the United States since the early 1980s, when Florida became the first state in the country to allow its attorneys to put client funds in an IOLTA account. The interest earned on the IOLTA account is collected and distributed to a variety of legal programs that aid the underprivileged. In some cases IOLTA money is distributed to law school legal clinics, legal education programs and other legal charities.

IOLTA funds are generally used to provide legal services and education in the areas of family law and landlord-tenant law. The funds are used in civil law cases and not criminal law cases, because indigent criminal defendants are guaranteed the assistance of an attorney, and no such guarantee exists in civil cases.