Frequently Asked Questions
Q. What is IOLTA?
A. “Interest on Lawyers’ Trust Accounts,” or IOLTA, is a program mandated by the Vermont Supreme Court. It requires lawyers or law firms to establish pooled interest- bearing accounts for client deposits which are nominal in amount or expected to be short- term (colloquially known as an “IOLTA” account).
Q. How does a lawyer or law firm determine which client funds should be deposited in an IOLTA account and which should be invested on behalf of individual clients?
A. When a particular client’s funds are so nominal or are expected to be held for such a short period of time that it is not practical to earn or account for income on the individual deposit, such funds should be deposited in an IOLTA account. No lawyer may be disciplined for placing client funds in an IOLTA account if the lawyer makes a good faith determination that the funds fit the provisions of Rule 1.15B.
Q. What are a few of the reasons someone would be exempt from having an IOLTA account?
A. A few of the reasons someone would be exempt are, but not limited to: Not in private practice; No legal activities in Vermont; Do not hold client funds/retainers; Retired. Contact the Foundation for other possible exemptions.
Q. May a lawyer continue to invest individual client funds into separate interest- bearing accounts for the benefit of clients?
A. Absolutely. Lawyers should continue to establish separate, interest-bearing accounts for individual client funds where the sum is large enough or when the time of the deposit is of sufficient duration to justify the cost of opening, administering and closing the account. Any interest accrued on such an account then becomes the property of the client. Q. May a lawyer place client trust funds in an interest-bearing account and keep the interest?
Q. May a lawyer place client trust funds in an interest-bearing account and keep the interest?
A. No. Such practice is unethical. The lawyer cannot derive any personal benefit from client funds.
Q. Who pays taxes on the interest earned on IOLTA accounts?
A. No one pays any taxes on this money. The IRS has ruled that the interest generated on IOLTA accounts is not taxable to the lawyer, the law firm or the client. Participating banks are instructed to report the income to the IRS as received by the Foundation, a nonprofit corporation.
Q. Are lawyers required to notify clients that their funds will be placed in an IOLTA account?
A. No notice is required. Nor do clients have any input or control over the destination of interest earned on IOLTA funds. However, these facts should not diminish the matters traditionally raised with a client when a lawyer is determining whether the client’s funds should be placed in an interest-bearing account.
Q. Do all financial institutions participate in IOLTA?
A. Most do. An IOLTA account must be maintained only in a financial institution approved by the Vermont Professional Responsibility Board (“Board”). To be considered an approved financial institution, the institution must enter an agreement with the Board agreeing to provide the Board with written notification of any overdrafts in an IOLTA account. Check out the current list of Approved Financial Institutions.
Q. Do different financial institutions have different fee schedules and interest rates for IOLTA accounts?
A. Yes. Interest rates and service charges vary from institution to institution. You may contact the Foundation for the latest bank survey of rates and charges. Check out the current institutions on the Honor Roll.
Q. We are holding funds for a client but cannot locate the client or the client is not responding to letters. Can we turn these funds over to the Foundation?
A. No. Vermont’s Unclaimed Property Act, 27 V.S.A. Chapter 13, states that all fiduciaries are required to report and remit all personal property that has been unclaimed for five years to the Abandoned Property Division of the Office of the State Treasurer.
