IOLTA – Interest on Lawyers’ Trust Accounts – is a method of raising money for charitable purposes, primarily the provision of civil legal services to indigent persons. The establishment of IOLTA in the United States followed changes to federal banking laws passed by Congress in 1980, which allowed some checking accounts to bear interest. IOLTA programs currently operate in 50 states, the District of Columbia, and the U.S. Virgin Islands.
Lawyers often handle money that belongs to clients, such as settlement checks, fees advanced for services not yet performed, or money to pay various court fees. Sometimes the amount of money that an attorney handles for a single client is quite large. In such cases, lawyers deposit the funds into trust accounts, where the funds can earn interest for the client.
Often, however, the amount of money that a lawyer handles for a single client is quite small or held for only a short period of time, and cannot earn interest for the client in excess of the costs incurred to collect that interest. Traditionally, lawyers have placed these deposits into combined, or pooled, trust accounts that contained other nominal or short-term client funds.
Before state laws and Supreme Court rules created IOLTA programs, trust funds pooled in this manner earned no interest. This is because trust accounts typically are checking accounts (to allow easy access to the funds) and, until the early 1980s, checking accounts did not earn interest. In addition, these trust funds earned no interest because it is unethical for attorneys to derive any financial benefit from funds that belong to their clients.
Since the inception of IOLTA, however, attorneys who handle nominal or short-term client funds that cannot earn net income for the client place these funds in a single, pooled, interest-bearing trust account. Banks in turn forward the interest earned on these accounts to the state IOLTA program, which uses the money to fund a variety of charitable causes.
Although IOLTA creates income, nothing else is changed: lawyers satisfy their ethical and fiduciary duty to place client funds in a secure account; there is on-demand access to the client's money; and, as in the past, the client realizes no interest income because the nominal or short-term client funds that are pooled in IOLTA accounts are funds that cannot earn net interest for the client.
Most banks treat IOLTA accounts as Negotiable Order of Withdrawal ("NOW") or other Business Interest Checking accounts. Banking regulations hold that attorneys can set up the accounts as NOW accounts even though the attorney-depositor may be a for-profit corporation, because the interest goes to a not-for-profit charitable entity.
In 2008, IOLTA grants nationwide totaled $263.4 million. IOLTA is among the most significant sources of funding for programs that provide civil legal services to the poor, with close to 90 percent of grants awarded by IOLTA programs ($230.4 million in 2008) supporting legal aid offices and pro bono programs.
In 2009, IOLTA grants dropped significantly in several states due to a decline in interest rates. The effects of this decline was different in each state, as states have implemented diverse reserve policies and some states have developed alternative sources for funding grants.
IOLTA programs have taken a leading role in funding a number of innovative programs that have had a positive impact on the delivery of legal services to the poor. These include loan repayment assistance programs, state-based legal information Web sites and legal assistance hotlines. IOLTA programs also fund a variety of other activities including: alternative dispute resolution programs, young lawyer special public service projects, victim services programs, court-appointed special advocate (CASA) programs, pro se assistance resources, minority lawyer recruitment initiatives, and law school scholarship programs.
To support the initiation and operation of IOLTA programs, the ABA created the Commission on IOLTA in 1986. The ABA Commission on IOLTA, consisting of nine members: (1) collects, maintains, analyzes and disseminates information on programs involving the use of interest on lawyers' trust accounts for the support of law-related public service activities; (2) makes recommendations for ABA policy on the creation and operation of IOLTA programs; (3) maintains liaisons with state IOLTA programs; and (4) oversees the IOLTA Clearinghouse, which provides information, materials and technical assistance on IOLTA program design and operation.
The ABA Commission on IOLTA monitors developments in areas that may affect IOLTA operations such as banking, grantmaking, tax law and constitutional law.
The ABA has supported IOLTA for 30 years. Beginning in 1978, it provided information on the development of American and foreign IOLTA programs to interested bar associations, legal services providers and states. In 1981, the ABA formed the Advisory Board and Task Force on Interest on Lawyer Trust Accounts, which reported to the ABA Board of Governors in 1982. The report resulted in the Board of Governors' 1983 adoption of a resolution in support of IOLTA.
The ABA House of Delegates also has adopted two resolutions in support of IOLTA.
In 1982, the ABA Standing Committee on Ethics and Professional Responsibility issued an opinion that examined the ethical implications of a lawyer's participation in an IOLTA program. The opinion concluded that it is ethically permissible for a lawyer to participate in an IOLTA program authorized by a state. See ABA Formal Opinion 348 (July 23, 1982).
The ABA supported IOLTA programs against several constitutional challenges. At the ABA Commission on IOLTA's request, the association has filed five amicus curiae briefs in support of the Texas IOLTA program:
Also at the ABA Commission on IOLTA’s request, the ABA filed two amicus curiae briefs in support of the Washington state IOLTA program, one before the Ninth Circuit Court of Appeals and one before the U.S. Supreme Court, as well as one in support of the Massachusetts IOLTA program before the First Circuit Court of Appeals.