All of these account types (IOLTA, IOLA, and Attorney Trust) have the same purpose. They are all used to separate the client’s money from the regular business or operating account. The difference is simply the interest - how much it accrues and who gets it.
Whatever it is called, we need to make sure with the bank that the fee cannot be charged to that account. A separate operating account or credit card has to pay all fees so that the customer’s money is never touched.
IOLTA (Interest on Lawyer Trust Account) and IOLA (Interest on Lawyer Account) are the same, with different names. Most states use the IOLTA name, except for New York, which has its own naming schemes, uses the IOLA.
An IOLTA account is a type of trust account that can collect the interest, then transfers the interest collected to the state bar, usually for charitable purposes, primarily the provision of civil legal services for poor people (such as landlord/tenant issues, custody disputes, and advocacy for people with disabilities). For a clearer definition, it is a method of raising money to fund civil legal services for low-income people through the use of the interest earned on the attorney trust account.
In the United States, lawyers are allowed to place client funds in interest-bearing lawyer trust accounts. In the 1980s, the Interest on Lawyer Trust Accounts program was first established in the U.S. Nowadays, all 50 states and the District of Columbia have IOLTA programs. However, only 44 states require lawyers to participate. In states with mandatory IOLTA participants, the lawyer must place client funds into a trust account and cannot withdraw the money until they have earned the fee.
What Is An Attorney Trust Account?
An attorney trust account is the second type of trust account, which may or may not be interest-bearing. For most attorneys, it is a non-IOLTA trust account used for an individual client with a large balance held, such as payments for personal injury. If the account accumulates interest, the interest will be transferred to the customer.
Here's a visual guide to understanding the difference between IOLTA and IOLA
When to Use IOLTA and Trust Accounts for Your Legal Practice
Understanding when to use an IOLTA (Interest on Lawyers Trust Accounts) versus a traditional trust account is pivotal for legal professionals and their clients. An IOLTA is ideal for holding client funds temporarily where the interest generated is used for charitable purposes, mainly to fund civil legal services for those unable to afford it. These accounts are particularly beneficial when the funds are too small or held for too short a time to generate significant interest for the client if placed in a separate interest-bearing account.
On the other hand, a trust account is used for holding larger sums of client funds or when funds are to be held for longer periods. The interest generated in these accounts benefits the client directly, making it suitable for scenarios such as holding settlement amounts or payments for personal injury cases.
If you, as a business owner, see that you cannot handle accounting on your own, consider hiring an accountancy service for contractors to help you with it.
Irvine Bookkeeping's Specialized Services for IOLTA Management
Irvine Bookkeeping offers specialized bookkeeping services tailored for law firms, ensuring compliance and optimal management of IOLTA and trust accounts. Our expertise not only simplifies the intricate process of legal bookkeeping but also ensures that law firms can focus on their core activities. By leveraging Irvine Bookkeeping’s services, law firms can ensure accurate and compliant management of both IOLTA and trust accounts. Reinforcing trust with their clients while contributing to the broader social good through the IOLTA program.
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