What You Should Know About IOLTA Accounts

As a lawyer, you know that properly handling a client’s money is essential to staying in business. You may receive money early on, but you must effectively and efficiently work their case to be able to earn it all. This includes having the knowledge and understanding of how to properly monitor, track, and manage each client’s account and correlating due dates to ensure that everything is current and accurate.

Let’s face it though, you hate accounting and feel more comfortable doing what you love to do and what you are good at doing. That is why it is important to have an experienced legal accountant on your side that understands how to manage client funds.

As your virtual Chief Financial Officer (CFO), Accounting Girl provides IOLTA management services. If you are new to the world of legal accounting, or have recently started your law practice, IOLTA management allows you to know instantly how much a client has in their retainer account. In turn, you will always have the most current information with weekly reconciliation, transfer management, and reporting.

That’s a simple enough explanation, but what else should you take into consideration when opening an IOLTA? Read on to find out more.

What are Missouri’s legal regulations regarding an IOLTA account?

According to the Rules Governing the Missouri Bar and the Judiciary – Rules of Professional Conduct (Rule 4), passed in 1990, the Missouri Supreme Court specifically states that:

A lawyer shall hold property of clients or third persons that is in a lawyer’s possession in connection with a representation separate from the lawyer’s own property. Client or third-party funds shall be kept in a separate account designated as a “Client Trust Account” or words of similar import maintained in the state where the lawyer’s office is situated or elsewhere if the client or third-party consents.

This includes the new regulations passed by the MO Supreme Court in 2013, which outlines that:

  • All client deposits must be made in full, not split, no matter if a contingency fee is agreed upon between the lawyer and client.

  • Interest is not required to be paid to clientele and third-parties on an IOLTA account. However, it is required that interest be paid to the MO Lawyer Trust Account Foundation.

  • Withdrawals from a IOLTA account must be done by check or through an authorized electronic transfer, not in cash.

  • All records of the lawyer trust account must be kept for a minimum of five years and must include consistently updated reconciliations prior, at the very least including: (1) Receipts and disbursement journals, (2) Ledgers for each client, (3) Bank statements or similar records, (4) all agreements and formal discussions in written form, (5) account statements submitted to clients or third parties, (6) all paid and unpaid bills submitted to clients for legal services provided, (7) reconciliations; (8) credit card, transfer, and withdrawal bank statements, and (9) all other related documentation.

For more details, definitions, and revisions regarding the safekeeping of client property, visit the Missouri Courts website.

Are you required to set-up a lawyer trust account? If so, must it be an IOLTA?

While you are not required to set-up an IOLTA account specifically, some form of lawyer trust account is required as part of your “non-delegable duty to protect and preserve the funds in a client trust account,” as noted by the New Rule 4-1.15 of the Missouri Rules of Professional Conduct. In addition, lawyers are not allowed to opt-out of an IOLTA account and are required to professionally maintain it for up to five years after business is conducted with the client.

Are multiple IOLTAs required if you are licensed and practice in multiple jurisdictions?

Not necessarily. You have the option of providing a letter of declination to the appellate courts of one state (though not applicable in Missouri) and setting up an account for another, or choosing a bank that has branches in both locations, and creating two separate IOLTA accounts that are properly labeled with each state name. However, if you choose the first option, a non-IOLTA account must still be set-up for the state you opted-out of.

How do you set-up an IOLTA?

While Accounting Girl will discuss with you in greater detail what is required to set-up your IOLTA account, here are the basics of how it is done.

First, you must ensure that you have chosen an eligible financial institution, established by the Missouri Lawyer Trust Account Foundation. Second, your law firm needs to submit a “Notice to Financial Institution” form to authorize that financial institution to create the account with the Foundation’s tax identification number and consent to reporting all accrued interest of the account. From there, all account information will be established and enrolled through the Mandatory Trust Account Certification process, and you must ensure that all the account information is kept up-to-date and properly managed.

Why should you hire a legal accountant to manage your IOLTA?

As a lawyer, you no doubt had no trouble understanding the MO Supreme Court rules for lawyer trust accounts noted above. However, managing your IOLTA account is a whole other matter. The truth is that if it is not in your range of expertise, managing an IOLTA account can be a record-keeping nightmare.

The initial setup process can be pretty straight-forward, but it must be properly maintained according to each state’s rules and regulations. This includes, in part, that earned-interest must be appropriately addressed, proper three-way reconciliation must be maintained, multiple client accounts must be separately managed, account balances must be utilized correctly and remain positive, and you must consistently keep track of Supreme Court regulations.

Being that all of this is just the tip of the IOLTA iceberg, we know that your time is better spent focusing on how you can help your clients on their cases, rather than juggling trust accounts and understanding all the processes that go with them. Contact Accounting Girl today to get started!


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