If you are not entirely sure what IOLTA is, do not feel alone. Most people have little to no idea what the term means and how important it is for funding indigent civil law services. IOLTA is a legal reference used for trust account bookkeeping. Specifically, it stands for Interest on Lawyer Trust Accounts.
How The Typical Individual Contributes To IOLTA
Entities ranging from large corporations to a single individual occasionally have the need for an attorney's services. If your neighbor sues you for a large sum of money because your dog barks when your neighbor sings, you may need an attorney's services if the amount sought is larger than a small claims court case.
Being a responsible person, you start calling reputable attorneys to find one who will take your case. Once you find the right attorney and meet with them, they usually ask you to provide a sum of money prior to rendering any services. This is a retainer and your attorney must deposit it in a bank account at a Georgia-approved bank. He deposits it in a lawyer trust account.
As your attorney starts to work on your case, he sends updates and bills for your review. If you look closely at the bill, you clearly see no money is due. That is because your attorney draws the money for his bills from the account where your retainer is on deposit. When those funds get low, your attorney either asks you to replenish the funds or starts billing you directly.
IOLTA concerns how your attorney handles your retainer funds while they remain on deposit at the bank in the lawyer trust account. Your lawyer cannot make money by using your funds to speculate on the stock market, play the favorite at the racetrack or juggle it to earn interest for his own pocket.
Your attorney has an ethical duty to use the principle only for payment for legal services provided. Escrow accounting audits review trust accounts often and repeatedly to make certain no untoward lapses occur.
Combined Funds Get Better Returns
Retainers are not the only reason an attorney might deposit funds in a lawyer trust account. Sometimes a client leaves a large sum of money with their attorney because those funds are in dispute. To qualify as IOLTA funds, disputed money between parties must be a short-term situation. IOLTA applies only to very large sums of money on deposit for a short period of time.
The other situation where IOLTA applies is for small, or nominal, sums held for a long period. Small monetary amounts tend to earn little interest. Thus, an attorney may use his discretion and decide to combine several client accounts containing a small amount of money into one large account. Typically, the interest rate is higher when a large amount of money is on deposit.
Where Does the Interest Go?
Legally and ethically your attorney cannot receive monetary benefit from money held in trust on your behalf. The IOLTA program in Georgia provides a solution to your attorney's dilemma. Any interest earned from monies on deposit is certain lawyer trust accounts go directly to the IOLTA program.
IOLTA's purpose is raising money for charitable distribution. When someone is extremely poor, or indigent, they cannot raise any money needed for civil legal services. Georgia specifies any IOLTA funds should go to indigent people who need help paying for civil legal services.
What Happens If No Funds Remain in the Lawyer's Trust Account?
Georgia requires that any time an overdraft occurs in an IOLTA-designated trust account, the bank must report it to the Office of the General Counsel of the State Bar of Georgia. If an account has insufficient funds not honored within three days, the banking institution has 15 days to report the overdraft.
Even if an attorney remedies the overdraft after the three-day period, the bank must report an overdraft occurred with the account. An attorney can only deposit IOLTA funds in an approved banking institution. If the bank fails to report the overdraft on a timely basis, they risk losing status as an approved banking institution.
What Happens to the Attorney?
Usually, the attorney who incurred the overdraft does not receive any sanctions if it happened due to a simple error. Your lawyer is human just like everyone else. If the overdraft occurred due to an honest mistake, there typically is no risk to your attorney's license. However, if overdrafts happen frequently with IOLTA trust accounts administered by the same attorney, Georgia's State Bar starts to look askance at the attorney or firm involved. Georgia has one of the most comprehensive guidelines for the ethics associated with IOLTA accounting, and our seasoned trust account CPAs are well equipt to make sure your law firm stays compliant.
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