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IOLTA Trust Accounts Explained: Where Your Funds Are Held
When you send money to a California attorney for a transaction, the money does not go into the law firm's business account. It goes into a client trust account. For most short term deposits, that account is an IOLTA account, which stands for Interest on Lawyers' Trust Accounts.
What the rules require
- Separation. Client money must be kept apart from the attorney's own funds. Mixing the two is a serious ethics violation.
- Records. The attorney must keep a ledger for each client showing every deposit and payment, and must reconcile the account regularly.
- Prompt payment. Funds that a client or third party is entitled to must be paid out promptly when due.
- Accounting. Clients are entitled to an accounting of their funds.
These duties come from California Rule of Professional Conduct 1.15 and the Business and Professions Code. Attorneys also report on their trust accounts to the State Bar each year.
Where does the interest go?
For an IOLTA account, interest is sent by the bank to the State Bar's Legal Services Trust Fund, which supports legal aid. Neither the client nor the attorney keeps it. If a large sum will be held for a long time, the funds can instead go into a separate interest bearing trust account for the client's benefit. That is discussed in the fee agreement.
What a trust account does not do
A trust account protects funds from being mixed with the firm's money and creates a clear record of every movement. It does not make a bad deal good. Due diligence on the other parties to your transaction is still essential.
Questions about how your funds will be held? Read our FAQ or ask us directly.
This article is general information, not legal advice for your situation. Reading it does not create an attorney client relationship.
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