GUIDELINES FOR ATTORNEYS
Rule of Professional Conduct 4-100 requires attorneys to deposit funds received or held for the benefit of clients in a trust account separate from the attorney's own funds.
Client funds that can earn revenue for the client in excess of the costs to hold those accounts must be deposited for the benefit of the client.
Client funds that are nominal in amount or are on deposit for such a short period of time that the funds cannot earn net income (income over costs) for the client, must be deposited or invested by attorneys into pooled IOLTA (Interest on Lawyers’ Trust Accounts) on which the interest or dividends are paid to the State Bar. (Business & Professions Code Sections 6091.2, 6211, 6212 and 6213)
Opening the Account
- Take a copy of the Notice to Financial Institutions Form to your financial institution. Give the financial institution the State Bar's federal taxpayer identification number (94-6001385) and tell them the interest or dividends must be remitted to the State Bar, which is a tax exempt entity.
- The financial institution where you establish the account will send the interest or dividends to the State Bar.
- Under recently amended Business & Professions Code Section 6212, attorneys may only open an IOLTA account at an “eligible” institution.
- The list of “Eligible” financial institutions is posted on the State Bar's Web site.
- When your new account is established, logon to My State Bar Profile and go to "Report my IOLTA status" to electronically update your IOLTA record.
- If you are opening an account with an institution that is not on the list of eligible financial institutions, please direct the institution to the Guidelines for Financial Institutions or refer the representative to the Legal Services Trust Fund Program at 415-538-2252 or email@example.com.
- There are no tax consequences to the attorney or the client for the interest or dividend remitted to the State Bar from an IOLTA account that bears the State Bar’s taxpayer identification number. Because the State Bar is tax exempt, it is not necessary for the financial institution to complete IRS Form 1099 for interest or dividends on IOLTA accounts.
Note: The State Bar’s federal taxpayer identification number is only for the interest or dividends paid to the State Bar, not for the principal of settlement or other funds placed in the trust account.
Notifying the State Bar
An IOLTA account that has been opened or closed must be updated for State Bar records in one of two ways:
- Online — Logon to My State Bar Profile. Go to "Report my IOLTA status" (Contact the Member Services Center, 1-888-800-3400 for logon questions.)
- Mail — Send a completed IOLTA Update Form with a cancelled check to:
The State Bar of California
Legal Services Trust Fund Program
180 Howard St.
San Francisco, CA 94105
NOTE: Please report any changes to your IOLTA account immediately. You only need to report an Attorney Client Trust Account coded with the State Bar of California's taxpayer identification number. You do not need to report an out-of-state account.
Determining Eligible Funds
- Your bank or financial institution can help you evaluate whether or not it is possible to earn income for the client, taking into consideration the amount of interest an individual client's funds must generate to be practical in light of the costs involved in earning and accounting for the interest. Factors that must be considered in making this determination are stated in the Rules of the State Bar of California, Title 2, Division 5, Rule 2.110(A)
- The State Bar will not bring disciplinary charges against a member for determining in good faith whether or not to place funds in an IOLTA account. [State Bar Rule 2.110(B)]
Fees and Charges
- Monthly fees such as fees in lieu of minimum balance, federal deposit insurance fees, per-check and per-deposit charges, and sweep fees may be charged by the bank against interest earned.
- It is the responsibility of the attorney to pay business expenses incurred in the ordinary course of business, such as charges for check printing, deposit stamps, insufficient fund charges, collection charges, wire transfer fees, fees for cash management.
- If the bank does not waive monthly and other fees in excess of interest or dividends earned on an account, those expenses may be charged to the attorney.
- In the event that fees routinely exceed interest earned and are charged by the bank to the attorney, an attorney may apply to the Legal Services Trust Fund Program to convert the IOLTA account to a non-interest bearing trust checking account. In that case, the State Bar’s taxpayer identification number will be removed from the account, and the attorney will be responsible for all fees and charges incurred to maintain the account.
Monitoring the IOLTA Account
- Terms and conditions of IOLTA accounts are determined by the bank, and are not the responsibility of the Legal Services Trust Fund Program.
- An attorney’s obligation to comply with account terms and conditions and to monitor accounts for irregularities are the same for an IOLTA account as for the attorney’s non-IOLTA accounts.
- Attorneys do not have any obligation to monitor a financial institution’s compliance with IOLTA-eligibility requirements or to ensure that appropriate interest or dividends are paid to the State Bar on IOLTA accounts. The Legal Services Trust Fund Program will monitor statutory compliance and will notify the attorney if a financial institution is not complying with IOLTA requirements.
- Download the Handbook on Client Trust Accounting for California Attorneys.
- The handbook is a practical guide created to help attorneys comply with the record-keeping standards for client trust accounts. The handbook includes the standards and statutes relating to trust accounting, a step-by-step description of how to maintain a client trust account and sample forms.
- For general requirements regarding trust accounts and record-keeping standards, see Rule of Professional Conduct 4-100. Questions about Rule 4-100 or other questions about ethics may be directed to the Ethics Hotline at 800-2ETHICS (800-238-4427).
- For more information, contact the Legal Services Trust Fund Program at 415-538-2252 or firstname.lastname@example.org.
- FAQs about IOLTA