IOLTA and Lawyers

No. Pursuant to Massachusetts Rule of Professional Responsibility 1.15, all lawyers engaged in the practice of law who have a physical office location in Massachusetts must establish a Massachusetts IOLTA account once they receive client funds that are nominal in amount or will only be held for a short time. Examples of client funds that may be appropriate to put in an IOLTA account include settlement checks, retainers and other fees advanced for services not yet performed, and funds related to real estate transactions.

Lawyers do not need a Massachusetts IOLTA account if, for example, they:

• Are a licensed attorney in Massachusetts but their practice is located out-of-state and they have no law offices in Massachusetts.
• Are unemployed or not practicing as an attorney.
• Are engaged in the practice of law but not within a private practice (e.g., in-house counsel, teacher, publicly employed) and do not receive client funds.

1. Identify a financial institution that has been certified as eligible by the IOLTA Committee. Ideally, choose a Leadership Institution to maximize the benefit of your IOLTA dollars.
2. Be sure to ask the financial institution about potential services charges because those charges cannot be paid with client funds.
3. Download and complete the first section of the Notice of Enrollment (“NOE”).
4. Take the NOE to the financial institution you selected. They will open the account and fill out the second section of the NOE. Ask for a copy of the completed NOE.
5. Register your IOLTA account on the MA IOLTA website using the information on the completed NOE. Neither you nor the bank need to mail a copy of the NOE to the IOLTA Committee.

Massachusetts Rule of Professional Conduct 1.15 requires all lawyers who hold client funds to comply with specific record-keeping requirements and holds lawyers strictly accountable for compliance. Rule 1.15 identifies the records that must be maintained, describes the operational requirements for maintaining proper trust accounts, and requires lawyers to regularly reconcile client funds accounts, including the balance held for each client. As a new attorney, you must thoroughly familiarize yourself with Rule 1.15. The IOLTA Committee’s Client Funds Manual contains more detailed information about managing an IOLTA account. In addition, the BBO conducts a free Trust Account Training every month that focuses on record-keeping rules and best practices.

Under Massachusetts Rule of Professional Conduct 1.15(e) it is the lawyer’s responsibility to exercise good faith judgment in determining initially whether funds of a client are of such nominal amount or are expected to be held by the lawyer for such a short period of time that the funds should be placed in an IOLTA account. If the funds are not nominal or short term, the lawyer must establish a separate client fund account (not a pooled IOLTA account) for the benefit of the individual client. The 2009 IOLTA Guidelines further explain how to determine which type of account to use.   
Examples of client funds that may be appropriate to put in an IOLTA account include settlement checks, retainers and other fees advanced for services not yet performed, and funds related to real estate transactions.

All client funds that a lawyer receives must be segregated from the lawyer’s funds except that lawyers are permitted to keep a small amount of money in the IOLTA account, e.g. $200, to pay bank service fees, check printing costs, and if needed to maintain a minimum balance required by the bank. Certain funds belonging to the attorney may also be in an IOLTA account for a short period of time until they can be processed and disbursed to the attorney’s business account, such as settlement payments that include earned attorney’s fees in addition to payment to the client.

As part of the annual BBO attorney registration, you are required to fill out information regarding your compliance with the IOLTA rules by either identifying your IOLTA account including the bank name and account number or indicating the reason that you are exempt from the IOLTA account requirement. Please contact the IOLTA Committee if you have questions about the IOLTA section of the BBO registration; all other registration questions should be directed to the BBO by calling 617-728-8750 or sent by email to registrationdept@massbbo.org.

In July 2010, the SJC amended Rule 4:03 to add a voluntary annual fee of $51 to the BBO registration fee. This “Access to Justice Fee” is administered by the IOLTA Committee and as with other IOLTA funds, it is distributed among three charitable entities: The Boston Bar Foundation, The Massachusetts Bar Foundation, and The Massachusetts Legal Assistance Corporation. These entities use the funds to make grants to local civil legal services programs and to projects that seek to improve the administration of justice in Massachusetts.

Attorneys are required to notify a client that funds have been received, to maintain records concerning the funds, and to pay to the client promptly any funds in the attorney’s possession. Attorneys should discuss with clients the information the attorney needs to determine whether a client’s deposit justifies placement in a separate interest-bearing account rather than an IOLTA account. When this occurs, the attorney must ask the client where to direct any net interest earned on funds the client deposits with the attorney.
An attorney is not required to notify clients of the IOLTA program or of the IOLTA account used by the attorney.  However, there is no prohibition against a lawyer or firm advising clients of the existence or purposes of IOLTA.

Lawyers need to close IOLTA accounts for many reasons, such as winding down a law office due to retirement, a change in firm structure, known fraud on the account, or because the account cannot be balanced as required by Mass. R. Prof. C. 1.15.  The checklist below provides guidance.  If further assistance is needed, please contact the IOLTA Committee. It is not necessary to notify the IOLTA Committee that the account has been closed.  

1. Complete an initial full three-way balanced reconciliation. See IOLTA Client Funds Manual for more details about reconciliation. Review the balanced reconciliation for any red flags, such as: 
1. Any subaccount (client ledger) with a negative balance.
2. Lingering positive balances that may indicate uncashed checks or undisbursed funds.  
3. Any unreconciled amounts between internal records and bank records.
2. Confirm that all deposits are cleared and are good funds.
3. Prepare and send final client bills, if necessary.
4. Disburse all funds belonging to clients.
5. Disburse funds belonging to the lawyer or firm, such as earned fees and reimbursement for cost advances. 
6. Review all outstanding checks to confirm they have cleared. Be alert for common problems, such as:
1. Discharge fee checks not being cashed. 
2. Escrowed money that remained unclaimed or the checks were not cashed.
7. If there are unclaimed or undistributable funds, contact the IOLTA Committee for further information.
8. Contact the bank to determine the account balance and any special requirements to close the account, e.g., written instructions. If there is a fee or any charges due to closing the account, those must be paid with attorney (non-client) funds. If there is outstanding interest owed to the IOLTA Committee in the account, ensure that interest is paid before closing the account. 
9. Upon disbursement of all client funds and clearing of all checks, complete a final account reconciliation indicating a zero balance for the account.
10. Follow the bank’s instructions for closing the account.

A court-appointed Personal Representative should be permitted to access the IOLTA funds to take care of necessary business, such as dispersing funds to clients. If you are having difficulties, you may contact the BBO’s Legal Program Manager, Michelle Yu at 617-728-8751. If you were a client of a deceased attorney and you believe you are owed money, you may contact the Client Security Board at 617-728-8758 or visit their website: www.masscsb.org.