In “Eligible” IOLTAs We Trust
By Joseph R. Marconi
Effective September 1, 2011, the Illinois Supreme Court has amended Rule 1.15 of the Illinois Rules of Professional Conduct respecting the safekeeping of client funds deposited in trust accounts. As professional fiduciaries, attorneys have long been required to keep their clients’ funds separate from their own. Now, the Supreme Court has limited the options for accounts to hold client funds, imposed new record keeping requirements on attorneys, and now requires banks to notify the ARDC when client accounts are overdrawn.
Specifically, Rule 1.15(a) limits the type of accounts in which client funds can be deposited to two kinds. The first is an Interest on Lawyers Trust Account (IOLTA). IOLTAs are pooled trust accounts that bear interest or dividends on nominal or short-term client funds—those funds advanced for costs or which belong in part to a client and “presently or potentially” to the lawyer. The interest or dividends is paid to the Lawyers Trust Fund of Illinois (LTF) which donates the funds to organizations providing legal services to the poor. An attorney or law firm can establish an IOLTA account by:
- Contacting an eligible financial institution (a list is available on the LTF website
- Identifying the account as a client trust account;
- Using the TIN of the LTF (available on request from LTF);
- Downloading, completing and submitting the first page of the Notice to Financial Institution/Notice of Enrollment Form to the bank and the second page and return it to the Lawyers Trust Fund.
The second option, non-IOLTA trust accounts, are to be used for the funds of a specific client or third party designated as the trust beneficiary. The account must bear interest for the benefit of the client and cannot be pooled with others’ money. Client funds “shall not be deposited in a non-interest bearing or non-dividend bearing account.” Ill. Rule of Prof. Conduct, 1.15(a).
Additionally, the amended rule now imposes substantial record keeping duties on the attorney. Records must be kept for seven years. These include maintaining:
- a receipt and disbursement journal for all accounts that identifies the date, source and description of each deposit and disbursement;
- contemporaneous ledgers for each account listing the source of all deposits, dates, descriptions and amounts charged or disbursed;
- copies of accountings to make available to beneficiaries “along with…portions of those clients’ files that are reasonably necessary for a complete understanding of the financial transactions pertaining to them”;
- all checkbook registers, check stubs, bank statements, records of deposit, and checks or other records of debits;
- all retainer and compensation agreements;
- all bills for legal services;
- reconciliation reports of all trust accounts on a quarterly basis;
- arrangements for retaining the records in the event of the closing, sale, dissolution or merger of a law practice.
Ill. Rule of Prof. Conduct 1.15(a)(1-8).
Finally, the amendments now require that the “eligible financial institution” holding an IOLTA or non-IOLTA trust account quickly report any overdraft, whether the instrument was honored or not, to the ARDC. Attorneys licensed in Illinois are deemed to consent to such disclosure and in order to be eligible, a bank must have a modified overdraft disclosure agreement with both the ARDC and the firm establishing the account. Ill. Rule of Prof. Conduct 1.15(h)(1-4). While such overdrafts rarely result in any attorney discipline, they are a sign of potential improprieties. This reporting requirement is an attempt to nip such improprieties in the bud.
For more information, the ARDC has a free online resource, the “Client Trust Account Handbook” available at http://www.iardc.org/toc_main.html. Additionally, the LTF’s helpful website is found at http://www.ltf.org/index.html.
 Joe is a shareholder of Johnson & Bell, Ltd., and the chairman of the business litigation/transaction group and co-chair of the employment group. He gratefully acknowledges the assistance of paralegal, Mike Castellaneta, J.D., for his assistance in the drafting of this article.
 The Taxpayer Identification Number for IOLTA accounts is that of the LTF.
Note: This article was originally published by ISBA Mutual.