Interest on lawyer trust accounts

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Interest on Lawyer Trust Accounts ('IOLTA') is a program where the interest earned from money held in lawyer trust accounts is paid to the state bar association rather than to the owners of the money itself. The program is mandatory, and administered by each individual state. The rules and regulations vary slightly from jurisidiction to jurisdiction. Generally, the money collected is used to fund indigent defense, pro bono projects, and legal education programs. IOLTA only applies to trust funds that are "nominal in amount or held for a short period of time;" so larger amounts of money held for single clients are exempt from IOLTA. The reasoning behind IOLTA was that small amounts held in trust for short periods of time would not generate any substantial interest on their own. But when pooled with other small amounts from other clients, the interest would be substantial. The overhead of trying to account for and return interest payments (that on many occasions may equal less than one cent) for each individual client in a pool trust account is prohibitive, and the lawyer cannot simply pocket the interest himself. IOLTA is the answer to the problem.

The Supreme Court of the United States upheld the constitutionality of IOLTA in Brown v. Legal Foundation of Washington, 538 U.S. 216 (2003).

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Brown v. Legal Foundation of Washington