Attorneys are governed by strict rules when it comes to their Interest on Lawyers Trust Accounts (IOLTA) – in some states called Interest on Trust Accounts (IOTA).
These trust accounts are especially significant in states where attorneys handle real estate closings, where the buyer and lender funds are held in escrow through the course of the transaction, and from which payouts are made to all the various service providers involved in the transaction.
Managing trust accounts requires a lot of expertise and attention to detail, not to mention following the strict rules laid down by the state’s bar association, including:
Personal funds may not be commingled with client accounts, with the exception that a small amount of personal funds may be deposited in the IOLTA to cover bank fees or wire transaction fees.
Lawyers are not permitted to “borrow” funds from an IOLTA account to cover personal or law firm expenses for any reason.
Strict accounting procedures must be followed, and records retained for a specified time period for all IOLTA accounts.
In most states, the interest earned on an IOLTA account does not belong to the lawyer but is required to be funneled to legal aid programs within the state.
The challenge for most lawyers who must maintain such accounts is that they are generally not trained as bookkeepers or accountants. In other words, while they may be great lawyers, they may not be as proficient at handling the financial end of their important work.
Often, lawyers will hire an employee to manage the complicated bookkeeping process for the accounts. In a small office, this may be delegated, unfortunately, to someone less than qualified. In either case, it would behoove the lawyer to take the precaution of having an outside accountant audit the accounts on a regular basis to ensure they are managed in a way that comports with the requirements of that state’s bar association.
With real estate wire fraud on the rise in recent years, largely conducted through business email compromise, real estate lawyers must be increasingly diligent about protecting their client funds from cyber criminals as well.
At Positively Balanced, we believe successful businesses are built and maintained by focusing on activities that generate revenue. This is especially true for lawyers, who have honed their skills and knowledge of the law to provide professional legal services for the buying and selling of real estate.
We help our attorney clients handle everything from full-service escrow reconciliation, audit preparation, consulting, to bookkeeping, allowing you the time to focus on your business.
It's an unfortunate truth that of all the discipline cases that come before a state bar association, a large percentage of them arise out of mismanaged IOLTAs. This could be from deliberate actions, such as borrowing client funds to pay bills, but more often from negligence in not assuring a competent person is handling the accounts properly.
If you are looking for a safer and more secure way to manage your accounts, contact us today to discuss how our range of services can best meet your needs.