Keeping Firm Funds in IOLTA for Account Maintenance

Jul 28, 2018

There’s an exception to the rule prohibiting law firms from depositing firm funds into the IOLTA trust account.

Example Scenario
-Client gives law firm $10,000 of advance funds.
-Check is deposited to IOLTA account.
-Two days later, firm receives notice the $10,000 check bounced. The bank deducts the $10,000 check from the IOLTA account along with a $20 service fee.

Who funds the $20 service fee? The client’s balance history is the $10,000 deposit less the $10,000 returned item for an ending balance of $0.

Options are:
1) Client’s IOLTA balance is negative. Clients cannot have negative IOLTA balances.
2) The $20 was taken from another client’s IOLTA funds…

The solution is to keep enough firm funds in the IOLTA account to cover bank charges. We suggest keeping at least $100 of firm funds in the IOLTA account and replenishing as needed.

Citations

Texas
A Lawyer’s Guide to Client Trust Accounts – State Bar of Texas – April 15, 2014 Edition – Page 5
Commingling and Funds for Account Maintenance
Rule 1.14 requires that funds of a client or third person be held separate from the lawyer’s.17 Therefore a lawyer should not commingle or mix his own or the law firm’s funds with the client’s. Funds that belong in whole to a lawyer should not be deposited into a trust account.
An exception exists to the general rule that funds belonging to the lawyer or law firm may not be deposited in a trust account. This exception permits the deposit of funds “reasonably sufficient to pay for fees or obtain a waiver of fees or to keep the account open.”

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