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:
- Client’s IOLTA balance is negative. Clients cannot have negative IOLTA balances.
- 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
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.”
