New York IOLA (IOLTA) Trust Accounting Guide for Attorneys

New York uses the term IOLA (Interest on Lawyer Account) for what most other states call IOLTA. The basic idea is the same: when you hold small or short-term client funds that cannot reasonably earn interest for the individual client, you place them in a pooled, interest-bearing trust account. The interest goes to the IOLA Fund of the State of New York, which finances civil legal services for low-income NY residents.

If you are admitted in this city and you handle client money, you are expected to understand how IOLA works, when it is mandatory, and how trust-account rules are enforced in practice. This resource document provides an overview of the bookkeeping, recordkeeping, and reconciliation standards applicable to NY law firms managing IOLA trust accounts.

IOLA vs IOLTA

IOLA and IOLTA programs share a common mission. What differs is how and why each system developed. NY created its IOLA Fund to address rising unmet legal-aid needs among low-income residents at a time when traditional funding sources were shrinking.

In contrast, IOLTA programs in most other states evolved under different court mandates or bar-foundation models. While they serve the same broad purpose, each state’s structure reflects its own policy priorities, funding mechanisms and regulatory culture. Here’s more context.

Jurisdictional Differences

“IOLA” exists only in NY; “IOLTA” is used everywhere else. This is more than a naming distinction. Each state has its own rules on:

• Qualified or nominal funds
• Eligible financial institutions
• Required notifications
• Audit triggers and oversight bodies

Because the regulatory framework varies, attorneys who practice across state lines must follow the rules of the jurisdiction in which the funds are held, not where the lawyer happens to reside or be primarily admitted.

Interest Allocation and Beneficiaries

Both systems direct interest toward civil legal services, but who receives that funding differs. In NY, interest from IOLA accounts goes to the IOLA Fund of the State of New York, which distributes grants primarily to non-profits serving low-income individuals.

In many IOLTA states, interest is remitted to state bar foundations, which may allocate funds to a broader mix of access-to-justice initiatives, pro bono programs or court-based services. Understanding these differences matters, especially for firms operating in multiple jurisdictions or coordinating trust-account policies across offices.

Account Management Rules

Both programs impose similar responsibilities (segregation of funds, detailed records, proper titling, and use of eligible institutions) but each state defines the specifics differently. NY's trust-account regime is tightly integrated with Rule 1.15, the Dishonored Check Rule, and IOLA’s statutory requirements. Other states layer their rules onto local trust-account handbooks, bar-foundation guidelines, or court oversight systems.

Because of these jurisdictional nuances, compliance expectations for attorneys differ by state, and firms must align their bookkeeping workflows with whichever rules apply to the funds they hold.

How The IOLA Program Evolved

NY’s IOLA system was shaped by decades of policy choices aimed at expanding access to justice and creating a reliable funding stream for civil legal services. Here’s a short timeline for context:

• 1983: The Legislature, with strong support from the NYSBA, creates the IOLA Fund of the State of New York to provide an additional revenue stream for civil legal services.
• 1984: The Fund becomes operational. Attorneys can voluntarily place nominal or short-term client deposits into pooled interest accounts.
• 1987: Participation is still low; roughly 15% of eligible attorneys are using IOLA accounts, and revenues are far below potential.
• 1988: Legislation makes participation mandatory for attorneys in private practice who hold nominal, short-term client escrow funds.
• Today: The IOLA Fund is a major source of civil legal aid funding. Revenues still fluctuate with interest rates, but the structure is entrenched and supported by courts, bar associations, and access-to-justice commissions.

Core Legal Framework for IOLA Accounts

NY IOLA and trust-account obligations sit on a tightly interlocking set of statutes, court rules, and professional-conduct requirements that collectively define how client funds must be handled, safeguarded, and accounted for.

These authorities work together to establish when an attorney must use an IOLA account, how that account must be titled and maintained, what records must be kept, how overdrafts are monitored and reported, and how interest generated on pooled client funds is ultimately distributed to legal-aid organizations.

Unlike many states where trust accounting guidance is largely policy-based, NY embeds these requirements directly into binding law and disciplinary rules, creating one of the most structured oversight systems in the country. The most important ones are listed below.

Judiciary Law § 497

Judiciary Law § 497 defines both the structure and purpose of New York’s Interest on Lawyer Account system by setting out what constitutes an “interest on lawyer account” and, critically, what qualifies as “qualified funds.” These are client or third-party monies that are too small in amount or expected to be held for too short a time to generate net interest for the individual client after bank charges.

The statute gives attorneys the discretion to decide whether funds meet this threshold but makes clear that once they do, those funds must be deposited into an IOLA account so their pooled interest can support civil legal services across the state.

21 NYCRR § 7000.8

21 NYCRR § 7000.8 requires any attorney or firm that receives qualified funds to open and maintain an IOLA account at a participating NY banking institution, using the proper trust-account title and ensuring that checks and deposit slips clearly reflect its fiduciary nature.

The rule places the burden on the attorney to exercise sound judgment in determining when funds are “qualified,” and it also imposes a strict administrative obligation: once the account is opened, the attorney must notify the IOLA Fund within 30 days, providing the bank name, branch information, and account number.

This notification requirement enables the Fund to track participating accounts, verify compliance with remittance rules, and ensure that interest generated through the pooled system flows correctly into NY’s civil legal-services network.

New York Rules of Professional Conduct, Rule 1.15

Rule 1.15 is the cornerstone of NY’s trust-account system. It sets out the fiduciary duties attorneys owe when holding client or third-party funds, including how those funds must be preserved, segregated, documented, and disbursed.

The rule establishes the minimum standards for recordkeeping and reconciliation across all attorney trust accounts, including IOLA accounts, and it is one of the most frequently cited provisions in disciplinary matters involving escrow or client-fund mismanagement. Attorneys must maintain the following records for seven years:

• Records of all deposits and withdrawals for each trust account, including the date, source, and a clear description of each deposit, and the date, payee, and purpose of each withdrawal.
• Client-specific ledgers showing the source and amount of all funds held for each client, all disbursements made, and current balances.
• Retainer and compensation agreements with clients.
• Statements to clients or third parties detailing the disbursement of funds.
• Bills rendered to clients and records of payments to outside parties.
• Bank records, including checkbooks, check stubs, canceled checks (or digital images), duplicate deposit slips, and monthly bank statements.

Even though the IOLA Fund manages interest remittance on pooled accounts, attorneys and law firms remain fiduciaries of the underlying client funds. Meeting that duty requires disciplined and transparent processes. Key practices include:

• Avoiding any commingling of client funds with the firm’s operating or business accounts.
• Withdrawing funds only when properly earned or required to satisfy a client obligation, and never using trust funds to pay firm expenses.
• Declining overdraft protection or credit-line features on trust accounts, as such arrangements are prohibited under NY rules.

22 NYCRR Part 1300

Under 22 NYCRR Part 1300, establishes NY's Dishonored Check Reporting Rules, a mandatory safeguard designed to detect and address potential misuse of attorney trust, special, and escrow accounts (including IOLA accounts) at the earliest possible stage.

Under this system, any bank that maintains an attorney fiduciary account must automatically report every overdraft or dishonored check to the Lawyers’ Fund for Client Protection, regardless of whether the shortage was corrected or caused by a bank error. The Fund holds the notice briefly to confirm its accuracy, then forwards validated reports to the appropriate Appellate Division grievance committee for review.

This automatic reporting mechanism functions as an early-warning system for regulators, ensuring that even isolated or inadvertent shortages are scrutinized and that attorneys can demonstrate, through proper ledgers and reconciliations, that client funds were never at risk. Here’s what happens in case of overdrafts or dishonored checks:

• The Lawyers’ Fund holds the notice for ten business days to allow correction of bank errors (fixing the overdraft with a deposit does not erase the report).
• After that period, the notice is forwarded to the attorney grievance committee with jurisdiction over the lawyer or firm for any inquiry it deems appropriate.

Discipline can range from private caution to suspension or disbarment, depending on findings under Rule 1.15 and related rules. Repeated overdrafts, unexplained shortages, or poor records can all aggravate outcomes. The lawyers most at risk are not necessarily those stealing funds, but those who cannot prove what happened in their IOLA account because ledgers, reconciliations, and records are incomplete.

State Finance Law § 97-v

State Finance Law § 97-v formally establishes the IOLA Fund as a dedicated special revenue fund within NY’s financial structure and sets the rules for how interest generated from IOLA accounts is collected, managed, and ultimately distributed to civil legal services organizations throughout the state.

The statute authorizes the State Comptroller to receive and hold all IOLA remittances and directs that these funds be allocated, through the IOLA Board of Trustees, to nonprofit providers delivering free or low-cost legal assistance in areas such as housing, family law, consumer matters, and public benefits.

By embedding the program’s financial management directly into state law, § 97-v ensures that IOLA revenues remain segregated, transparently administered, and used exclusively to advance access to justice.

Setting Up an IOLA Account

New York’s process for establishing an IOLA account is designed to be straightforward, but every step carries legal and ethical significance because the account serves as a fiduciary vehicle for client property. Attorneys must ensure the account is opened at an eligible NY banking institution, titled in accordance with Rule 1.15’s trust-account naming conventions, and supported by proper internal controls before any client funds are deposited.

The process also includes mandatory notification to the IOLA Fund, verification that only NY–admitted lawyers have signatory authority, and the creation of ledgers and reconciliation practices that will satisfy both audit and disciplinary scrutiny. Attorneys opening an IOLA account should follow these steps:

Choose a Participating Bank

Selecting the right bank is the first compliance checkpoint in opening an IOLA account, because not every financial institution is eligible to hold attorney trust funds under state rules. Participating IOLA banks are ones that have formally agreed to NY’s mandatory interest-remittance procedures, recordkeeping requirements, and the Dishonored Check Reporting Rules that govern all attorney fiduciary accounts.

These institutions understand the unique obligations attached to IOLA accounts, including how interest must be transmitted to the IOLA Fund and how overdraft notices must be handled,  which reduces administrative risk for the attorney. The IOLA Fund maintains and regularly updates the official list of approved banks, and attorneys should verify a bank’s participation status before opening an account to ensure full compliance from day one.

Open the Account Under the Correct Title

Proper titling is essential because it signals the fiduciary nature of the account to banks, auditors, and disciplinary authorities, and NY requires that all trust and escrow accounts be labeled in a way that unmistakably reflects their purpose. Acceptable titles include:

• “<Attorney/Firm Name> IOLA Account”
• “Attorney Trust Account – IOLA”

Improper or incomplete titling is one of the most common compliance issues flagged in trust-account audits, and it can create confusion about the account’s purpose and applicable safeguards.

Provide the Bank With Any Required Documentation

Once you’ve selected a participating institution, the bank may request certain confirmations or paperwork as part of its internal IOLA onboarding workflow. This can include verifying that the account is being opened for fiduciary purposes, confirming the attorney’s signatory authority, or ensuring the account title complies with Rule 1.15.

While most participating banks are already familiar with IOLA requirements, some branches or staff may ask for clarification about interest remittance or overdraft-notification rules. In those cases, you can direct them to the IOLA Fund of the State of New York: Bank Resources, which outlines the remittance process, reporting obligations, and technical requirements for maintaining an IOLA account.

Participating institutions have already agreed to these obligations, but providing the correct references upfront helps prevent delays and ensures the account is set up in full compliance.

Notify the IOLA Fund Within 30 Days

After the account is opened, a timely notification is required so the IOLA Fund can link the account to the attorney and ensure interest is properly captured and remitted. Within 30 days, you must provide:

• Name of the bank
• Address of the bank branch
• IOLA account number

This administrative step is easy to overlook, yet it plays a key role in maintaining accurate program records, and failure to notify the Fund can create remittance complications or raise avoidable questions during compliance reviews or disciplinary audits.

Set Up Client-Ledger and Pooled-Ledger Tracking

Before any client funds are deposited, you must establish a clear and reliable bookkeeping structure that separates individual client activity from the total balance of the IOLA account. We recommend creating:

• A client-specific ledger for each matter
• A pooled IOLA ledger tracking overall trust activity

These ledgers form the backbone of your reconciliation and audit trail. Disciplinary authorities focus heavily on whether these records are complete, current, and accurately aligned with bank statements, meaning that a clean bank balance alone is not enough to demonstrate compliance.

Key Requirements for Attorneys Holding Client Funds

NY imposes a structured set of obligations on attorneys who handle client money, covering everything from where funds must be deposited to how they must be documented, reported, and safeguarded. These requirements form the backbone of the state’s trust-accounting framework and apply regardless of firm size or practice area.

They ensure that client funds remain protected at all times and that attorneys maintain the systems and controls needed to demonstrate full compliance if questioned by banks, regulators, or disciplinary authorities.

Mandatory Participation and Qualified Funds

If you receive qualified funds in the course of practice, you must maintain an IOLA account in an eligible banking institution. Qualified funds are client or beneficiary monies held in a fiduciary capacity that, in your judgment, are too small in amount or expected to be held too briefly to justify a separate interest account for the client.

You may still open a separate, client-specific account when the amount and duration justify it. What you cannot do is park qualified funds in a non-interest-bearing operating or escrow account.

Segregation and Recordkeeping

NY’s trust-account rules place a heavy emphasis on keeping client funds completely separate from any business, operating, or personal accounts, and on maintaining a clear paper trail that shows exactly how those funds move. An IOLA account must be unmistakably identified as a fiduciary account. Typically “[Attorney Name or Law Firm] IOLA Account” or “Client Trust / Escrow Account”, and every deposit or withdrawal must be traceable to a specific client matter.

Regulators rely on the strength of an attorney’s records, not their bank balance, to assess compliance. To meet these expectations, attorneys must follow established trust-accounting practices:

• Maintain separate IOLA accounts for qualified funds, distinct from operating or personal accounts.
• Maintain client-specific ledgers plus a pooled IOLA ledger, showing running balances by client and in total.

Preserve records for seven years after the events they reflect: bank statements, canceled checks, deposit slips, ledgers, retainer and fee agreements, and disbursement records.

Attorney Registration (Biennial)

Although you don't require a standalone annual IOLA certification, the biennial attorney registration process functions as an important compliance checkpoint. Each attorney must attest to the existence of any trust, escrow, or IOLA accounts they maintain and confirm that their recordkeeping practices align with Rule 1.15’s requirements.

This disclosure is not merely administrative; the Appellate Division reviews these filings, and any omissions, inconsistencies, or red flags can prompt follow-up inquiries or requests for supporting trust-account documentation. Attorneys must:

• File biennial attorney registration
• Disclose whether they maintain IOLA or other trust/escrow accounts
• Confirm compliance with Rule 1.15 recordkeeping requirements

Responding to Dishonored Check Reports

Under 22 NYCRR Part 1300, any overdraft or dishonored check on an IOLA or escrow account must be reported by the bank to the Lawyers’ Fund. Attorneys must respond promptly with documentation showing:

• The ledger entries around the transaction
• The bank statement page
• An explanation of the error (if it was a bank mistake)

A corrected overdraft still triggers a report, so a clean ledger and reconciliation history is essential.

What to Do if Client Funds Become Abandoned or Unclaimed

When client funds remain untouched because the client cannot be located or does not respond, NY treats the situation as a fiduciary issue requiring careful, well-documented steps.  Attorneys must follow a defined process to ensure the money is protected, properly transferred, and fully traceable if questions arise. Unclaimed or abandoned funds require careful handling:

• Try to contact the client or beneficiary
• Keep detailed notes of all contact attempts
• After the statutory dormancy period, remit funds to NY’s unclaimed property system (Office of the State Comptroller)
• Maintain supporting documents in your Rule 1.15 records

Improper handling of unclaimed funds is a recurring issue in disciplinary cases. For an NY firm, this history matters because it explains why the program is mandatory and why enforcement mechanisms are taken seriously: the system exists to keep a critical funding stream stable.

Useful Resources & Official References

These materials give any NY lawyer both the black-letter rules and the practical know-how to run a clean IOLA account.

• IOLA Fund: Lawyers’ Page and FAQs: Overview of IOLA’s purpose, participation requirements, and links to relevant laws and materials.
• IOLA: Lawyer’s Guide to Opening an IOLA Account: Step-by-step guide to choosing a participating bank, titling the account correctly, and understanding qualified funds.
• IOLA Participating Banks List: Official list of eligible institutions, including “Platinum Partner” banks offering competitive rates.
• New York Lawyers’ Fund for Client Protection: Attorney Trust Accounts & Recordkeeping Guide: Detailed instructions on the accounting and recordkeeping requirements for attorney IOLA accounts.
• NYSBA: Escrow Accounts, IOLA & Ethics: Practice-oriented resource on escrow accounts, qualifying funds, and IOLA participation.
• NYSBA Book: Attorney Escrow Accounts (Fifth Edition): A detailed manual, frequently cited by IOLA and the Lawyers’ Fund, covering escrow funds, IOLA accounts, and the Lawyers’ Fund.
• NYSBA Article: The Lawyer’s Duties Regarding Deposit Insurance of Attorney Trust Accounts: Explains how Rule 1.15, the Dishonored Check Rule, and deposit-insurance issues intersect.

Who Does What: Oversight and Enforcement

The city's trust-account system is supported by a network of agencies that each monitor a different part of the attorney-client-fund relationship. Together, they create an oversight framework that governs how IOLA accounts are opened, maintained, audited, and corrected when issues arise.

Understanding the role of each body is essential, because even small bookkeeping errors can move quickly from a bank’s automated reporting system to disciplinary review. Examples include the following.

IOLA Fund of the State of New York

The IOLA Fund serves as the central administrative body for the city's pooled-interest program, ensuring that interest generated from IOLA accounts is collected, tracked, and distributed to civil legal service providers as required under State Finance Law § 97-v.

In addition to overseeing grantmaking, the Fund maintains the statewide list of participating banks, provides technical and compliance guidance to lawyers and financial institutions, and publishes resources such as A Lawyer’s Guide to Opening an IOLA Account. It also acts as a point of contact for questions about eligibility, reporting obligations, and account setup, helping ensure consistent application of IOLA rules across the state.

New York Lawyers’ Fund for Client Protection

The Lawyers’ Fund operates as NY's safety net for clients harmed by attorney theft or misappropriation, reimbursing eligible losses and supporting public confidence in the profession. 

Beyond its compensation role, the Fund administers the Dishonored Check Reporting System established under 22 NYCRR Part 1300, receiving automatic notices from banks whenever an attorney trust, special, or escrow account experiences an overdraft or bounced check. The Fund evaluates these notices, identifies errors or irregularities, and forwards valid reports to the appropriate grievance committee for further review.

Appellate Division Attorney Grievance Committees

The grievance committees of the Appellate Division are responsible for enforcing New York’s Rules of Professional Conduct, including Rule 1.15, which governs the preservation and handling of client funds. They receive dishonored-check reports from the Lawyers’ Fund and investigate potential misconduct ranging from poor recordkeeping to commingling or misappropriation. Their authority includes issuing private cautions, public discipline, suspensions, and disbarment.

In practice, this means that IOLA compliance is not just about where the interest goes. It is wired directly into the city's disciplinary system through the bounced-check rule and the Lawyers’ Fund.

How Law Firm Velocity Supports IOLA Compliance

If you are not fully confident that your IOLA account, ledgers and reconciliations could withstand close scrutiny from a bank, the Lawyers’ Fund, or a grievance committee, this is exactly the problem space we operate in every day.

Our team supports more than 100 law firms with ongoing trust-account bookkeeping, monthly IOLA reconciliations, and oversight systems that keep records audit-ready and compliant. Schedule a consultation to learn more.