What is an IOLTA?

IOLTA stands for Interest On Lawyers' Trust Account. Each law firm typically has one or more IOLTAs. An IOLTA is a special type of trust account that the law firm maintains at a bank, and it is entirely separate from the law firm's operating account (business bank account).

A lawyer might ask you to deposit advance fees (sometimes called retainers) into the IOLTA. The advance fees you deposit into the IOLTA belong to you until the lawyer earns those fees, at which point the lawyer will move the earned fees into their law firm's operating account. IOLTAs are interest-bearing accounts, and the interest earned on these accounts help to fund legal aid (free or discounted legal services) for low-income Americans.

For example, say your lawyer asks you to deposit a $1,000 advance fee into their law firm's IOLTA. The $1,000 in the IOLTA belongs to you until the lawyer does the work to earn the advance fee. Assume that the lawyer charges $250 per hour. Once the lawyer works one full hour on your case, they will move $250 from the IOLTA into the law firm's operating account, leaving $750 left in the IOLTA. The $250 now belongs to the lawyer's firm, but the $750 still belongs to you because it has not yet been earned.

Once the lawyer works three more hours on your case, they will move the remaining $750 from the IOLTA into their law firm's operating account, leaving $0 left in the IOLTA. Assume also that before the lawyer earned the advance fees in the IOLTA, the IOLTA accrued $25 in interest from the bank. The $25 in interest income does not go to you or the lawyer. Instead, the $25 will directly go to a designated organization that funds legal aid in the state in which the IOLTA is registered. In Illinois, the designated organization is the Lawyers Trust Fund; in Indiana, the designated organization is the Indiana Bar Foundation.

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LEGALESE is an online blog by Thickstun Luo LLC. The blog explains legal terms and concepts in plain English.

Disclaimer: The LEGALESE blog and the posts therein do not form an attorney-client relationship between you and Thickstun Luo LLC. Furthermore, this blog is not intended to render legal advice regarding your specific situation. You should consult an attorney for specific legal advice. Some content in LEGALESE blog posts pertain to state-specific legal rules and concepts that may not be applicable in every jurisdiction.