How safe is your money held by your attorney? Many may have heard the term IOLTA trust account. The acronym stands for “Interest on Lawyer’s Trust Accounts.” These accounts are generally designed for attorneys to hold money for the benefit of others. A retainer paid, but not yet earned or funds for the closing of a real estate transaction are common examples. Funds held in these accounts are subject to strict legal and ethical guidelines. As attorneys, we are fiduciaries because we are holding other people’s funds. IOLTA accounts earn interest. However, the interest earned does not flow back to the account holder. Rather, the interest of all attorney trust accounts is pooled and is used for legal related charitable purposes.
With the failure of Indy Mac Bank, concerns at Citigroup, Bank of America and others, there have been increased concerns raised about the safety of these funds in various institutions. The total combined balance in our firm trust account is rarely below the FDIC coverage limits on interest-bearing deposit accounts. In October, as the economic situation began to materialize, the insured limit was temporarily raised from $100,000 to $250,000. However, concerns remained about how the increased limit impacted the security of the funds?
Each client with funds in a trust account is insured up to the maximum coverage. As long as each client’s funds are below the limit of coverage, the FDIC would insure the entire account if the bank were to fail. However, if the client had additional funds in the same bank, the client’s total coverage could not exceed the maximum coverage. If a client had $50,000 in the attorney trust account and $300,000 in other deposits at the same institution, the FDIC would insure no more than $250,000. Obviously, this policy even in light of the higher limits, would be difficult for individual depositors to monitor. Thus, in November, the FDIC announced that it would include IOLTA accounts in a temporary program providing unlimited coverage for depositors at least through December 31, 2009. Although we all hope that our New Hampshire banks are secure, it was not that long ago that a number of them failed. It’s your money, in our trust.