An IOLTA account holds money that belongs to clients, not the lawyer or firm
An IOLTA trust account (Interest On Lawyer Trust Account) is a bank account that a law firm uses to hold client money temporarily. The money in it belongs to the clients—not the lawyer or the law firm. The account exists because lawyers often receive funds on behalf of clients: a settlement payment, a security deposit for a rental dispute, earnest money for a real estate deal, or court-ordered funds waiting to be distributed. The lawyer cannot put that money in their business account. It has to sit in a separate trust account until the lawyer disburses it to the right place.
IOLTA accounts are required by state bar associations and are heavily regulated. The account must be held at a bank, clearly labeled as a trust account, and kept separate from the firm's operating funds. The lawyer is responsible for tracking who owns what money inside the account and making sure it goes where it should.
Key Takeaways
- IOLTA accounts hold client money only—settlement payments, deposits, court awards, or other funds the lawyer receives on a client's behalf.
- The money belongs to the client, not the lawyer, even though the lawyer's name is on the account.
- State bar associations require IOLTA accounts and set strict rules about how the money must be tracked and when it must be paid out.
- Interest earned on IOLTA accounts typically goes to state bar foundations or legal aid programs, not to the client or the lawyer.
- If a lawyer mishandles an IOLTA account—mixing funds, failing to disburse, or stealing—the client can file a complaint with the state bar.
Why lawyers need a separate trust account
A lawyer cannot deposit client money into their business checking account. Doing so would mix the firm's money with the client's money, making it impossible to track who owns what and creating a conflict of interest. If the firm runs short on cash, there is a temptation to borrow from the trust account. If the firm goes bankrupt, creditors might try to seize the trust account, even though the money is not the firm's property.
The trust account solves this problem by creating a clear legal separation. The bank account is titled as a trust account. The lawyer holds the money in trust—meaning they are a custodian, not an owner. The client remains the owner. This structure protects the client's money and protects the lawyer from accusations of theft or misappropriation.
How money moves in and out of an IOLTA account
Money enters an IOLTA account when a lawyer receives funds on behalf of a client. This might happen when a settlement check arrives, when a landlord returns a security deposit, when a court orders funds held pending a decision, or when a client prepays for legal services. The lawyer deposits the check into the trust account and records it in the firm's trust ledger, noting the client's name, the amount, and the date.
Money leaves the account when the lawyer disburses it according to the client's instructions or a court order. The lawyer might write a check to the client, to a third party (like a landlord or creditor), or to the firm itself if the money was a prepaid legal fee that the firm has now earned. Every withdrawal must be documented and matched to a specific client and a specific reason.
The lawyer must disburse client money promptly—not hold it indefinitely. If a client asks for their money back, the lawyer must return it. If a settlement is final and the client has signed off, the lawyer must pay it out. Holding client money longer than necessary is a violation of bar rules and can result in discipline.
Interest and who gets it
IOLTA accounts are interest-bearing accounts. However, the interest does not go to the client or the lawyer. Instead, it goes to the state bar foundation or a legal aid organization designated by the state bar. This is by design: the interest is small enough that the cost of tracking and distributing it to individual clients would exceed the amount earned. Rather than waste resources on accounting, the bar directs the interest to fund legal services for low-income people.
Some states allow lawyers to choose which approved organization receives the interest. Others direct all IOLTA interest to a single state fund. The lawyer has no discretion to keep the interest or to direct it elsewhere.
What happens if a lawyer mishandles an IOLTA account
Mishandling an IOLTA account is one of the most serious violations a lawyer can commit. Common problems include mixing client money with firm money, failing to disburse funds when required, borrowing from the trust account without permission, or stealing outright. Any of these can result in discipline from the state bar, ranging from a warning to suspension or disbarment.
If you believe a lawyer has mishandled your money, you can file a complaint with your state bar's disciplinary office. You can also pursue a civil lawsuit against the lawyer for breach of fiduciary duty or conversion (taking property that belongs to someone else). Some states have client security funds that compensate clients who lose money due to a lawyer's dishonesty, though these funds have limits and are not available in every situation.
If a law firm closes or goes bankrupt, the state bar typically steps in to ensure that client money in the trust account is returned to the clients it belongs to. The firm's creditors cannot claim the trust account because it is not the firm's asset.
How to know if your money is in an IOLTA account
When a lawyer receives money on your behalf, ask them directly whether it is being held in a trust account. They should tell you the name of the bank and confirm that the account is a trust account. You can also ask for a copy of the deposit receipt or a statement showing your money in the account.
If you are paying a lawyer a retainer (an upfront fee for future work), ask whether the retainer is being held in a trust account or in the firm's operating account. Some retainers are held in trust until the lawyer earns them through work; others are deposited into the operating account immediately. The treatment depends on the fee agreement and state bar rules, so clarify this before you pay.
If you do not receive clear answers about where your money is, that is a red flag. A trustworthy lawyer will explain their trust account practices without hesitation.
Frequently Asked Questions
Can a lawyer use money from an IOLTA account to pay their office rent?
No. A lawyer cannot withdraw money from a trust account for the firm's operating expenses. The only exception is if the money is a legal fee that the lawyer has earned—for example, if a client paid a retainer and the lawyer has completed the work. Even then, the lawyer must move the earned portion to the operating account, not use it directly from the trust account.
What if a lawyer closes their practice and there is still money in the trust account?
The lawyer must return all client money to the clients before closing. If the lawyer cannot locate a client, the money is typically turned over to the state bar or a state unclaimed property fund. The lawyer cannot keep it or donate it to charity.
Does the client earn interest on money in an IOLTA account?
No. The interest earned on IOLTA accounts goes to state bar foundations or legal aid organizations, not to the client. This is standard practice across all states.
Can I see a statement of my money in the trust account?
Yes. You have the right to ask your lawyer for a statement showing your money in the trust account. A lawyer should provide this upon request and should keep you informed about when your money will be disbursed.
What if I disagree with how a lawyer is handling my trust account money?
Contact your lawyer in writing and explain the problem. If the lawyer does not resolve it, you can file a complaint with your state bar's disciplinary office. You can also consult another lawyer about whether you have grounds for a civil lawsuit.