Pennsylvania Code › Title 204 - JUDICIAL SYSTEM GENERAL PROVISIONS › Part V - PROFESSIONAL ETHICS AND CONDUCT › Subpart A - PROFESSIONAL RESPONSIBILITY › Chapter 81 - RULES OF PROFESSIONAL CONDUCT › Subchapter B - RULES FOR INTEREST ON LAWYERS TRUST ACCOUNTS › Appendix A - The Pennsylvania Interest on Lawyers Trust Account Board

Current through Register Vol. 54, No. 28, July 13, 2024
Promulgated by the Pennsylvania Interest on
						Lawyers Trust Account Board and Approved by the Supreme Court of
						Pennsylvania
These Regulations are to be read and applied in
						connection with the Pennsylvania Rules of Professional Conduct. Nothing in
						these Regulations shall be construed to relieve a lawyer of any provision of
						the Pennsylvania Rules of Professional Conduct. Where these Regulations contain
						directives pertaining to the Interest on Lawyers Trust Account program which
						are more specific than those set forth in the Pennsylvania Rules of
						Professional Conduct, the provisions of these Regulations shall
						control..
Questions and Answers Concerning Pennsylvania
						IOLTA
STATEMENT OF PURPOSE
The following is a representation of the questions most
						frequently asked of the Pennsylvania Interest on Lawyers Trust Account Board
						(the "IOLTA Board") and the answers given. Some of the answers paraphrase the
						actual Rules of Professional Conduct or Regulations of the IOLTA Board.
						Reference should be made to the Rules and to the Regulations when appropriate.
What is the Basic Concept of
						IOLTA?
Clients and third persons frequently transfer monies to
						lawyers to hold. Rule
						1.15 of the Pennsylvania Rules of
						Professional Conduct generally requires the lawyer to deposit all monies of
						clients and third persons ("Rule
						1.15 Funds") in a Trust Account.
						When the amount is large or if the funds will be held for an extended period of
						time, lawyers invest them for the benefit of the owner. These funds are known
						as Nonqualified Funds. But when the funds are nominal in amount or expected to
						be held for a short time, they cannot practically be invested to benefit the
						owner of the funds. These funds are Qualified Funds.
Rule
						1.15 of the Pennsylvania Rules of
						Professional Conduct requires a lawyer to deposit Qualified Funds in a
						particular type of Trust Account: an income-producing IOLTA Account. The result
						is that funds that would otherwise earn no income can be put to constructive
						use.
The lawyer's Eligible Institution transfers the income
						earned on IOLTA Accounts ("IOLTA Funds"), no less frequently than quarterly, to
						the IOLTA Board. The IOLTA Board distributes the IOLTA Funds for the delivery
						of civil legal assistance to the poor and disadvantaged, educational legal
						clinical programs and internships administered by law schools, the
						administration of justice, and for the administration and development of the
						IOLTA program.
How do lawyers comply with the IOLTA requirements
						of Rule 1.15?
IOLTA Accounts may be maintained only at Eligible
						Institutions approved by the Supreme Court of Pennsylvania.
An "Enrollment Form for Lawyers and Law Firms" can be
						used to direct the Eligible Institution to open or convert one or more of the
						lawyer's Trust Account(s) to income-producing IOLTA Accounts. Submit the second
						copy of the enrollment form, along with a list of all the lawyers who use the
						IOLTA Account in the regular course of their practice, to the IOLTA
						Board.
On an annual basis as part of the licensing process,
						lawyers are required to certify compliance with Rule
						1.15 of the Pennsylvania Rules of
						Professional Conduct regarding the handling of funds and other property of
						clients or third persons ("Third Party Owners") and the maintenance of their
						IOLTA Accounts.
What will happen if a lawyer does not comply
						with Rule
						1.15?
If a lawyer does not comply with the requirements
						outlined in Rule
						1.15 of the Pennsylvania Rules of
						Professional Conduct, he or she will be subject to the same disciplinary
						penalties as any lawyer who does not comply with any of the other requirements
						for the practice of law in Pennsylvania.
The IOLTA Board will refer to the Office of Disciplinary
						Counsel the names of lawyers who do not comply with IOLTA.
Are any exemptions from IOLTA participation
						allowed?
Yes, a lawyer may apply for an exemption from the
						requirement that all Qualified Funds be placed in an IOLTA Account. However,
						the exemption will be granted by the IOLTA Board only for one of the reasons
						specified in Rule
						1.15. Write to the IOLTA Board if
						you believe any of the permitted exemptions apply. Exemptions will be granted
						if:
(i) Low balance account: If the average daily balance of
						your current IOLTA Account, as measured over twelve months, is less than
						$5,000, you may request an exemption.
(ii) Account service charges routinely exceed income: If
						the bank service charges assessed on your current IOLTA Account routinely
						exceed the income earned, you may request an exemption.
(iii) Extreme impracticality or undue hardship: Under
						limited circumstances it would be unduly burdensome for a lawyer to maintain a
						Trust Account as an IOLTA Account. An example includes the lack of an Eligible
						Institution that offers IOLTA Accounts in the lawyer's geographical
						location.
(iv) Other compelling and necessitous reasons: There may
						be compelling and necessitous reasons justifying an exemption from the
						requirement that the lawyer maintain a Trust Account as an IOLTA Account. A
						lawyer who demonstrates a compelling and necessitous reason for not complying
						with the IOLTA Board Regulations may request an exemption. A philosophical
						objection to the IOLTA Program or the IOLTA Board Regulations does not
						constitute a compelling and necessitous reason for an exemption.
What funds are to be placed in IOLTA
						Accounts?
Qualified Funds are monies of a client or third person
						received by a lawyer, that in the Good Faith judgment of the lawyer, are
						nominal in amount or which the lawyer reasonably expects to be held for such a
						short period of time that sufficient income will not be generated to justify
						the expense of earning income to benefit the client or third person.
A lawyer will not be liable for damages or held to have
						breached his or her professional responsibility because monies are deposited in
						an IOLTA Account pursuant to the lawyer's judgment in Good Faith that the
						monies are Qualified Funds.
However, the lawyer should review the funds held in
						his/her IOLTA Account at reasonable intervals to determine whether
						circumstances have changed that require changes with respect to the Rule
						1.15 Funds held in the IOLTA
						Account.
Who pays taxes on the income earned on IOLTA
						accounts?
Nobody. The Internal Revenue Service (IRS) has ruled that
						there are no tax consequences to the Third Party Owner, the lawyer or the IOLTA
						Board. Also, there is no IRS reporting requirement for the lawyer, Eligible
						Institution or Third Party Owner since all IOLTA accounts will use the Tax
						Identification Number of the IOLTA Board.
May a lawyers still open a separate account for
						funds of Third Party Owners?
Certainly. Rule
						1.15 Funds are defined to include
						funds received from a client or third person in connection with a client-lawyer
						relationship, as an escrow agent, settlement agent, representative payee, or as
						a Fiduciary. Rule
						1.15 Funds also include funds
						received as an agent, having been designated as such by a client or having been
						selected as such because of a client-lawyer relationship or the lawyer's status
						as a lawyer. The lawyer must determine whether Rule
						1.15 Funds are Qualified Funds or
						Nonqualified Funds. Nonqualified Funds shall be placed in a Trust Account or in
						another investment vehicle specifically agreed upon by the lawyer and the Third
						Party Owner. Nonqualified Funds which are Fiduciary Funds shall be placed
						either in a Trust Account or in another investment or account which is
						authorized by the law applicable to the entrustment or the terms of the
						instrument governing the Fiduciary Funds.
How does the IOLTA program affect financial
						institutions?
Financial Institutions are not mandated to participate in
						IOLTA. However, Financial Institutions that wish to offer Trust Accounts into
						which lawyers can deposit Rule
						1.15 Funds (whether Qualified or
						Nonqualified Funds) must be approved by the Supreme Court of Pennsylvania. A
						list of Eligible Institutions can be obtained from the Disciplinary
						Board.
An IOLTA Account is an unsegregated Trust Account for the
						deposit of Qualified Funds by a lawyer. The income payable on an IOLTA Account
						cannot be less than the highest rate of interest or dividend generally
						available from the Eligible Institution to its non-IOLTA Account customers when
						the IOLTA Account meets or exceeds the same minimum balance and other account
						eligibility qualifications. Eligible Institutions remit income earned at least
						quarterly to the IOLTA Board.
Eligible Institutions must transmit to the IOLTA Board
						and to the lawyer who maintains the IOLTA Account a statement showing certain
						information. This includes, at a minimum, the name of the account, the service
						charges or fees deducted, if any, and the amount remitted from the lawyer's
						IOLTA Account. If available, the Eligible Institution shall also provide
						information regarding the average daily balance in the account.
Where do IOLTA Funds go?
Income earned on IOLTA Accounts may be used only for the
						following purposes:
(1) delivery of civil legal assistance to the poor and
						disadvantaged in Pennsylvania by non-profit corporations which are tax-exempt
						under the Internal Revenue Code;
(2) educational legal clinical programs and internships
						administered by law schools located in Pennsylvania;
(3) the administration of justice in Pennsylvania; and
(4) the administration and development of the IOLTA
						program in Pennsylvania.
All disbursements and allocations of IOLTA funds are
						subject to the prior approval of the Supreme Court of Pennsylvania.
Who is the IOLTA Board?
The IOLTA Board is the Pennsylvania Interest on Lawyers
						Trust Account Board composed of nine members appointed by the Supreme Court of
						Pennsylvania.
What if a lawyer mistakenly deposits funds which
						are not Qualified Funds into an IOLTA Account?
As long as the lawyer used Good Faith judgment, the
						lawyer will not be liable in damages for placing Nonqualified Funds into an
						IOLTA Account, nor will the lawyer be held to have breached any fiduciary duty
						or responsibility because monies were deposited into an IOLTA Account.
						Additionally, if timely requested, a refund of income earned on an IOLTA
						Account and received by the IOLTA Board attributable to the mistaken deposit,
						net of an administrative charge, will be returned to the remitting Eligible
						Institution, unless an alternative method is approved by the IOLTA Board
May all lawyers in a law firm use the same IOLTA
						Account?
Yes. If a law firm established an IOLTA Account, each
						lawyer who deposits all Qualified Funds in that account will be deemed to be in
						compliance with IOLTA. This account must be set up according to IOLTA
						Regulations. Each lawyer is ultimately responsible to ensure that he or she is
						in compliance with IOLTA.
Where may a lawyer deposit Qualified
						Funds?
IOLTA Accounts must be maintained in an Eligible
						Institution. An Eligible Institution is a Financial Institution which has been
						approved as a depository for trust accounts pursuant to Rule 221(h) of the
						Pennsylvania Rules of Disciplinary Enforcement ("Pa.R.D.E."). Financial
						Institutions include those entities which are identified in Rule
						1.15(a)(4) and
						Pa.R.D.E. 221(a)(2). Information regarding Eligible Institutions can be found
						at www.paiolta.org. Eligible Institutions have various deposit insurance
						arrangements, and some may not have deposit insurance for some deposit
						arrangements. Lawyers are reminded of their responsibility under Rule
						1.15(b)  to
						safeguard appropriately all funds and property in the lawyer's possession in
						connection with a client-lawyer relationship.
What if a lawyer only practices law for part of
						the year?
The lawyer must comply with the IOLTA rules, even if he
						or she only practices law for part of the year.
What types of legal employment are excluded from
						IOLTA?
A lawyer whose employment does not result in the handling
						of Rule 1.15 Funds will generally be
						excluded from IOLTA. Examples include corporate or governmental lawyers,
						judges, and law school professors as long as they do not maintain a private
						practice..
What are some factors which should be used to
						determine whether monies are Qualified Funds?
Factors which can be used to determine which monies are
						Qualified Funds include: (1) the cost to the lawyer of establishing and
						maintaining account(s) benefitting the client or third person; (2) the Eligible
						Institution's service charges; (3) the minimum deposit requirements; (4) the
						accounting fees; (5) the tax reporting requirements; (6) the nature of the
						transaction(s) or proceedings(s) involved; and (7) the likelihood of delay in
						the relevant transaction(s) or proceeding(s).
Must a lawyer who receives funds while acting as
						a fiduciary deposit those funds into an IOLTA Account?
Rule
						1.15, as amended on September 4,
						2008, specifically includes funds received by a lawyer as a personal
						representative, guardian, conservator, receiver, trustee, agent under durable
						power of attorney, or other similar positions as Rule
						1.15 Funds. As such, those funds,
						pursuant to Rule
						1.15(b), must be
						maintained separate from the lawyer's own property. Pursuant to Rule
						1.15(d),
						Fiduciary Funds continue to be governed by the law, procedure and rules
						governing the requirements of confidentiality and notice applicable to the
						fiduciary entrustment. Pursuant to the provisions of Rule
						1.15(e), the
						delivery, accounting and disclosure of Fiduciary Funds continues to be governed
						by the law, procedure and rules governing the requirements of fiduciary
						administration, confidentiality, notice and accounting applicable to the
						fiduciary entrustment. If the Fiduciary Funds are Qualified Funds, they may be
						deposited in an IOLTA Account, or they may be maintained in another account
						consistent with the Fiduciary entrustment.
Must a lawyer who receives funds of clients or
						third persons other than in connection with a client-lawyer relationship
						deposit those funds in a Trust Account, including an IOLTA
						Account?
Under certain circumstances, yes. The responsibilities of
						a lawyer which are identified in Rule
						1.15 with respect to funds of
						clients or third persons are not restricted to funds received in connection
						with a client-lawyer relationship. The lawyer's responsibilities with respect
						to such funds may arise under Rules of Professional Conduct 1.15, 5.7 or both.
As amended by Order of the Supreme Court of Pennsylvania
						dated September 4, 2008, the definition of Rule
						1.15 Funds specifically includes
						funds which the lawyer receives from a client or third person as an escrow
						agent, settlement agent, representative payee, as an agent having been
						designated as such by a client, or having been selected as an agent as a result
						of a client-lawyer relationship or the lawyer's status as a lawyer. Those funds
						are subject to Rule
						1.15 and must be kept separate
						from the lawyer's own property. Pursuant to Rule
						1.15(k), all
						Nonqualified Funds which are not Fiduciary Funds shall be placed in a Non-IOLTA
						Account or in another investment vehicle specifically agreed upon by the lawyer
						and the Third Party Owner. Qualified Funds must be placed in an IOLTA
						Account.
Rule of Professional Conduct 5.7 provides that a lawyer
						is subject to the Pennsylvania Rules of Professional Conduct with respect to
						the provision of both legal and nonlegal services if a lawyer provides nonlegal
						services that are not distinct from legal services. Rule of Professional
						Conduct 5.7 (e) defines "nonlegal services" as "services that might reasonably
						be performed in conjunction with and in substance are related to the provision
						of legal services, and that are not prohibited as unauthorized practice of law
						when provided by a nonlawyer." Even if the nonlegal services are distinct from
						legal services, the lawyer is still subject to the Rules of Professional
						Conduct: (i) if the lawyer knows or reasonably should know that the recipient
						of the services might believe that the recipient is receiving the protection of
						a client-lawyer relationship, or (ii) if the lawyer is an owner, controlling
						party, employee, agent, or is otherwise affiliated with an entity providing
						nonlegal services and the lawyer knows or reasonably should know that the
						recipient of the service might believe that the recipient is receiving the
						protection of a client-lawyer relationship. In each of these cases, the lawyer
						will be subject to the obligations of Rule
						1.15 of the Pennsylvania Rules of
						Professional Conduct and these Regulations as if a client-lawyer relationship
						existed with the recipient of the services. The lawyer then must deposit all
						funds of the client or a third person which are received in connection with
						that relationship in a Trust Account, regardless of whether the funds resulted
						from legal or nonlegal services. If the funds are Qualified Funds, those funds
						are to be placed in an IOLTA Account.
Who pays the service charges for IOLTA
						Accounts?
Account service charges on an IOLTA Account will be paid
						by offsetting the service charges against income earned on that account.
Bank charges pertaining to the lawyer's practice (e.g.
						check printing charges, overdraft charges, charges for temporary extensions of
						credit, etc.) and costs billable to others (e.g. overdraft charges on deposited
						items, certified checks, wire transfers, etc.), will be the responsibility of
						the lawyer.
How can I find out more about
						IOLTA?
For additional information concerning IOLTA, contact the
						office of the IOLTA Board by calling (717) 238-2001. The IOLTA Board's fax
						number is (717) 238-2003.