Ensuring “Pass-through” FDIC Coverage

Are your clients’ IOLTA account deposits insured? The beginning of the year is a good time to ensure your clients will be eligible for the maximum amount of FDIC insurance coverage on their deposits.

The FDIC provides “pass-through” insurance coverage on deposits in fiduciary accounts, including IOLTA accounts. If the account and deposits are properly documented, each client’s deposit should be insured up to the FDIC limit of $250,000. However, the fiduciary nature of the account must be disclosed in the bank’s account records, and the name and ownership of the deposited funds must be ascertainable from account records maintained by the bank or the attorney. In the IOLTA context, it must be clear from the bank’s account records that the account is an IOLTA account, and each client’s ownership of relevant deposits must be clear from a record maintained by the attorney or bank.

If these requirements are met, deposits by the client (i.e. owner of the deposit) should be insured up to $250,000 per client. Keep in mind, however, that a client’s deposit to an IOLTA account will be added to any other deposits held by the client at the same bank. For example, a trust account deposit of $250,000 for a client who also has $15,000 balance in a checking account at the same bank will be added together, and coverage on the two accounts in aggregate will be limited to $250,000.

The FDIC’s coverage of deposits in fiduciary accounts is summarized online and detailed regulations are found in the Code of Federal Regulations.

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