PRACTICE UPDATE: Revised Safekeeping Rules Take Effect July 1, 2023
On March 1, the Illinois Supreme Court announced changes to Rules of Professional Conduct 1.5 and 1.15 that will take effect July 1, 2023. These are the most comprehensive revisions to RPC 1.15 since the current rule took effect in 2011 and include significant changes to the organization of the rule’s provisions, including the adoption of new Rules 1.15A, 1.15B, and 1.15C. Nonetheless, the basic requirements regarding safekeeping of property, lawyers’ use of IOLTA accounts, payment of comparable interest rates on IOLTA accounts, and management of unidentified funds in IOLTA accounts are fundamentally unchanged.
What is IOLTA?
“IOLTA” stands for Interest on Lawyer Trust Accounts. An IOLTA account is a pooled, interest- or dividend-bearing business checking account (such as a NOW account) for the deposit of client funds which pays all interest earned to the Lawyers Trust Fund. Under Rule of Professional Conduct 1.15B, Illinois lawyers are required to deposit funds of clients and third persons into IOLTA accounts unless those funds can otherwise earn net income for the client or third person.
Interest generated on IOLTA accounts is an important source of funding for civil legal aid in Illinois. In 2022 IOLTA revenues helped the Lawyers Trust Fund make grants to 48 non-profit organizations across Illinois, which provided assistance to low-income Illinoisans regarding more than 109,000 legal matters. (Learn more about Illinois’ legal aid system and about LTF.)
Under Rule 1.15, which provides for the safekeeping of property belonging to clients and third persons, lawyers must deposit all funds belonging to clients and third persons into client trust accounts. There are only two types of client trust accounts permitted under the rule:
- IOLTA accounts, with interest remitted to the Lawyers Trust Fund
- Interest-bearing client trust accounts established to hold the funds of client, with the client receiving the interest
Rule 1.15B rIllinois lawyers are required to deposit funds of clients and third persons into IOLTA accounts unless those funds can otherwise earn net income for the client or third person. Formerly these types of funds were referred to as “short term” and “nominal” funds. Funds that are capable of generating net interest for an individual client should be deposited into a separate, interest-bearing trust account with interest paid to the client. Lawyers may not deposit client funds in accounts that do not bear interest, or in their business or operating accounts.
Under Rule 1.15B(b), lawyers should exercise reasonable judgment in determining whether client funds should be deposited in an IOLTA account or a separate client trust account. Lawyers should consider three factors in making the determination:
- The amount of interest funds would earn during the time they are likely to be held
- The cost of establishing and administering a separate account
- The capability of the financial institution to pay net interest to individual clients through the use of subaccounts
Safekeeping and IOLTA Rules
ISBA Quick Take: What is IOLTA?