IOLTA

What is IOLTA?

The South Carolina Supreme Court created the Interest on Lawyer Trust Accounts (IOLTA) program to provide funds for law-related public service projects and programs designed to improve the administration of justice.  Pursuant to Rule 412, SCACR, The South Carolina Bar Foundation (SCBF) administers the program.

Clients often transfer money to an attorney to hold. When the amount is large or if the funds are to be held for a long period of time, lawyers invest those funds for the benefit of the client. But, when the funds are small or expected to be held for a short time, they cannot practically be invested to benefit the owner of the funds. The IOLTA program allows attorneys to convert these accounts into interest bearing accounts that generate interest income. The financial institution sends the interest directly to the Foundation which distributes the funds as grants to a variety of initiatives that support the justice system.

IOLTA Forms:

Rule 412
Enrollment Form for Lawyers and Law Firms
This form is used to open a new IOLTA account or to convert an existing bank account to a trust account.
IOLTA Closing Account Form
This form is used to close an IOLTA account. Please click here for the IOLTA Closing Checklist.
Financial Institution IOLTA Remittance Form
This form is for banks only.

Thanks To Our Financial Partners Who Go Above and Beyond…

A number of participating banks and credit unions pay interest rates on IOLTA funds that go above and beyond the court Rule 412’s basic requirements. Grateful for their generosity, the Bar Foundation thanks the following financial partners.

Prime Partners

The following institutions pay interest on IOLTA accounts based on an index rate equal to 75% of the Federal Funds Target Rate or .75%, whichever is higher.

First Community Bank
First National Bank of South Carolina

Benchmark Institutions

The following institutions pay interest on IOLTA accounts based on an index rate equal to 65% of the Federal Funds Target Rate or .65%, whichever is higher.

Other Eligible Institutions

The South Carolina Bar Foundation has determined that the following financial institutions are also eligible to hold IOLTA funds:

IOLTA FAQ

1. How are IOLTA funds determined?
2. Does every financial institution have IOLTA accounts?
3. What taxpayer ID number (TIN) should be used for IOLTA accounts?
4. Can financial institutions assist in opening IOLTA accounts?
5. Are IOLTA accounts subject to service charges? If so, who pays the service charges?
6. Do IOLTA accounts create tax consequences for attorneys or clients?
7. What happens if the IOLTA account has insufficient funds?
8. Who receives notice of insufficient funds?
9. How do you close an IOLTA account?
10. What happens if there are unclaimed or unidentified funds in the IOLTA account?
11. Do all attorneys need IOLTA accounts?
12. Can attorneys be excluded from having IOLTA accounts?
13. Can attorneys be exempt for having IOLTA accounts?
14. Where do attorneys depot client trust funds that do not meet the IOLTA requirements (nominal or short-term)?
15. What rate of interest must be paid on IOLTA accounts?
16. What is a prime partner and how does an eligible institution become one?
17. Do attorneys need to change banks to those paying higher interest rates?
18. What if the financial institution does not offer higher rates of interest to non-IOLTA customers with comparable accounts?
19. Does the benchmark rate change? If so, how are financial institutions notified?
20. Do “NOW” accounts meet the comparability provisions of the rule if we do not offer any other type of account?
21. Do financial institutions have to establish multiple types of IOLTA accounts based on difference qualifications and rates?
22. We have an investment company subsidiary. Is it necessary to offer the subsidiary’s products as IOLTA accounts?
23. Can we factor in the interest rate of our specialized customer service?
24. Can we factor in SWEEP or other fees in the rate?
25. What if some accounts qualify for a higher interest rate and others do not?
26. I am an attorney who lawfully practices in multiple jurisdictions, including South Carolina; however, I keep my trust account in the state where I primarily practice. Do I have to open a trust account in South Carolina in order to comply with the new IOLTA rules?
27. Additional questions?

HOW ARE IOLTA FUNDS DETERMINED?
“Nominal” or “short-term” funds are those of a client or third party that the lawyer has determined cannot provide a positive net return to the client or third party. An attorney shall exercise good faith judgment in determining whether or not funds belong in an IOLTA account. No lawyer shall be charged with ethical impropriety based on the exercise of good faith judgment.

DOES EVERY FINANCIAL INSTITUTION HAVE IOLTA ACCOUNTS?
Not every financial institution in South Carolina offer IOLTA accounts.  Financial institutions must apply with the SCBF in order to provide IOLTA accounts.  In order to be certified as eligible, the SCBF needs to confirm they are in compliance with Rule 412 and institutions must provide documentation to support their request. The current list of eligible banks can be found above.

WHAT TAXPAYER ID NUMBER (TIN) SHOULD BE USED FOR IOLTA ACCOUNTS?
The TIN number for all IOLTA accounts must be the SCBF TIN which is 23-7181552. The attorney’s or law firm’s TIN should never be used when an IOLTA account is opened.  Bank statements should be sent to the account holder and not the SCBF.

CAN FINANCIAL INSTITUTIONS ASSIST IN OPENING IOLTA ACCOUNTS?
Participating IOLTA financial institutions may provide Enrollment Forms when assisting an attorney or law firm representative in opening an IOLTA account. Financial institutions should keep the original form and the attorney should maintain a copy.  Either the attorney or the financial institution must provide a copy to the SCBF via email: iolta@scbar.org; fax: 803-779-6126; or mail: South Carolina Bar Foundation, PO Box 608, Columbia, SC 29202.

ARE IOLTA ACCOUNTS SUBJECT TO SERVICE CHARGES?  IF SO, WHO PAYS THE SERVICE CHARGES?
Financial institutions may choose to waive any and all fees on an IOLTA account. If however, the financial institution assesses service charges and fees on the IOLTA account, they should be reasonable and customary. Certain reasonable fees as defined in Rule 412 may not be deducted from the IOLTA principal but may be deducted from interest or dividends that are earned on the IOLTA account. All other fees and service charges are the responsibility of the attorney or law firm maintaining the account.

DO IOLTA ACCOUNTS CREATE TAX CONSEQUENCES FOR ATTORNEYS OR CLIENTS?
There are no tax consequences for the attorney or client. Financial institutions should not issue IRS 1099 forms to anyone including the attorney, law firm nor the attorney’s client.

WHAT HAPPENS IF THE IOLTA ACCOUNT HAS INSUFFICIENT FUNDS?
Rule 1.15(h) of the S.C. Rules of Professional Conduct mandates that all lawyers with a trust account must file a written directive with their bank requiring the bank to report any non-sufficient funds (NSF) transactions. If you have an IOLTA account, please confirm with your bank that you have a directive filed. It is the duty of the lawyer to make sure this has been done. Do not assume that all banks do it automatically.  If the Commission on Lawyer Conduct discovers an overdraft that was not reported by the bank, the lawyer may be disciplined for both the Rule violation that caused the overdraft and the failure to file a directive with the bank. If you need an example of a “ reporting non-sufficient funds” letter, you can find one here.

WHO RECEIVES NOTICE OF INSUFFICIENT FUNDS?
NSF notices should be sent to the Commission on Lawyer Conduct. Their address is PO Box 12159, Columbia, SC 29211. A copy does NOT need to be sent to SCBF.

HOW DO YOU CLOSE AN IOLTA ACCOUNT?
If you need to close your IOLTA account, please submit the IOLTA Account Closing Form which can be found on this page under “forms” or by sending via email: iolta@scbar.org; via fax: 803-779-6126; or mail: South Carolina Bar Foundation, PO Box 608, Columbia, SC 29202.

WHAT HAPPENS IF THERE ARE UNCLAIMED OR UNIDENTIFIED FUNDS IN THE IOLTA ACCOUNT?
Attorneys are required to account for and identify all funds held in a trust account. Attorneys must follow the accounting procedures in Rule 417, SCACR, to ensure that there are no unidentified funds in their trust accounts. All unclaimed or abandoned funds in a client trust account must be reported and remitted to the State Treasurer’s Office in accordance with the SC Uniform Unclaimed Property Act (UUPA). If funds in trust cannot be identified after due diligence, those funds are subject to the UUPA. Failure to timely report and remit abandoned or unclaimed funds can result in fines and other penalties. However, those penalties can be waived if the attorney properly submits a Voluntary Disclosure Agreement. More information about reporting and remitting unclaimed funds can be found at the STO website.

Click here to read a helpful article from the SC Bar Magazine that explains the attorney’s obligations under the Unclaimed Property Act.

DO ALL ATTORNEYS NEED IOLTA ACCOUNTS?
Only attorneys handling client trust funds that are nominal in amount or held for a short time are required to establish IOLTA accounts. Licensed attorneys in South Carolina who do not handle client trust funds are not required to establish an IOLTA account.

CAN ATTORNEYS BE EXCLUDED FROM HAVING IOLTA ACCOUNTS?
Lawyers are automatically excluded from the requirement to maintain a South Carolina IOLTA account if you meet the following criteria:

• Do not maintain a practice of law
• Retired from the practice of law
• Members of the judiciary
• Employed in a corporate capacity
• Employed by local, state, or federal government
• Employed as a law clerk
• Professors
• Practice does not require the maintenance of trust/escrow accounts
• Do not have an office or maintain funds in depository institutions in the State of South Carolina

Excluded status should be noted on the annual SC Bar license fee statement.

CAN ATTORNEYS BE EXEMPT FROM HAVING IOLTA ACCOUNTS?
Exemptions are not automatic.  In order to qualify, an attorney must apply for an exemption from the South Carolina Bar Foundation Board of Directors.

The Exemption categories are:

• If the bank services charges assessed on your current IOLTA account routinely exceed the interest earned
• Extreme impracticality
• Participation would cause an undue hardship

To be considered exempted from having an IOLTA account, an attorney must submit a written request identifying the exemption category and an explanation on why the attorney qualifies to the Executive Director of the SC Bar Foundation via email: iolta@scbar.org; fax: 803-779-6126; or mail: South Carolina Bar Foundation, PO Box 608, Columbia, SC 29202.  For questions, please call 803-765-0517.

If the exemption request is for the excessive services charges exemption, the attorney must include bank statements from the current IOLTA account for the last 12 months. 

Only those lawyers who have received written approval of their exemption application should indicated “excluded” on the annual SC Bar license fee statement.

WHERE DO ATTORNEYS DEPOSIT CLIENT TRUST FUNDS THAT DO NOT MEET THE IOLTA REQUIREMENTS (nominal or short-term)?
Client trust funds that do not meet the nominal or short-term fund requirements of an IOLTA account should be deposited in a separate trust account to earn interest for the benefit of that client. The attorney must use that client’s tax ID number instead of SCBF’s tax ID number.

WHAT RATE OF INTEREST MUST BE PAID ON IOLTA ACCOUNTS?
The rate of interest or dividend paid on IOLTA accounts shall not be less than the highest rate of interest or dividend generally available from the financial institution to non-IOLTA customers when the IOLTA account meets the same minimum balance or other eligibility qualifications.

An eligible institution may choose to pay a rate equal to the greater of 0.65% or 65% (the “index”) of the federal funds target rate (the “benchmark”) as of the first business day of the IOLTA remitting period which rate is deemed to be net of allowable reasonable fees, on an IOLTA checking account.

Eligible institutions may also choose to pay higher rates than the comparable rates described above but may not pay less than the comparable rates.

WHAT IS A PRIME PARTNER AND HOW DOES AN ELIGIBLE INSTITUTION BECOME ONE?
Prime Partners are financial institutions that go above and beyond eligibility requirements to ensure the success of the IOLTA program and increase funding to law-related public service projects and programs designed to improve and increase the administration of justice.  These institutions pay an interest rate, net of allowable reasonable fees, that is equal to the highest of 75% of the Federal Funds Target Rate or 0.75%.  The South Carolina Bar Foundation encourages attorneys and firms to support our Prime Partners.  Contact the SCBF to learn about how your financial institution can become a Prime Partner.

DO ATTORNEYS NEED TO CHANGE BANKS TO THOSE PAYING HIGHER RATES?
No. The IOLTA comparability rule only requires a financial institution to pay its own IOLTA customers the highest interest rate generally paid to its own non-IOLTA customers with comparable accounts. It does not require a bank to pay rates other than that which the bank itself has established.

WHAT IF THE FINANCIAL INSTITUTION DOES NOT OFFER HIGHER RATES OF INTEREST TO NON-IOLTA CUSTOMERS WITH COMPARABLE ACCOUNTS?
The financial institution would be in compliance with Rule 412 as long as the bank is paying comparable rates to its IOLTA and non-IOLTA customers. The financial institution is not required to do more than pay the same rates on IOLTA accounts as it already pays on similarly situated non-IOLTA accounts.

For example, most financial institutions offer non-IOLTA depositors preferred interest rates for larger balances. However, many of these same institutions do not distinguish between very small and very large balance IOLTA accounts. The rule simply requires that they now pay the large balance IOLTA account the same rate it would otherwise qualify for, were it not an IOLTA account.

DOES THE BENCHMARK RATE CHANGE AND IF SO HOW ARE FINANCIAL INSTITUTIONS NOTIFIED?
There should be no change to the benchmark rate paid on IOLTA accounts until the Federal Funds target rate exceeds 1.00%. If and when that time comes, the benchmark rate would be greater than 0.65%. The SCBF will notify financial institutions and the information would be posted to the SCBF website.  The rule says the benchmark is 0.65% or 65% of the Federal Funds rate, whichever is greater.

Rule 412 allows for periodic assessments of the index and benchmark but not more than every six months. Any changes made to the benchmark would take place only after a comprehensive review of rates being paid on all comparable products in South Carolina.

DO “NOW” ACCOUNTS MEET THE COMPARABILITY PROVISIONS OF THE RULE IF WE DO NOT OFFER ANY OTHER TYPE OF ACCOUNT?
Financial institutions should review their entire portfolio of products to make sure there are no other comparable products, including tiered or preferred rate product for which IOLTA accounts would qualify. If your institution only offers a NOW account, then you will simply need to certify this fact to the SCBF to be in compliance with the Rule.

DO FINANCIAL INSTITUTIONS HAVE TO ESTABLISH MULTIPLE TYPES OF IOLTA ACCOUNTS BASED ON DIFFERENT QUALIFICATIONS AND RATES?
No. The SCBF can work with the financial institution to create a single blended rate or tiered rates that are based on the current portfolio of products, without establishing IOLTA accounts in those different product types.

THE FINANCIAL INSTITUTION HAS AN INVESTMENT COMPANY SUBSIDIARY.  IS IT NECESSARY TO OFFER THE SUBSIDIARY’S PRODUCTS AS IOLTA ACCOUNTS?
Only if the subsidiary is to hold IOLTA deposits in eligible accounts. If not, then the bank only needs to be concerned with its banking products. However, if the bank offers customers an automated transfer (sweep) to an external investment whether a subsidiary or not, such as money market mutual fund, the bank must offer that service or comparable rate to qualifying IOLTA customers.

CAN WE FACTOR IN THE INTEREST RATE OF OUR SPECIALIZED CUSTOMER SERVICE?
Financial institutions may choose to provide value to customers in other ways than strictly pricing, including higher levels of service. That said, the IOLTA accounts must be comparable to similar types of accounts, are treated equally and are earning the same rates as other depositors.

CAN WE FACTOR IN SWEEP OR OTHER FEES IN THE RATE?
The allowable reasonable fees for IOLTA accounts are:
Per check charges
Per deposit charges
Fees in lieu of a minimum balance
Federal Deposit Insurance fees
Automated investment (“sweep”) fees
Reasonable maintenance fee

These fees are allowed if they are also charged on comparable bank accounts maintained by non-IOLTA depositors. All other fees are the responsibility of, and may be charged to, the lawyer or law firm maintaining the IOLTA account.

Allowable reasonable fees can be deducted from (but not in excess of) the interest earned on an account. Sweeps fees in particular can be considered on a “net yield” basis – for example – paying the equivalent after fee effective rate, without actually charging the fees. All net yield equivalent rates must be approved by SCBF in advance.

WHAT IF SOME ACCOUNTS QUALIFY FOR A HIGHER INTEREST RATE AND OTHERS DO NOT?
Rule 412 allows financial institutions to pay different rates on different accounts. It is often more practical to consider a single blended rate, or tiered rates, which are calculated and based on the different products or rates individual accounts may qualify for.

I AM AN ATTORNEY WHO LAWFULLY PRACTICES IN MULTIPLE JURISDICTIONS, INCLUDING SOUTH CAROLINA; HOWEVER, I KEEP MY REUST ACCOUNT IN THE STATE WHERE I PRIMARILY PRACTICE. DO I HAVE TO OPEN A TRUST ACCOUNT IN SOUTH CAROLINA IN ORDER TO COMPLY WITH THE NEW IOLTA RULES?
If you do not maintain an office in the state of South Carolina or maintain trust funds in a depository account in South Carolina, you are excluded from Rule 412.

If you maintain an office in the state of South Carolina or maintain trust funds in a depository account in South Carolina, Rule 412 is applicable unless your practice falls under a specified exclusion or the attorney receives a hardship exemption from the South Carolina Bar Foundation.

Rule 412 defines Participating Institution as a “bank, credit union or savings and loan association authorized by federal or state laws to do business in South Carolina and insured by the Federal Deposit Insurance Corporation or any successor insurance corporation(s) established by the federal or state law.” This definition seems broad enough to include a bank authorized to do business in the state of South Carolina, but located out of the state of South Carolina.

ADDITIONAL QUESTIONS?
If you have additional questions, please call 803-765-0517 or email iolta@scbar.org.