How to Set Up an IOLTA Trust Account for Your Law Firm

DEFINITION

IOLTA account

An Interest on Lawyers Trust Account — a pooled, interest-bearing bank account where attorneys hold client funds that are nominal in amount or held for a short period. Interest accrues to the state's IOLTA program, not the attorney or client.

DEFINITION

Commingling

The illegal practice of mixing client trust funds with the attorney's own operating funds. Commingling violates Rule 1.15 (or equivalent) in all U.S. jurisdictions and is a leading cause of bar discipline.

DEFINITION

Trust ledger

A running record of all deposits and disbursements in a trust account, tracked separately for each client matter. Required by bar rules in all U.S. jurisdictions.

Why IOLTA Compliance Matters

Trust accounting errors are one of the leading causes of attorney discipline across all 50 states. The rules exist to protect client funds, and bar associations take violations seriously regardless of intent. A bookkeeping mistake can trigger the same investigation as deliberate misappropriation.

Setting up your IOLTA account correctly from the start takes a fraction of the time you would spend untangling compliance problems later.

Step 1: Understand IOLTA Requirements in Your State

IOLTA rules are not uniform across states. California requires IOLTA for all nominal or short-term client deposits. Texas has its own IOLTA program administered by the Texas Access to Justice Foundation. New York requires attorneys to deposit qualifying funds into IOLTA accounts at approved banks.

Check your specific state bar’s trust accounting rules before proceeding. The ABA maintains a directory of state IOLTA programs, but always verify directly with your state bar because rules change.

Step 2: Choose a Qualifying Financial Institution

Your state’s IOLTA program publishes a list of approved banks. Start there. When comparing banks, look at: whether they waive monthly fees for IOLTA accounts, their overdraft notification policy (most state bars require the bank to report any overdraft directly to the bar), online banking capabilities, and their experience working with attorney trust accounts.

A bank that does not understand IOLTA requirements will create problems for you down the road.

Step 3: Open the Account

The account title must clearly identify it as a trust account. Provide your bar number and firm information. Set up the overdraft notification arrangement your state requires. Never, under any circumstances, deposit your own funds into this account (except a small amount some states allow to cover bank fees).

Step 4: Set Up Three-Way Reconciliation

Three-way reconciliation is the core of trust account compliance. You are matching three independent records: individual client ledgers showing what you hold for each client, your internal trust account register, and the bank statement.

If these three numbers do not match, something is wrong and you need to find out what before your bar does.

Practice management software can automate most of this process. Manual reconciliation using spreadsheets works but is slow and leaves more room for human error.

Step 5: Configure Automated Compliance Checks

Set up your software or calendar to enforce regular reconciliation. Configure alerts for negative client balances, unidentified deposits, and funds that have been sitting dormant. Each of these situations is a potential compliance issue that gets worse the longer it goes unaddressed.