IOLTA Program Changes:
Information for Michigan Lawyers
The Michigan Supreme Court has updated Michigan Rules of Professional Conduct 1.15 effective October 18, 2005 so that Interest on Lawyers Trust Accounts (IOLTA accounts) can earn the same interest or dividend rates generally available to similarly-situated non-IOLTA customers at the same financial institution. The Court also approved attorney IOLTA guidelines published by the Michigan State Bar Foundation, which has administered IOLTA since 1990.
WHAT SHOULD LAWYERS DO?
PLEASE NOTE: Only a limited number of higher balance IOLTA accounts will be affected, generally those with balances regularly over $100,000. Most IOLTA accounts will remain unchanged. The Foundation will contact those lawyers who may be affected after working with banks on implementation. Lawyers and banks are asked to contact the Foundation with questions before taking action.
The Michigan Supreme Court also approved an Attorney IOLTA Guidelines Brochure that provides information about eligible financial institutions and permissible products which can now be used for IOLTA accounts.
WHAT DO THE CHANGES DO?
The 1990 IOLTA rule provided for interest rate parity for similar accounts, which pegged IOLTA to low-rate interest checking accounts, even when balances exceeded minimum requirements for higher rate products. The rule change requires higher rate options for qualifying IOLTA accounts, but financial institutions do not have to create new products if the higher rate products are not already available to their other customers. A number of IOLTA programs in other states have similar rate parity provisions. Of course, neither lawyers nor clients lose any funds since IOLTA only involves funds that a lawyer would not otherwise invest on the client’s behalf because those funds would not produce income over the costs of investing them.
IOLTA participation remains voluntary for financial institutions; however, lawyers may not keep an IOLTA account at an institution that does not participate or meet IOLTA requirements. Virtually all banks and savings and loan associations in Michigan have participated in IOLTA since its inception in 1990. Most appear on the IOLTA Honor Roll because they have waived all IOLTA account fees to make more charitable grant dollars available.
Documents Required. IOLTA forms currently on file for existing accounts remain in effect; the Foundation will work with banks and lawyers when additional forms or standard documents for higher rate products may need to be signed. A new Notice to Eligible Financial Institutions Form for new or changed accounts is available on the Foundation's web site.
WHAT DO IOLTA FUNDS SUPPORT?
For 15 years Michigan bankers and lawyers have participated in an important partnership. Through the Interest on Lawyers’ Trust Accounts (IOLTA) program, over $18 million has been distributed for law-related charitable projects that improve the administration of justice and support civil legal aid for low-income families. For example, nonprofit legal aid programs that receive IOLTA funding resolve critical legal problems every day, such as protecting people from domestic violence, assisting veterans and others who need access to healthcare, keeping seniors from being victimized by unscrupulous contractors, ensuring support for children, and addressing other needs. However, recent historically-low interest rates have reduced IOLTA revenue for grants. The updated rate parity requirements by the Michigan Supreme Court can assist with much-needed income for these important charitable purposes.
MORE INFORMATION OR QUESTIONS: See www.msbf.org/iolta or call the Foundation at 800-968-6723. See also A Discussion of Trust Accounts for Michigan Attorneys, which contains articles on "Establishing IOLTA and Non-IOLTA Trust Accounts" and "Financial Management of Client or Third Party Funds."