DON'T OPT OUT OF THE IOLTA PROGRAM
By Martin Zukoff, CPA

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[Note: Rule 1.15 of the Delaware Lawyers' Rules of Professional Conduct was revised effective July 1, 2003.]

Interpretive Guideline No. 2 to Rule 1.15, paragraph (h), et seq. of the Delaware Rules of Professional Conduct requires that an attorney "who receives client funds shall maintain a pooled interest-bearing depository account for deposit of client funds that are nominal in amount or expected to be held for a short period." The interest earned on these accounts (which the attorney has no right or claim to) less any service charges is forwarded by the bank each month to the Delaware Bar Foundation, a 501 (c )(3) organization which awards grants to fund legal service organizations and other programs dedicated to the enhancement of the administration of justice in Delaware.

In my review of attorney records to determine if they are in compliance with Rule 1.15 and Interpretive Guideline No. 2, I have observed that some attorneys have opted out of the IOLTA program because they thought, either there would be additional cost to them to maintain an interest-bearing account, or that banks did not permit interest-bearing checking accounts. Although there may have been an additional cost, there is none now and banks in the past did not allow interest to be earned on business checking accounts but, they do now. Even if the escrow account won't produce enough income to offset service charges, there are no extra fees assessed by the bank to maintain an IOLTA account. Some banks may require a minimum balance to be maintained for the account to earn interest but, even if the minimum balance is not maintained, there are no additional service charges because it is an IOLTA account.

When attorneys have opted out of IOLTA, it's usually for accounts used for real estate settlement transactions. Since settlement receipts and disbursements "zero out" in their checkbooks, normally the same day, attorneys may not be aware that, until checks clear, substantial balances may remain in the bank which can yield significant interest income to the Bar Foundation.

If you are not enrolled in the IOLTA program, you simply have to notify your bank to convert your non-interest bearing account to an interest-bearing account and submit a letter to the bank authorizing them to remit the interest earned minus any service charges to the Bar Foundation. The Bar Foundation has provided banks with its federal ID number so you will not have to report the interest income to the IRS.

So, even though it is not mandatory and attorneys may opt out, there is no additional cost for participating in the IOLTA Program, and an increase in funds from attorneys' IOLTA accounts will further the Bar Foundation's ability to carry out its important work.

Questions regarding the operation of the IOLTA program, the requirements of the Rule and requests for a form enrolling letter for submission to your bank may be directed to: Donald J. Wolfe, Jr., Esquire, Potter Anderson & Corroon, Hercules Plaza, P.O. Box 951, Wilmington, DE 19899.

Questions regarding recordkeeping required under Rule 1.15 and Interpretive Guideline No. 2 may be directed to Martin Zukoff, CPA, at the office of the Lawyers' Fund for Client Protection, 200 W. Ninth Street, Suite 300-B, Wilmington, DE 19801 or call (302) 577-7034.