Licensed attorneys are subject to various rules and laws applicable to their profession, which include the Texas Disciplinary Rules of Professional Conduct and the Texas Rules of Disciplinary Procedure. Lawyers may face disciplinary action before the State Bar of Texas if they violate any rules or laws related to Interest on Lawyers’ Trust Account (IOLTA).
Suppose the State Bar finds that you committed a violation, whether it involves IOLTA or another rule or law. In that case, you can face significant sanctions that permanently affect your license and career. Therefore, you need experienced legal counsel during these proceedings to protect your ability to practice law and operate your business. A law license defense lawyer can represent you before the State Bar of Texas in disciplinary proceedings and help avoid or minimize the potential sanctions you may face.
Understanding IOLTA Accounts
Rule 1.14 of the Texas Disciplinary Rules of Professional Conduct, which many lawyers call the “trust account” rule, outlines the proper handling of funds that belong wholly or partially to clients or third parties. These funds must be deposited in one or more interest-bearing trust accounts or IOLTA accounts. The policy behind the rule is to protect funds that do not belong to the lawyer from creditors or the lawyer’s financial problems. Lawyers have an absolute duty to uphold this rule and responsibility; clients and/or third parties cannot agree to waive this rule and have funds in which they have an ownership interest deposited in a non-trust account maintained by the lawyer or any other type of account.
Not all attorneys must use IOLTA accounts or are subject to IOLTA account rules. IOLTA trust accounts allow lawyers to hold client funds separately and responsibly from their other business accounts.
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IOLTA accounts generate interest to fund legal aid for individuals who can’t afford to hire lawyers. The interest from IOLTA accounts goes to the Texas Access to Justice Foundation (“the Foundation”), which accumulates the interest and uses it to pay for civil legal aid.
Funds that Lawyers Must Deposit in IOLTA Accounts
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Lawyers working in private law firms and handling client funds must open and use IOLTA accounts. The following types of actions often implicate IOLTA accounts:
- Holding client retainer fees, advance fees, or expense deposits until they have earned the fees by performing work for the clients or expended funds for necessary legal expenses;
- Safeguarding settlement funds from a lawsuit until they are disbursed to a client, other third parties, and/or to the attorney as fees for services rendered as appropriate;
- Handling escrow funds in real estate transactions until the sale closes and funds are distributed to the seller and any other appropriate parties; or
- Protecting overpaid funds by clients or third parties to be disbursed to them at a later date.
Even if the client funds or retainers are small or being held on a short-term basis, private lawyers must still deposit the funds into IOLTA accounts. Lawyers may not deposit those funds into any of their other accounts, whether business or personal, and may not commingle client funds with other funds that belong to them.
On the other hand, once a lawyer has earned a fee, he or she may deposit it in or transfer it from a trust account into an operating account or another personal or business account. Likewise, funds belonging wholly to the lawyer should not be placed in IOLTA accounts; they should always remain in the lawyer’s business or personal account.
No matter the lawyer’s fee structure, the trust account rule applies. Unless a retainer agreement specifies that a flat fee is earned after certain benchmarks during a legal matter, a lawyer should assume that none of the flat fee is earned until they complete all the legal work. By including benchmarks in the retainer agreement, a lawyer can also avoid a situation in which they or the client terminate representation and are unsure what portion of the flat fee is earned and what portion, if any, should be refunded to the client.
Opening an IOLTA Account
A lawyer who opens an IOLTA account must choose a financial institution to maintain the trust account. If the financial institution is not already eligible to operate an IOLTA account with the Foundation, it can request eligibility. An IOLTA account is an interest-bearing account that uses the Texas Access to Justice Foundation’s tax identification number. The Foundation then pays reasonable service charges on the account, excluding checks, wire transfers, and other associated business transfers.
After opening your IOLTA account, complete an IOLTA Notice to the Financial Institution and Foundation form within 30 days. You also must complete this form annually and submit it to the Foundation.
We Will Represent Your Interests Before the State Bar of Texas
We know how important it is for you to maintain your law license and continue to practice law. We aim to help you handle disciplinary proceedings and mitigate or prevent resulting sanctions. The experienced law license defense lawyers at Bertolino LLP, will advocate on your behalf to protect your license during your disciplinary proceedings. Call us at (512) 515-9518 or contact us online.
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