Interest On Lawyer Trust Accounts - Legality

Legality

Explicitly, IOLTA applies only to funds that are "nominal in amount or held for a short period of time" so larger amounts of money held for single clients are exempt from the IOLTA program. That means, in effect, that client funds eligible for IOLTA involve small amounts of money held for a long time, or significant amounts of money held for a short time. As was the case prior to IOLTA, lawyers must exercise their discretion in determining whether a given client’s trust deposit is of sufficient size or will be held for sufficient duration to justify the cost of being individually invested for a client.

Since IOLTA’s inception, a number of court cases have arisen in which parties argued that IOLTA programs violated the Fifth Amendment by resulting in an unconstitutional taking. This argument was put to rest by the Supreme Court of the United States when it upheld the constitutionality of IOLTA in Brown v. Legal Foundation of Washington, 538 U.S. 216 (2003), reasoning that there is no "taking" of client money, because the money being held on behalf of the individual client would not have generated any net interest for the client.