To become eligible to hold IOLTA accounts, a financial institution must agree to report account overdrafts to the Illinois Attorney Registration and Disciplinary Commission (Illinois ARDC) and meet certain interest rate requirements. Financial institutions also must remit monthly earnings to the Lawyers Trust Fund of Illinois.

Before a financial institution may hold IOLTA accounts, it must complete and submit a “Trust Account Overdraft Notification Agreement” to the Illinois ARDC. The agreement generally requires financial institutions to report to the Illinois ARDC when “any properly payable instrument is presented against a lawyer trust account containing insufficient funds, irrespective of whether or not the instrument is honored.” This agreement is available online, and an ethics attorney at the Illinois ARDC that we spoke with stated that it may be submitted electronically to [email protected].

If your bank dishonors an instrument presented against an IOLTA account with insufficient funds, you must mail a report to the Illinois ARDC that is  “identical to the overdraft notice customarily forwarded to the depositor” with “a copy of the dishonored instrument, if such a copy is normally provided to depositors.” Such reports must “be made simultaneously with, and within the time provided by law for, notice of dishonor.” Under the Illinois Uniform Commercial Code (Illinois UCC), a payor bank must send notice of dishonor by midnight of the next banking day after receiving the instrument. If your bank honors an instrument presented against an IOLTA account with insufficient funds, your report must “identify the financial institution, the lawyer or law firm, the account number, the date of presentation for payment and the date paid, as well as the amount of overdraft created thereby.” This report must be filed within five banking days of the date the instrument was presented.

Financial institutions must pay an interest rate on IOLTA accounts that is equal to “the highest interest rate or dividend available from the institution to its non-IOLTA account customers” — provided the IOLTA accounts meet the necessary account eligibility guidelines to receive the highest interest rate, such as a minimum balance requirement.

Financial institutions also must remit monthly earnings on IOLTA accounts directly to the Lawyers Trust Fund of Illinois. For each individual IOLTA account, the eligible financial institution must provide “a statement transmitted with each remittance showing the name of the lawyer or law firm directing that the remittance be sent; the account number; the remittance period; the rate of interest applied; the account balance on which the interest was calculated; the reasonable service fee(s) if any; the gross earnings for the remittance period; and the net amount of earnings remitted.” These remittances must be sent electronically unless otherwise agreed.

We note that the Illinois Supreme Court’s rules related to maintaining IOLTA accounts were recently amended, and these amendments will become effective July 1, 2023. However, financial institutions will still be required to comply with the requirements outlined above under the amended rules. 

For more information on financial institution’s requirements related to maintaining IOLTA accounts, we recommend reading the Lawyers Trust Fund of Illinois’s IOLTA Operations Manual, linked in the resources below.

For resources related to our guidance, please see:

• Illinois Supreme Court Rule 1.15(f)(1) (“Each lawyer or law firm in receipt of nominal or short-term client funds shall establish one or more IOLTA accounts with an eligible financial institution authorized by federal or state law to do business in the state of Illinois and which offers IOLTA accounts within the requirements of this Rule as administered by the Lawyers Trust Fund of Illinois.”)
   
  • Lawyers Trust Fund of Illinois, Eligible Financial Institutions (“Under their ethics rules, Illinois lawyers may maintain IOLTA accounts only at financial institutions that meet the criteria to be eligible under Illinois Rule of Professional Conduct 1.15: This rule provides that:
     
  • Financial institutions that want to be eligible to hold any client trust accounts must agree to report trust account overdrafts to the Attorney Registration & Disciplinary Commission (ARDC). This ensures that the ARDC, which regulates Illinois lawyers, is aware of mishandling of trust accounts that may indicate other problems with a lawyer’s conduct. To meet the requirement, financial institutions must submit a Trust Account Overdraft Notification agreement to the ARDC. This requirement is contained in Rule 1.15(h). More information is available on the ARDC’s web site.
     
• Financial institutions that want to be eligible to hold IOLTA deposits must offer IOLTA accounts that meet the interest rate comparability requirements of Rule 1.15(f). These requirements and the procedure for certifying compliance with them are detailed below.”)

• Illinois Supreme Court Rule 1.15(h)(1) (“A lawyer shall maintain trust accounts only in eligible financial institutions that have filed with the Attorney Registration and Disciplinary Commission an agreement, in a form provided by the Commission, to report to the Commission in the event any properly payable instrument is presented against a client trust account containing insufficient funds, irrespective of whether or not the instrument is honored. Any such agreement shall apply to all branches of the financial institution and shall not be canceled except upon 30 days notice in writing to the Commission. The Commission shall annually publish a list of financial institutions that have agreed to comply with this rule and shall establish rules and procedures governing amendments to the list.”)

• Illinois ARDC, Trust Account Overdraft Notification Agreement (“FINANCIAL INSTITUTION AGREES: 1) To report to the Attorney Registration and Disciplinary Commission of the Supreme Court of Illinois (hereinafter ARDC) in the event that any properly payable instrument is presented against a lawyer trust account containing insufficient funds, irrespective or whether or not the instrument is honored . . . 5) That such reports shall be mailed to: ARDC, One Prudential Plaza, 130 E. Randolph Dr. Suite 1500, Chicago, IL 60601”)

• Illinois Supreme Court Rule 1.15(f)(2) (“Eligible institutions shall maintain IOLTA accounts that pay the highest interest rate or dividend available from the institution to its non-IOLTA account customers when IOLTA accounts meet or exceed the same minimum balance or other account eligibility guidelines, if any. In determining the highest interest rate or dividend generally available from the institution to its non-IOLTA accounts, eligible institutions may consider factors, in addition to the IOLTA account balance, customarily considered by the institution when setting interest rates or dividends for its customers, provided that such factors do not discriminate between IOLTA accounts and accounts of non-IOLTA customers, and that these factors do not include that the account is an IOLTA account.”)

• Illinois Supreme Court Rule 1.15(h)(2) (“The overdraft notification agreement shall provide that all reports made by the financial institution shall be in the following format:

(a) In the case of a dishonored instrument, the report shall be identical to the overdraft notice customarily forwarded to the depositor, and should include a copy of the dishonored instrument, if such a copy is normally provided to depositors; and

(b) In the case of instruments that are presented against insufficient funds but which instruments are honored, the report shall identify the financial institution, the lawyer or law firm, the account number, the date of presentation for payment and the date paid, as well as the amount of overdraft created thereby. Such reports shall be made simultaneously with, and within the time provided by law for, notice of dishonor, if any. If an instrument presented against insufficient funds is honored, then the report shall be made within five banking days of the date of presentation for payment against insufficient funds.”)

• Illinois UCC, 810 ILCS 5/4-302(a) (“If an item is presented to and received by a payor bank, the bank is accountable for the amount of: (1) a demand item, other than a documentary draft, whether properly payable or not, if the bank . . . retains the item beyond midnight of the banking day of receipt without settling for it or . . . does not pay or return the item or send notice of dishonor until after its midnight deadline . . .”)

• Illinois Supreme Court Rule 1.15(f)(5) (“Each lawyer or law firm shall direct the eligible financial institution to remit monthly earnings on the IOLTA account directly to the Lawyers Trust Fund of Illinois. For each individual IOLTA account, the eligible financial institution shall provide: a statement transmitted with each remittance showing the name of the lawyer or law firm directing that the remittance be sent; the account number; the remittance period; the rate of interest applied; the account balance on which the interest was calculated; the reasonable service fee(s) if any; the gross earnings for the remittance period; and the net amount of earnings remitted. Remittances shall be sent to the Lawyers Trust Fund electronically unless otherwise agreed. The financial institution may assess only allowable reasonable fees, as defined in paragraph (j)(8). Fees in excess of the earnings accrued on an individual IOLTA account for any month shall not be taken from earnings accrued on other IOLTA accounts or from the principal of the account.”)

• Lawyers Trust Fund of Illinois, IOLTA Operations Manual: Guidance for Illinois Financial Institutions (October 2022)