Topic: Interest on Lawyer Trust Accounts
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Our bank wants to offer Interest on Lawyer Trust Accounts (IOLTA). How do we register with the Illinois State Bar Association? What reporting and money transfer requirements do we need to comply with once the account is set up?
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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…
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When an attorney deposits more than $10,000 cash into an Interest on Lawyer Trust Account (IOLTA) on behalf of one of their clients, are they required to provide identifying information for the client so that we can file a currency transaction report (CTR) with this information? Some attorneys have been hesitant or refused to give us their client’s information in such situations.
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Yes, we believe you should require an attorney to provide you with their client’s identity in such situations, since you must include this information in your CTR. When FinCEN’s regulations require financial institutions to file a CTR, the institutions also must verify and record the identity of the individual presenting the transaction and “record the…
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We signed up to pay the safe harbor rate on our Interest on Lawyers’ Trust Accounts (IOLTAs), which we believe is still 1.00%. Can we instead pay interest on IOLTA accounts at a rate equal to the highest interest rate we provide to non-IOLTA account customers?
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For new IOLTA accounts, we believe you may choose to pay an interest rate that is equal to the highest interest rate or dividend available to your non-IOLTA account customers. However, for your existing IOLTA accounts, we recommend reviewing your account terms to determine whether you have the flexibility to change the safe harbor rate…
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Are there any regulations governing what interest rate must be paid on Interest on Lawyers’ Trust Accounts (IOLTAs)?
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Yes, the Illinois Supreme Court has issued rules requiring eligible financial institutions to 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…
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We are updating our customer due diligence (CDD) processes. Do the new beneficial ownership requirements cover Interest on Lawyer Trust Accounts (IOLTAs)?
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Yes, IOLTAs are covered by FinCEN’s new beneficial ownership requirements. But FinCEN has clarified that these accounts are treated as “intermediated accounts,” meaning that you need only obtain beneficial ownership information on the law firm or attorney holding such an account (the “intermediary”). Financial institutions are not required to obtain beneficial ownership information regarding the…
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We prepared an IRS Form 1099-INT for the Lawyers Trust Fund of Illinois for interest income earned on our IOLTA accounts. On the form, we listed the Lawyers Trust Fund tax identification number (TIN) and identified the recipient as “IOLTA.” However, we received a CP 2100A notice regarding backup withholdings from the IRS indicating that we had listed the recipient’s name incorrectly. How should we list the name? Do we need to spell out “Interest on Lawyers Trust Account”?
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First, we note that you do not need to prepare 1099 Forms for the Lawyers Trust Fund of Illinois, because the organization is tax exempt. We spoke with the director of banking for the Lawyers Trust Fund of Illinois, who confirmed that 1099 forms are unnecessary and recommended that banks suppress these forms instead of…
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One of our Interest on Lawyer Trust Account (IOLTA) customers has been depositing checks made out to the lawyer’s business clients into his IOLTA, without endorsements from the businesses. Do the IOLTA rules permit these deposits? Should we require that the checks be endorsed by the payees before depositing them?
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Yes, we recommend that you require IOLTA customers to obtain endorsements on checks made out to third parties before depositing them (as you would with any other customer). Otherwise, your bank is risking liability to the payor bank under your presentment warranties. When sending a check for payment to the payor bank, your bank is…
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Is it the bank’s or the lawyer’s responsibility to make sure that an IOLTA account is used properly?
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The Illinois Rules of Professional Conduct place the responsibility for properly handling IOLTA accounts on the lawyer. Financial institutions have several responsibilities relating to IOLTA accounts, such as remitting monthly earnings and reporting any overdrafts to the Attorney Registration & Disciplinary Commission, but we do not believe that financial institutions are responsible for ensuring that…
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We have a customer who wants to establish a PFTA (premium fund trust account). The customer accepts cash premium payments. Do you have any guidance on this type of account? Can an individual broker sign up for a PFTA with other brokers under the individual broker’s SSN? Our policy is to have only one authorized signer for accounts held by individuals.
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Premium fund trust accounts (PFTAs) are fiduciary accounts (similar in that respect to IOLTA accounts for lawyers). Insurance producers (also known as brokers) must place the insurance premiums they collect from clients in PFTAs (unless they send the premiums directly to the insurance broker). The Illinois Insurance Code regulations require any entity that has to…
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For an IOLTA Account, can a customer have a repurchase sweep into their IOLTA accounts? As far as paying interest, would that violate the requirement to give the account the best available rate?
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The Illinois Supreme Court rules specifically allow IOLTA accounts to make use of automated investment features, including overnight sweeps and “repurchase agreements fully collateralized by U.S. Government securities.” Illinois Supreme Court Rules, Article VIII, Rule 1.15(f)(3)(b). Eligible U.S. Government securities are defined to include “U.S. Treasury obligations and obligations issued by or guaranteed as to…