Four Tips to Stay Compliant with IOLTA Account Rules

An Interest on Lawyers’ Trust Account (IOLTA) is used to hold unearned client funds—such as retainers, settlement proceeds, or advance court costs—until those funds are earned. These funds must be kept separate from a law firm’s operating or personal accounts. Attorneys are also prohibited from benefiting from any interest generated in the account; instead, that interest is directed to state-run programs that fund legal aid and access-to-justice initiatives.

Because lawyers handle money that doesn’t belong to them, the rules around IOLTA management are strict. Mishandling or commingling client funds—even unintentionally—can lead to disciplinary action, financial penalties, or even disbarment. Clear procedures, accurate records, and the right tools are essential for staying compliant and preserving client trust.

Below are four essential tips for maintaining IOLTA compliance within your firm.

1. Determine IOLTA account rules by state

IOLTA account regulations differ across states, and each has its own specific rules for how legal professionals must manage client funds. These variations may include reporting requirements, how nominal or short-term funds are handled, and the criteria for depositing money into an IOLTA account versus an individual client trust account. For instance, some states mandate periodic reporting to the state bar, while others require formal client notifications.

Despite these differences, several core principles apply across all IOLTA programs. Law firms must clearly label accounts as trust or client accounts and maintain strict separation between client funds and personal or business funds. Detailed record-keeping is universally required to ensure transparency and accountability. Additionally, the interest generated from pooled IOLTA accounts is consistently directed toward legal aid and public interest programs, supporting access to justice in every participating jurisdiction.

2. Keep separate business and client accounts

Commingling funds from a law firm’s operating account and a client trust account is strictly prohibited by state ethics rules. This is why it is essential for law firms to maintain separate operating and trust accounts. Because earned fees are eventually paid out of an IOLTA, the distinction can sometimes feel confusing—so what does “commingling” actually mean?

• “Borrowing” or withdrawing from client IOLTA accounts: An IOLTA is never a backup savings account. When firms face upcoming expenses, it may be tempting to pull from retainer funds, but this is a serious ethics violation. Retainer funds remain off-limits until work is completed, invoiced, and approved by the client. Even once earned, funds must be transferred to the operating account before being withdrawn. If your IOLTA has a debit card, take extra care to ensure it is never used for business withdrawals.
• Depositing client funds into a business account: Attorneys must also know which payments belong in trust. For example, if a client pays attorney fees without an advance retainer, the payment may go directly into the operating account. But if a client pays combined attorney fees and court filing fees—even if the filing fees are small—the entire amount must be deposited into the IOLTA first.
• Charging payment fees to an IOLTA: Money from an IOLTA cannot be used to pay for third-party processing fees or charges associated with electronic payments. This also includes any fees to maintain the trust account itself. All such fees must be deducted from the firm’s operating account. Without specialized payment tools, these errors are easy to miss.

Keeping business and trust accounts separate is the most effective way to reduce your IOLTA compliance risk. However, as many state bar associations have specific requirements for establishing and administering IOLTAs and other legal trust accounts, it’s always best to consult an expert.

3. Keep detailed and up-to-date financial records

One of the most common ways law firms run into trouble is by failing to maintain detailed financial records for every client’s trust account activity. Each client matter must have its own ledger, and every deposit, withdrawal, and balance update must be documented—no matter how minor it may seem. IOLTA transactions should be recorded the moment they occur to prevent errors or omissions.

To further reduce risk, all IOLTA debits and credits should be recorded using a double-entry accounting system. While manually keeping track of this can be a logistical nightmare, 8am™ LawPay can streamline the process by automating record-keeping and ensuring that all trust transactions are logged accurately and consistently.

4. Deposit checks for IOLTA accounts immediately

Attorneys must always have an accurate, up-to-date record of where client funds are at any given time. While more law firms are moving toward electronic payments, some clients still prefer to pay by check. In those cases, don’t delay the deposit. A client’s retainer isn’t your money yet—it must remain accessible to them at all times. Promptly depositing checks helps protect both your client’s trust and your firm’s compliance.

Ensure IOLTA account compliance with LawPay

Managing IOLTA accounts manually can be risky and time-consuming—especially when you’re juggling digital payments, strict trust accounting rules, and evolving compliance requirements. LawPay helps by automatically separating earned and unearned funds, preventing debits from your trust account, and keeping detailed, real-time records across your trust and operating accounts.

Built specifically for law firms, LawPay adds guardrails your auditors will appreciate: IOLTA and PCI compliance, audit-ready reporting, next-business-day deposits, and integrations with the tools your firm already uses. The result is tighter controls, faster collections, and more confidence that every dollar is where it belongs.

Schedule a demo to see how LawPay can simplify IOLTA compliance and modernize your payment workflows.