What is an IOLTA Account? Why do Lawyers Use them to Hold Client Money?
When I settle a personal injury case, whether an automobile or motorcycle accident, a dog bite, or premises liability like a slip and fall, the money is placed into an IOLTA account before disbursing it to the client and me for fees. I tell this to every client. I cannot remember a client asking, “What is an IOLTA account?” Well, these two children got curious, and the old lawyer took the time to explain it to them:
Arizona is known for its desert landscapes and serene communities. In the heart of it all, there are five cities—Mesa, Gilbert, Chandler, Queen Creek, and Apache Junction— that serve as the home of millions of people who live in and around Phoenix. These cities have unique charms made of people from all walks of life. From elderly citizens in assisted living to younger generations who spend their time in parks and shopping districts, these cities provide a relatively peaceful coexistence.
Two boys found themselves in a quiet neighborhood park on one such sunny day. The sound of creaking swings filled the air as they enjoyed their morning, free from school responsibilities since summer break had just begun. Their conversation soon turned to a recent encounter with an older man.
“Hey, do you remember the old guy we talked to the other day?” one of the boys asked.
“Yeah, the one who said he used to be a lawyer before he retired. Wonder if he’s up and about yet,” replied the other.
“Maybe we should go check on him. He mentioned something about his law work the other day— something with letters like I-O-L or something. I wanted to ask him more about it, but he said he was tired and needed to rest.”
Intrigued, the boys hopped off the swings and walked toward the senior housing complex where the older man lived. They spotted him sitting on his usual bench next to the swimming pool, basking in the morning sun.
When he saw them, he smiled and asked, “What are you two doing up so early?”
The boys explained that with school out, they had spent their morning at the park but had thought about him and a question they’d meant to ask.
“Last time we talked,” one of the boys said, “You said lawyers sometimes handle other people’s money. You said you put it somewhere called, umm, something like I-O-L-T-A. What does that mean?”
The retired lawyer chuckled and nodded, recalling their earlier conversation. “Ah, yes. I was talking about IOLTA, which stands for ‘Interest on Lawyers Trust Accounts.’ It’s a program that lawyers like I once was use to handle client money—such as retainers, settlement funds, or other legal proceeds— that we need to hold for safekeeping.”
Curious but confused, one of the boys asked, “What’s a retainer?”
The man smiled, appreciating their eagerness to learn. “A retainer is money a client gives to a lawyer upfront to pay for their services. The client “trusts” the lawyer to hold their money and to take money once the work is done, but not until it is done.”
“But why use a special account? Can’t you just put it in a regular bank account?” one of the boys asked.
“Good question,” the lawyer responded. “The money isn’t ours, so we can’t treat it like our own money. That’s where IOLTA accounts come into play. You see, lawyers often handle small sums of client money, and it would be impractical to open a separate bank account for each client. Then, we create separate ledgers or paper accounts for each client. We keep track of all the money that goes into each client’s account. And every dollar that comes out. If the client wants to see the account, we must show them. Now, any interest that the bank pays for holding this money doesn’t go to the lawyer or the client. That money is given to the State Bar Association to pay for legal aid programs and other justice initiatives that help those who can’t afford legal services.”
The boys looked puzzled but fascinated. “So, the money just sits there?”
“More or less, yes,” the lawyer said. “The American Bar Association created the IOLTA program to ensure that lawyers can safely and ethically handle client funds. Not all lawyers are bad, but some are, and they would steal their client’s money without having done the work. These accounts make sure that the client’s money is held securely and that any interest earned can benefit society by improving access to legal representation for those who need it most.”
The boys nodded, but their faces showed they were still trying to piece it all together.
“Think of it this way,” the lawyer continued. “Say you need a lawyer but don’t have much money. But because of the IOLTA program, some of the interest earned from lawyers holding other clients’ money can go toward paying for the legal work you need. It’s a way of making sure that everyone has access to justice, regardless of how much money they have.”
One of the boys frowned thoughtfully. “So the interest does not go to the lawyer? It is used to help people who don’t have enough money?”
“Exactly,” the lawyer said. “It’s a small way of giving back. Lawyers participate in IOLTA programs so that not only wealthy people can afford lawyers.”
“But why does the money have to sit in a special account at all? Can’t you just keep it in your wallet or something?” the other boy asked.
The lawyer laughed heartily. “That wouldn’t be very safe, now would it? If a lawyer were to mix their own money with client money, things could get very messy. It’s important to keep them separate, and that’s why we use trust accounts—specifically IOLTA accounts. It’s all about making sure that no one gets confused about whose money is whose, and that the funds are there when the client needs them.”
He paused and looked at the boys. “I know this sounds complicated, but it’s all about protecting the client’s money by forcing lawyers to handle it responsibly.”
The boys looked at each other and scratched their heads. One of them finally said, “We don’t really get all of it, but it sounds important.”
The lawyer said, “It is important, but you don’t need to worry about understanding every detail. Programs like IOLTA are designed to help people by generating money that helps everyone have a shot at getting the legal help they need. And, in a way, by asking these questions, you’re learning about how the law works—and that’s a good thing.”
One of the boys grinned. “We just like listening to you talk. You always use big words we’ve never heard before, and we feel like we’re learning something new every time.”
“I enjoy answering them. Your questions remind me of why I got into the law in the first place—to help people understand and navigate the world.”
The boys smiled, thanked him for the explanation (even if they didn’t fully understand it), and headed back to the park. As they walked away, the elderly lawyer was glad that even though they might not completely understand IOLTA, they took the time to try and understand something few adults bother to do.
The conversation between the elderly lawyer and young children illustrated the spirit of the IOLTA program. The American Justice System is supposed to provide access to justice for all, regardless of one’s financial standing. The system does not always achieve that lofty goal, but IOLTA is one way that the system tries to accomplish that goal.
The lawyer smiled, knowing that this short conversation improved the State of Arizona and the country. He shared some of his knowledge and experience with a new generation, which felt good.
Conclusion
Although technical and complex, IOLTA represents a fundamental American ideal: everyone should have access to legal resources. Whether fully grasped or not, even two curious boys on a summer’s day could sense the importance of something far bigger than themselves—a system designed to help those in need and maintain the ethical standards of the legal profession.
