SC Bar Foundation

A: Clients often transfer money to an attorney to hold. When the amount is large or if the funds are to be held for a long period of time, lawyers invest those funds for the benefit of the client. But, when the funds are small or expected to be held for a short time, they cannot practically be invested to benefit the owner of the funds. The IOLTA program allows attorneys to convert these accounts into interest-bearing accounts that generate interest income. The financial institution sends the interest directly to the Foundation which distributes the funds as grants to a variety of initiatives that support the justice system.

A: “Nominal” or “short-term” funds are those of a client or third party that the lawyer has determined cannot provide a positive net return to the client or third party. An attorney shall exercise good faith judgment in determining whether or not funds belong in an IOLTA account. No lawyer shall be charged with ethical impropriety based on the exercise of good faith judgment.

A: Only attorneys that handle client trust funds that are nominal in amount or held for a short time are required to establish IOLTA accounts. Licensed attorneys in South Carolina who do not handle client trust funds are not required to establish an IOLTA account.

A: The following Bar members are excluded: lawyers who do not maintain the practice of law; those employed in a corporate capacity; those employed by local, state or federal government; law clerks, professors or members of the judiciary; retired attorneys; lawyers whose practices do not require the maintenance of trust/escrow accounts and those who do not have an office or maintain funds in depository institutions in the state. Exclusions may be noted on the annual SC Bar license fee statement.

A: An IOLTA account that has or may have the net effect of costing the IOLTA program more in fees than earned in interest over a period of time may, at the discretion of the Foundation, be exempted from the IOLTA program. Lawyers may also request exemption if participation would work an undue hardship or would be extremely impractical. Attorneys desiring exemption due to hardship should make their request in writing to the Bar Foundation Board of Directors. Contact the Foundation for exemption forms.

Q: Where do attorneys deposit client trust funds that do not meet the short-term or nominal fund requirements of IOLTA?

A: Client trust funds that do not meet the nominal or short-term fund requirements of an IOLTA account should be deposited in a separate demand account to earn interest for the benefit of that client. The attorney must use that client’s tax ID number instead of SCBF’s tax ID number.

A: SCBF’s TIN is 23-7181552. This is the TIN that must be used when opening an IOLTA account. The attorney’s or law firm’s TIN should never be used when an IOLTA account is opened.

A: If the financial institution assesses service charges and fees on the IOLTA account, they should be reasonable and customary. Certain reasonable fees as defined in the Rule may only be deducted from interest or dividends that are earned on IOLTA accounts; they may not be deducted from the IOLTA principal. All other fees and service charges are the responsibility of the attorney or law firm maintaining the account. The financial institution may choose to waive any and all fees on an IOLTA account.

Q: We have selected the benchmark. How will I know when the rate changes?

A: For benchmark banks, there should be no change to the rate paid on IOLTA accounts until the Federal Funds target rate exceeds 1.00%. If and when that time comes, the benchmark rate would be greater than 0.65% as noted below. The Foundation will post on our Web site and will also e-mail our IOLTA banks to let them know that the benchmark has changed. The rule says the benchmark is 0.65% OR 65% of the FF rate, whichever is greater. Imagine these scenarios:

Fed Funds Target Rate	65% of FF Rate	Is this higher than 0.65%?	The benchmark rate would be:
0.25%	0.16%	No	0.65%
0.50%	0.32%	No	0.65%
0.75%	0.48%	No	0.65%
1.00%	0.65%	No -- the same	0.65%
1.25%	0.81%	Yes	0.81%
2.00%	1.30%	Yes	1.30%

When the rule says that the benchmark rate can change periodically, it means that the Foundation can alter the percentage (for example, to 0.75% or 75% of the Federal Funds target rate). The statement that we would not do that more than twice annually is our promise that we would not be increasing the percentage every time we wanted to. Any change would be made only after a comprehensive review of rates being paid on all comparable products in South Carolina. We do not anticipate making such a change for the foreseeable future. And, to confirm, the index is based on the Federal Funds Target Rate (not the daily trading rate).

Q: How can financial institutions assist attorneys or law firms in opening IOLTA accounts?

A: The financial institution can have on hand a copy of the Enrollment Form for Lawyers and Law Firms, which instructs the financial institution on how to establish an IOLTA account. The financial institution or attorney must fax, e-mail or mail a copy of the completed form to the Foundation.

A: There are no tax consequences for the attorney or client. Financial institutions

should not issue IRS 1099 forms to anyone including the attorney, law firm nor the

A: Contact the SCBF staff about how your financial institution can become a Prime Partner.

Q: If we offer no other type of account, does this mean we can continue to offer only our NOW account and still meet the comparability provisions of the revised Rule?

A: It is important to review your entire portfolio of products to make sure there are no other comparable products, including tiered or preferred rate product for which IOLTA accounts would qualify. We are happy to help you review your options. But if your institution only offers a NOW account, then you will simply need to certify this fact to the SCBF to be in compliance with the Rule.

Q: Do we have to create multiple types of IOLTA accounts based upon different qualifications and rates?

A: No. If you’d prefer we can work with you to create a single blended rate or tiered rates that are based on the current portfolio of products, without establishing IOLTA accounts in those different product types.

Q: We have an investment company subsidiary. Is it necessary to offer the subsidiary’s products as IOLTA accounts?

A: Only if you wanted the subsidiary to hold IOLTA deposits in eligible accounts. If not than you only need be concerned with your banking products. However, if you offer bank customers an automated transfer (sweep) to an external investment whether a subsidiary or not, such as money market mutual fund, you must offer that service or comparable rate to qualifying IOLTA customers.

A: How you structure your rates internally is your decision. We understand that institutions may chose to provide value to customers in other ways than strictly pricing, including higher levels of service. We only need to ensure the IOLTA accounts are being treated equally and are earning the same rates as other depositors, whatever those rates are.

A: The allowable reasonable fees for IOLTA accounts are per check charges, per deposit charges, a fee in lieu of a minimum balance, federal deposit insurance fees, automated investment (“sweep”) fees, and a reasonable maintenance fee, if those fees are charged on comparable bank accounts maintained by non-IOLTA depositors. All other fees are the responsibility of, and may be charged to, the lawyer or law firm maintaining the IOLTA account.

Allowable reasonable fees can be deducted from (but not in excess of) the interest earned on an account. Sweeps fees in particular can be considered on a “net yield” basis – for example – paying the equivalent after fee effective rate, without actually charging the fees. All net yield equivalent rates must be approved by SCBF in advance.

Q: What if some accounts qualify for a higher interest rate product and others do not?

A: The rule allows financial institutions to pay different rates on different accounts. It is often more practical and a better administrative alternative to consider a single blended rate, or tiered rates, which are calculated and based on the different products or rates individual accounts may qualify for.

A: No. IOLTA comparability rule only requires a bank to pay its own IOLTA customers the highest interest rate generally paid to its own non-IOLTA customers with comparable accounts. It does not require a bank to pay rates other than that which the bank itself has established.

Q: What if a financial institution doesn’t offer higher rates of interest to non-IOLTA customers with comparable accounts?

A: The bank would be in compliance with the rule as long as the bank is paying comparable rates to its IOLTA and non-IOLTA customers. The financial institution is required to do no more than pay the same rates on IOLTA accounts as it already pays on similarly situated non-IOLTA accounts. For example, most financial institutions offer non-IOLTA depositors preferred interest rates for larger balances. However, many of these same institutions do not distinguish between very small and very large balance IOLTA accounts. The rule simply requires that they now pay the large balance IOLTA account the same rate it would otherwise qualify for, were it not an IOLTA account.

Q: How will attorneys know if their financial institution is an eligible IOLTA institution?

A: The SCBF will maintain a list of eligible institutions on its Web site. Institutions will be certified as eligible by SCBF upon a finding that they are in compliance with the rule and based on the documentation and ongoing reporting the institution will file with SCBF.

A. The Bar Foundation will continue to notify and educate attorneys about the IOLTA program as it has done since inception. A Guidebook similar to this one has been developed for attorneys. Banks should always feel confident in referring attorney questions to the Bar Foundation.

A. NSF notices should be sent to the Commission on Lawyer Conduct. Their address is PO Box 12159, Columbia, SC 29211. A copy does NOT need to be sent to SCBF.