Annual IOLTA Compliance Questions

These questions and answers are designed to help with the completion of the Annual IOLTA Compliance Reporting form - the printed or online version.

Online form - www.mdcourts.gov

Printable form - IOLTA Compliance - mail to: Administrative Office of the Courts P.O. Box 319 Simpsonville, MD 21150-0319

To contact the Client Protection Fund: Client Protection Fund of Maryland 2011 Commerce Park Drive Annapolis, MD 21401 Phone: 410.260.3635 Fax: 410.260.3636

1. Where and how do I complete the Annual IOLTA Compliance Reporting form?
2. There has been no change regarding the status of my IOLTA compliance since filing last year's report. What do I need to do?
3. I have some new IOLTA accounts since the last compliance report. What box should I check?
4. I do not see my IOLTA accounts listed on the online form. What should I do?
5. I am an associate at a law firm and do not personally maintain escrow accounts. How should I complete the compliance form?
6. Do I need to fill out a form if my law firm has already done so?
7. I am my law firm's reporting attorney. How should I complete the compliance form?
8. I am a sole practitioner. What box should I check?
9. My escrow account usually holds very few funds. What box should I check?
10. I and/or my law firm participate fully in another state’s IOLTA program. How should I complete the compliance report form?
11. My firm has an office in Maryland, but our main location is out of state, and our escrow accounts are maintained at our main location. What should I do?
12. I work for the federal or state government. What box should I check?
13. I am an in-house counselor for a corporation and do not handle IOLTA-eligible trust funds. What box should I check?
14. I am a new admittee to the Maryland bar and have no IOLTA accounts. Do I have to set up account (s) immediately to be in compliance?
15. I am a judicial law clerk. What box should I check?
16. I am Of Counsel to a law firm and do not handle IOLTA-eligible trust funds. What box should I check?
17. I am retired. What box should I check?
18. I have a MAHT (Maryland Affordable Housing Trust) account instead of an IOLTA account. What box should I check?
19. I do not maintain escrow accounts at all. I bill my clients only after services have been rendered, and do not hold trust funds on behalf of my clients. What box should I check?
20. My address is wrong. How do I correct this?
21. Do I have to open or change my IOLTA account over to an Honor Roll financial institution?
22. What determines whether money received from my client should go into an IOLTA account?
23. How do I open a new IOLTA account?

Answers to Questions about the IOLTA Compliance Report

Q1. Where and how do I complete Annual IOLTA Compliance Reporting form?

A. We encourage online filing at the judiciary web site link at the top of this page, where you can access your IOLTA Compliance Report. Go to the “Compliance Determination” section, check the appropriate box or boxes, “sign” the form by entering your initials where indicated, and click submit to complete your IOLTA reporting requirement. Please print the Confirmation Report for your records.

Alternatively, you can complete and return a hard copy of the form to the Administrative Office of the Courts at the address at the top of the page. Please be sure to make a copy of your completed form for your records. -back to top-

Q2. There has been no change regarding the status of my IOLTA compliance since filing last year's report. What do I need to do?

A. If you completed an IOLTA Compliance Report for the prior year and there has been no change in the information reported at that time, check Box #1 under the “Compliance Determination” section and sign the form where indicated. -back to top-

Q3. I have some new IOLTA accounts since the last compliance report. What box should I check?

A. If you have any new IOLTA accounts, you would check Box #2 under the “Compliance Determination” section. Our online form indicates the IOLTA accounts that we currently have on file for you in our database. Please simply confirm whether these accounts are still open or if they have been deleted. You do not have to list other accounts, but you should contact your bank to confirm your active accounts.

If you have current IOLTA accounts at more than one financial institution and will not be submitting your form online, please make copies of the form and complete a copy for each account. If you have multiple IOLTA-eligible accounts at the same institution, simply list all account numbers in the space provided. Attach additional sheets if necessary and return this to the Administrative Office of the Courts. -back to top-

Q4. I do not see my IOLTA accounts listed on the online form. What should I do?

A. If you have IOLTA accounts that are not listed on the lower part of the form, it is due to one or more of the following reasons:

• You are part of a law firm and your funds are deposited into the law firm’s IOLTA account. The accounts may belong to many attorneys in that firm but will be listed under only one person’s name, usually the signer of the account.
• You have opened an account (s) within the past 30 days.
• The account (s) has/have not generated interest payments to MLSC.

There is no need for you to take any action if any of the above describes your situation. If you have accounts that you believe should be listed, please contact your financial institution to assure accurate reporting in the future. Meanwhile, you may check Box #1 or Box #2 to complete this report. -back to top-

Q5. I am an associate at a law firm and do not personally maintain escrow accounts. How should I complete the compliance form?

A. Check Box #3a under the “Compliance Determination” section. Please be sure to fill in the name of the IOLTA Reporting Attorney for your law firm. The Reporting Attorney shall be authorized to report on all law firm IOLTA accounts. If you do not know the name of the IOLTA Reporting Attorney, please put in the name of your law firm.

Please note that the report by your firm's reporting attorney will list all of the banks and account information. You are not required to list the bank account information on your individual compliance report but you must submit an individual compliance report with your signature, listing the name of the reporting attorney or law firm. -back to top-

Q6. Do I need to fill out a form if my law firm has already done so?

A. Yes. Please note that you do not have to fill in the account information, but you do have to return the form. Check Box #3a under the “Compliance Determination” section. If you do not know the name of the IOLTA Reporting Attorney, put in the name of your law firm. See also the preceding question. -back to top-

Q7. I am my law firm's reporting attorney. How should I complete the compliance form?

A. Check Box #3b under the “Compliance Determination” section. The Reporting Attorney shall be authorized to report on all law firm IOLTA accounts. You should list all of the banks and account information for your firm, fill in your name as the IOLTA Reporting Attorney for your law firm and sign the form. -back to top-

Q8. I am a solo practitioner. What box should I check?

A. A solo practitioner should check any applicable box except those pertaining to law firms (Box #3a and Box #3b). You do not have to fill out the “Name of Firm IOLTA Reporting Attorney.” See other questions and answers for guidance. -back to top-

Q9. My escrow account usually holds very few funds. What box should I check?

A. If your escrow account usually contains less than $3,500 on a monthly basis, you should elect to waive participation in the IOLTA program, pursuant to Maryland Code, Business Occupations and Professions, Section 10-303(c) by checking Box #4 under the “Compliance Determination” section.

Please note that if you need to change the status of your trust account(s), you must call the bank and follow the bank’s procedures. Maryland Legal Services Corporation and the Court of Appeals may not convert the account(s) for you. -back to top-

Q10. I and/or my law firm participate fully in another state’s IOLTA program. How should I complete the compliance report form?

A. If you are a Maryland admitted attorney but practicing in another state, and if you participate fully in the IOLTA program for that state, then simply check Box #5 under the “Compliance Determination” section and fill in the name of the state in the space provided. It is not necessary to provide your out-of-state account information. -back to top-

Q11. My firm has an office in Maryland, but our main location is out of state, and our escrow accounts are maintained at our main location. What should I do?

A. If you and/or your firm are fully participating in the IOLTA program of another state, see answer to question above. Any IOLTA-eligible funds that are NOT maintained in another state’s IOLTA program are fully subject to Maryland’s IOLTA requirement and such accounts must be reported accordingly. -back to top-

Q12. I work for the federal or state government. What box should I check?

A. Check Box #6 under the “Compliance Determination” section. -back to top-

Q13. I am an in-house counselor for a corporation and do not handle IOLTA-eligible trust funds. What box should I check?

A. Check Box #6 under the “Compliance Determination” section. -back to top-

Q14. I am a new admittee to the Maryland bar and have no IOLTA accounts. Do I have to set up account (s) immediately to be in compliance?

A. You do not have to open an IOLTA account to be in compliance with IOLTA. If you have no client accounts yet, check Box #6 under the “Compliance Determination” section. Please note that an IOLTA account must be established if you are holding short-term or nominal trust funds of at least $3,500 on a regular basis. If this is not the case, you are eligible for a waiver, and you should open a non-interest bearing escrow account. You may request a waiver by checking Box #4 under the “Compliance Determination” section. For more information about establishing IOLTA accounts, see Questions 22 and 23 below. -back to top-

Q15. I am a judicial law clerk. What box should I check?

A. Check Box #6 under the “Compliance Determination” section. -back to top-

Q16. I am Of Counsel to a law firm and do not handle IOLTA-eligible trust funds. What box should I check?

A. Check Box #6 under the “Compliance Determination” section. -back to top-

Q17. I am retired. What box should I check?

A. Check Box #6 under the “Compliance Determination” section. -back to top-

Q18. I have a MAHT (Maryland Affordable Housing Trust) account instead of an IOLTA account. What box should I check?

A. Check Box #6 under the “Compliance Determination” section. -back to top-

Q19. I do not maintain escrow accounts at all. I bill my clients only after services have been rendered, and do not hold trust funds on behalf of my clients. What box should I check?

A. Check Box #6 under the “Compliance Determination” section. -back to top-

Q20. My address is wrong. How do I correct this?

A. You must send a written notice to the Client Protection Fund of Maryland. You may either mail it to 2011 Commerce Park Drive, Annapolis, MD 21401, or fax it to 410.260.3636. Please be sure to include your old address, your new address and your signature. We cannot change it in our database, as our information gets overwritten by data from the Client Protection Fund. -back to top-

Q21. Do I have to open or change my IOLTA account over to an Honor Roll financial institution?

A. No. While we strongly encourage attorneys to use Honor Roll financial institutions, you are not required to do so. (Click here for Honor Roll Banks.) -back to top-

Q22. What determines whether money received from my client should go into an IOLTA account?

A. Lawyers continue to exercise their discretion in determining whether a given client’s trust deposit is of sufficient size or will be held for sufficient duration to justify the cost of being individually invested for a client. The IOLTA program does not impose any new decisional burden upon attorneys.

Funds are placed in an IOLTA account only when they are nominal in amount, or being held for a short period of time. If the trust funds are not placed in an IOLTA account, they may be otherwise deposited or invested, separate from the attorney's own accounts, as directed by the client or determined by the attorney.

A Maryland State Bar Association study estimated that it would cost at least $50 to create and administer a separate client interest-bearing account. Therefore, $50 serves as a benchmark or “safe harbor” to guide lawyers in determining whether funds should be placed in an IOLTA account. The following table shows the approximate time required to generate $50 gross interest at prevailing interest rates. 

Principal	No. of Days
$10,000	182
20,000	91
30,000	61
50,000	36
100,000	18

-back to top-

Q23. How do I open a new IOLTA account?

A. The process of establishing an IOLTA account is simple, and once it is done no further time or effort on your part is required. Fill out the Notice of New IOLTA Account form and submit it to an approved IOLTA financial institution and send a copy to MLSC. That is all you have to do! MLSC and your financial institution will do the rest.

If you need more information, call MLSC at 410.576.9494; or the toll-free IOLTA Hotline at 1.800.492.1340. -back to top-

General IOLTA Questions

These questions and answers provide general IOLTA information.

1. What is IOLTA?
2. Where have these nominal and short-term funds been deposited in the past?
3. How does the attorney know when to place trust funds in an IOLTA account?
4. How does the mandatory IOLTA program affect attorneys' existing banking relationships?
5. What effect does IOLTA have on clients?
6. What are the tax consequences?
7. Must clients be notified that the lawyer is participating in IOLTA?
8. Does the mandatory IOLTA statute conflict with the Chapter 600 of the Maryland Rules on attorney trust accounts?
9. Are attorneys with very small trust accounts required to participate in the IOLTA program?
10. Does IOLTA impose additional administrative burdens or bookkeeping requirements upon lawyers?
11. Are there any other administrative or reporting requirements that I need to be aware of to ensure my compliance with Maryland’s IOLTA Program?
12. Who pays the bank service charges? Will they be charged against attorney or client funds?
13. What is the Maryland Affordable Housing Trust (MAHT) program, and how does it affect IOLTA?
14. How do I sign up for IOLTA?
15. What do I do with unclaimed principal balances in an existing IOLTA account?

Answers to General IOLTA Questions

Q1. What is IOLTA?

A. Attorneys routinely receive client funds to be held in trust for future use.  If the amount is large or the funds are to be held for a long period of time, the attorney customarily places these moneys at interest for the benefit of the client.  However, in the case of amounts that are small or are to be held for a short time, it is impractical to establish separate interest-bearing accounts for individual clients.  In IOLTA, attorneys place these nominal and short-term funds into a commingled interest-bearing account.  Financial institutions send the interest generated on IOLTA accounts to the Maryland Legal Services Corporation Fund (Maryland Code Title 7, Section 408) for grants to programs which provide civil legal services to the poor. -back to top-

Q2. Where have these nominal and short-term funds been deposited in the past?

A. They have been held in non-interest-bearing checking accounts separate and apart from all other funds belonging to the lawyer. Pursuant to Maryland Rules, Chapter 600, “Attorney Trust Accounts,” and Rule 1.5 of the Maryland Rules of Professional Conduct, trust accounts may never be commingled with the lawyer’s personal accounts. The lawyer is a fiduciary for these trust account funds and cannot derive any direct or indirect personal benefit from them. See Ethics Opinion 81-84, MSBA Committee on Ethics. Maryland Business Occupations Code Ann., Section 10-301 et seq. also requires attorneys to establish separate trust accounts and creates civil and criminal penalties for commingling them with a lawyer’s own money. -back to top-

Q3. How does the attorney know when to place trust funds in an IOLTA account?

A. Lawyers continue to exercise their discretion in determining whether a given client’s trust deposit is of sufficient size or will be held for sufficient duration to justify the cost of being individually invested for a client. The IOLTA program does not impose any new decisional burden upon attorneys.

A Maryland State Bar Association study estimated that it would cost at least $50 to create and administer a separate client interest-bearing account. Therefore, $50 serves as a benchmark or “safe harbor” to guide lawyers in determining whether funds should be placed in an IOLTA account. The following table shows the approximate time required to generate $50 gross interest at prevailing interest rates. 

Principal	No. of Days
$10,000	182
20,000	91
30,000	61
50,000	36
100,000	18

Thus, funds are placed in an IOLTA account only when they are nominal in amount, or being held for a short period of time. If the trust funds are not placed in an IOLTA account, they may be otherwise deposited or invested, separate from the attorney's own accounts, as directed by the client or determined by the attorney. -back to top-

Q4. How does the mandatory IOLTA program affect attorneys' existing banking relationships?

A. Most lawyers will see no change in their banking relationships. Virtually all Maryland banks and savings and loan institutions that offer commercial accounts to their attorney customers provide IOLTA. -back to top-

Q5. What effect does IOLTA have on clients?

A. IOLTA has no effect on clients. When no interest is earned on funds in attorney trust accounts which are nominal or short-term, no one benefits except the financial institutions. The ABA’s Standing Committee on Ethics and Professional Responsibility, in Formal Opinion 348 (1981) approving attorney participation in state IOLTA programs, found:

"That the practical effect is to shift a part of the economic benefit from depository institutions to tax-exempt organizations. There is no economic injury to any client. The program creates income where there was none before." -back to top-

Q6. What are the tax consequences?

A. The Internal Revenue Service approved IOLTA in Revenue Ruling 81-209. There are no tax consequences for either the lawyer or the client if IRS requirements are met. The IRS stated that the IOLTA program must apply to the nominal and short-term funds of all clients of a participating lawyer. If an individual could elect not to participate in the program, an “assignment of income” problem would arise and taxable income result. Under the IOLTA requirement of Maryland law, no tax liability or tax benefits are created by the program for you or your client. Since MLSC is the recipient of the interest, your financial institution is instructed to use the MLSC federal ID number on your IOLTA account. -back to top-

Q7. Must clients be notified that the lawyer is participating in IOLTA?

A. While some lawyers may prefer to inform their clients about the IOLTA program, such notification is not required. State law requires attorneys to place nominal and short-term client trust funds into an IOLTA. -back to top-

Q8. Does the mandatory IOLTA statute conflict with the Chapter 600 of the Maryland Rules on attorney trust accounts?

A. No. Chapter 600 of the Maryland Rules, entitled “Attorney Trust Accounts,” permits attorney participation in IOLTA and does not conflict with the statute requiring attorneys to deposit appropriate trust funds in IOLTA accounts. Rule 16-608 states:

Any interest paid on funds deposited in an attorney trust account, after deducting service charges and fees of the financial institution, shall be credited and belong to the client or third person whose funds are on deposit during the period the interest is earned, except to the extent that interest is paid to the Maryland Legal Services Corporation as authorized by law (emphasis added). -back to top-

Q9. Are attorneys with very small trust accounts required to participate in the IOLTA program?

A. No. Maryland Business Occupations Code Ann., Section 10-303 (c) permits the Administrative Office of the Courts, in consultation with the Maryland Legal Services Corporation, to excuse an attorney or law firm from participating “that demonstrates that it will cost the Maryland Legal Services Corporation Fund more in service charges to open and maintain an attorney trust account for the purposes of the Maryland Legal Services Corporation Fund than will be generated in interest by the attorney trust account.”

While the charges vary between participating financial institutions, in most instances an attorney who does not maintain an average monthly balance of at least $3,500 in a trust account will not be required to participate. The Annual IOLTA Compliance form permits attorneys to request a waiver from the IOLTA requirement by affirming that their combined trust account balance does not exceed an average monthly balance of at least $3,500 (see Compliance Question 4). In addition, an IOLTA account may be terminated by the attorney if the balance drops below $3,500 and is reasonably expected to remain so. -back to top-

Q10. Does IOLTA impose additional administrative burdens or bookkeeping requirements upon lawyers?

A. No. The burden for attorneys of accounting for client funds remains the same; separate attorney trust accounts are already mandated by statute and rule. No income to clients or attorneys would be created, as confirmed by Internal Revenue Service rulings. The IOLTA statute simply requires that some attorney trust accounts be redesignated as IOLTA accounts, with a simple notice and sign-up procedure taking about ten minutes.

Your bank automatically sends the interest directly to the Maryland Legal Services Corporation. Your client escrow account statements will remain the same. Upon request, MLSC will provide you with an annual informational statement of the interest your account generated for legal services. -back to top-

Q11. Are there any other administrative or reporting requirements that I need to be aware of to ensure my compliance with Maryland’s IOLTA Program?

A. The Maryland Court of Appeals adopted Maryland Rule 16-608, effective January 1, 2002, requiring all Maryland-admitted attorneys to report annually on their compliance with the IOLTA program. The Maryland Court of Appeals will issue the Annual IOLTA Compliance Report, which consists of a simple, one-page form, to be completed and returned as directed on the form by every Maryland attorney. The Compliance form may be printed from this website and mailed to the address provided on the form or completed online at the judiciary website at www.mdcourts.gov. There are no additional reports or administrative requirements mandated by Maryland’s IOLTA program. -back to top-

Q12. Who pays the bank service charges? Will they be charged against attorney or client funds?

A. MLSC will pay for regular and ongoing customary service charges relating to the operation of the IOLTA account, but will not absorb the costs of special charges covered in Maryland Rule 16-610(b)(1)(D), which states that financial institutions shall “not deduct from interest on the (IOLTA) account that otherwise would be payable to the Maryland Legal Services Corporation any fees for wire transfers, presentations against insufficient funds, certified checks, overdrafts, deposits for dishonored items, and account reconciliation services.” Financial institutions must not deduct these charges from the principal in the IOLTA accounts but may charge the attorneys these fees.

Attorneys should convert IOLTA accounts to non-interest bearing accounts if their financial institution’s service charges regularly exceed interest generated on the accounts (Maryland Business Occupations Code, Section 10-303(c)). MLSC must bear the cost of the maintenance of an IOLTA account under these circumstances. Bearing these costs defeats the purpose of the IOLTA program, which is to generate funding for civil legal services to Maryland's poor. -back to top-

Q13. What is the Maryland Affordable Housing Trust (MAHT) program, and how does it affect IOLTA?

A. During the 1992 Session, the Maryland General Assembly enacted a new program, modeled on IOLTA, to help fund affordable housing in Maryland. The Maryland Affordable Housing Trust (MAHT) statute requires real estate title companies to place their small or short-term client trust funds which are held in escrow into an MAHT account generating interest for affordable housing. MAHT is administered by the Maryland Department of Housing and Community Development.

In some instances, attorneys who maintain private real estate law practices and operate a title company may have a choice whether to place a client escrow deposit into their IOLTA or MAHT account. Whenever possible, MLSC encourages attorneys to deposit all eligible trust funds into their IOLTA to help provide critically needed legal services to Maryland’s poor, in keeping with an attorney’s obligations under Rule 6.1 of the Maryland Rules of Professional Conduct. -back to top-

Q14. How do I sign up for IOLTA?

A. The process of establishing an IOLTA account is simple, and once it is done no further time or effort on your part is required. Fill out the Notice of New IOLTA Account form and submit it to an approved IOLTA financial institution. That is all you have to do! MLSC and your financial institution will do the rest.

If you need more information, call MLSC at 410.576.9494; or the toll-free IOLTA Hotline at 1.800.492.1340. -back to top-

Q15. What do I do with unclaimed principal balances in an existing IOLTA account?

A. Please contact the Client Protection Fund at 410.260.3635 for guidance on this issue. -back to top-