FDIC Insurance on Attorney Trust Accounts
FDIC Standard Maximum Deposit Limit is $250,000.
The Dodd-Frank Act, signed into law on July 21, 2010, permanently raised the standard maximum deposit insurance amount to $250,000.
In New Jersey, client funds must be placed at interest to a client or to IOLTA.
Rule 1:28A-2(2) requires that “Funds shall be deposited in an IOLTA non-interest bearing trust account authorized by this Rule when an attorney determines that a trust account deposit will not be placed at interest for a client.” The only exception would be for an account which normally carries a very low balance and that has been certified by the attorney or firm as a “low-balance account” on the annual IOLTA registration form. Note also that sub-accounts must be either interest-bearing to a client OR to IOLTA.
Law firms are required to maintain an attorney trust account at an approved financial institution. Approval is given on behalf of the Supreme Court of New Jersey by the Office of Attorney Ethics when a bank agrees to report overdrafts and cooperate with the IOLTA program. The approval of a bank to offer trust accounts in New Jersey does not imply an endorsement of that bank’s safety and soundness. It is the law firm’s responsibility to select a bank (or banks) based on financial condition, convenience and other factors.
FDIC coverage for fiduciary accounts is different from ordinary accounts.
In its Frequently Asked Questions section, the FDIC says “Special disclosure rules apply to multi-tiered fiduciary relationships. If an agent pools the deposits of several owners into one account and the disclosure rules are satisfied, the deposits of each owner will be insured as that owner's deposits.” (See https://www.fdic.gov/deposit/deposits/brochures/your_insured_deposits-english.html). Each client’s funds in a pooled IOLTA account are separately insured (up to $250,000 per depositor), as if the client had an account at that bank.
- To qualify for FDIC insurance your trust account must be titled properly as a fiduciary account, for example, Law Office of Thomas Jones, Attorney Trust Account and the account records must identify the details of the relationship (client name, initial deposit and subsequent transactions, etc.). These are identical requirements of Rule 1:21-6.
- FDIC coverage is also applicable to client sub-accounts, up to $250,000 per individual.
- A husband and wife are each insured separately for $250,000, up to $500,000, provided the deposit documentation clearly describes the ownership of their funds.
- A client might have a separate banking relationship at the same institution as the firm’s trust account, resulting in shared FDIC coverage for that single depositor.
- When a lawyer has a concern that a particular deposit in a pooled account or in a sub-account at any bank will exceed insurance coverage limits, the lawyer could consider utilizing a second (or third) trust account at a different financial institution.
- New trust accounts may be reported to IOLTA at any time. The IOLTA registration form is available online at http://www.ioltanj.org/lwr_comp.html.
- The FDIC offers tools and examples of how to calculate coverage at https://www.fdic.gov/edie/fdic_info.html.