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News for Grant Applicants
News for Attorneys and Law Firms
News for Banks
FDIC Coverage and New Jersey Attorney Trust Accounts
What You Need to Know
New Jersey’s IOLTA Rule 1:28A requires that all client trust deposits be held at interest either to the client or to IOLTA. Many attorneys have questions about how FDIC deposit insurance applies to trust accounts.
On November 21, 2008, the FDIC announced that unlimited insurance on non-interest bearing transaction accounts would be applied to IOLTA accounts until December 31, 2009 under a voluntary program known as TAG (Transaction Account Guarantee Program). THE TAG PROGRAM HAS NOW BEEN EXTENDED TO JUNE 30, 2010.
Banks that participated in the original TAG program may now choose to opt-out of the extended TAG program. Non-participating institutions are identified on the FDIC’s website, http://www.fdic.gov/regulations/resources/TLGP/optout.html. You should also be able to find the required disclosure notice posted in the bank lobby.
The FDIC included IOLTA accounts under the unlimited insurance provisions of the TAG program because “… the interest on IOLTAs does not inure to the benefit of either the law firm or the clients. Thus, from the perspective of the law firm and the clients, the account produces the same economic result as a noninterest-bearing transaction account.” (FEDERAL DEPOSIT INSURANCE CORPORATION, 12 CFR Part 370, RIN 3064-AD37, Temporary Liquidity Guarantee Program, p.44)
Other types of IOLTA accounts, such as Master Escrow Accounts with sub-accounts for clients, are covered by the $250,000 per depositor limit adopted by the FDIC in October 2008, but not the unlimited guarantee. The $250,000 limit expires on December 31, 2013. On January 1, 2014, the limit reverts to $100,000 per depositor.
The New Jersey IOLTA Rule is clear that 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 which has been registered as such on the annual IOLTA registration form. Note also that sub-accounts must be either interest-bearing to a client OR to IOLTA.
There is no question that FDIC insurance can be confusing and that misinformation is easy to come by. Coverage for fiduciary accounts is somewhat 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 http://www.fdic.gov/deposit/deposits/insured/faq3.html#fiduciary) The FDIC website offers information, examples of how to calculate coverage and insurance calculators at http://www.fdic.gov/deposit/deposits/index.html.
Here are a few points directly applicable to attorney trust accounts in New Jersey:
- The approval of a bank to offer trust accounts in New Jersey does not imply an endorsement of that bank’s safety and soundness. Approval is given on behalf of the Supreme Court of New Jersey by the Office of Attorney Ethics because a bank agrees to report overdrafts and cooperate with the IOLTA program. It is the law firm’s responsibility to select a bank (or banks) based on financial condition, convenience and other factors.
- Unlimited FDIC coverage per depositor applies to pooled attorney trust accounts only at participating financial institutions.
- Each client’s funds in a pooled IOLTA account are separately insured, as if the client had an account at that bank. Placing separate client deposits in a common trust account dictates keeping meticulous trust account records as required by Court Rule 1:21-6 and the Office of Attorney Ethics.
- To qualify for FDIC insurance your account must be titled properly as a fiduciary account, for example, Law Office of Thomas Jones, Attorney Trust Account. This is also a requirement of Rule 1:21-6. IOLTA accounts carry the Tax I.D. of the IOLTA Fund. Permission to use our Tax I.D. is given in writing by IOLTA to the bank when a law firm returns an IOLTA Participation form indicating that an account qualifies to be interest-bearing to IOLTA.
- Cashier's checks and money orders issued by an insured depository institution are "deposits" as defined in the Federal Deposit Insurance Act. In addition, these instruments are "demand deposits" and therefore "transaction accounts" as defined in Regulation D. These funds will be protected in full, too.
- FDIC coverage is also applicable to client sub-accounts, up to $250,000 per individual. A husband and wife are each insured separately, up to $500,000, provided your deposit documentation clearly describes the ownership of their funds.
- Attorneys and law firms using sub-accounts should be sensitive to the possibility that a client might have a separate banking relationship at the same institution which would share the FDIC coverage for that single depositor.
- When a lawyer has a concern that a particular deposit in a sub-account may exceed insurance coverage limits, the lawyer could consider utilizing the firm’s pooled trust account for the excess or making deposits in a second (or third) trust account at a different financial institution.
- New trust accounts may be reported to IOLTA at any time. The 2009 IOLTA registration form is available online at http://www.ioltanj.org/lwr_comp.html.
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News for Grant Applicants:
The deadline for 2010 discretionary grant applications was Friday, August 21, 2009.
All applicants, successful and unsuccessful, were notified of the Board’s decision in November 2009. As soon as all awardees have formally accepted their grant awards, the final list will be posted on this website.
If you are interested in seeing our grant application, please click here. If you believe that your program meets our grant criteria and fits our policies, especially the very limited purposes described below please call our office in May 2010 to request an application for our 2011 program. Applications are usually available by June 1, and the tentative deadline is August 20, 2010.
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News for Attorneys and Law Firms:
2010 IOLTA REGISTRATIONS
Pursuant to R1:28A, participation in the IOLTA program is mandatory for any attorney engaged in the private practice of law. The Regulations of the IOLTA Fund of the Bar of New Jersey approved by the New Jersey Supreme Court require that IOLTA Accounts shall be registered annually with the IOLTA Fund.
The 2010 IOLTA Registration forms were mailed to law firms in December 2009 and are due not later than February 2, 2010.
The 2010 IOLTA Registration form may be executed on behalf of a multi-lawyer law firm with the signature of the managing partner or other authorized attorney representative. Click here to download the 2010 Registration form, instructions, and Participation form.
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News for Banks:
FDIC COVERAGE OF TRUST ACCOUNT DEPOSITS
FDIC coverage of attorney trust accounts is different than for ordinary bank accounts. To link to the FDIC’s brochure about insured deposits, click here: http://www.fdic.gov/deposit/deposits/insured/index.html
ACCOUNT OPENING PROCEDURES FOR A NEW TRUST ACCOUNT
All new attorney trust accounts should be opened as non-interest bearing checking accounts. Please instruct the attorney or law firm to call IOLTA to request registration forms. Together with the attorney we will determine if the account should be converted to interest-bearing for IOLTA. Until then, use the attorney’s Tax I.D. number (NOT the IOLTA number).
Attorneys do not need our permission or any paperwork to open an attorney trust account. You should allow use of the account in accordance with your usual policies. We will correspond with your Deposit Operations area if the lawyer indicates to us that the account should be an IOLTA.
The word “IOLTA” should not appear on checks or deposit slips. Do include the phrase: “Attorney Trust Account,” preferably on the second line. If the account is later converted to an “IOLTA,” the account title will be modified to include the word “IOLTA” but the checks and deposit slips can stay unchanged.
IMAGED CHECKS
If your bank is providing digital images, you should know that attorneys are required to comply with Rule 1:21-6(b) which mandates no more than two checks per page (front and back).
BANKS SEEKING TO BECOME AUTHORIZED DEPOSITORIES
The Supreme Court of New Jersey requires that attorneys maintain their trust accounts with institutions willing to cooperate with the IOLTA program, including reporting overdrafts to the Office of Attorney Ethics and meeting the Best Customer standard. Click here to read the Court’s Administrative Determination regarding this requirement for trust account depository institutions: http://www.ioltanj.org/objects/ADMINISTRATIVE DETERMINATION_SUPPLEMENTAL_Best Customer Standard20093.pdf
Call the Fund at 732-247-8222 for more information.
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