FDIC Insurance for IOLTA Accounts

IOLTA accounts have more FDIC insurance protection than typical bank accounts because they have “pass-through” coverage as a fiduciary account which means that their FDIC insurance coverage is not limited to the $250,000 that would normally apply to the law firm as an account holder of a deposit account. Instead, the FDIC insurance limit applies to each client or third party that has funds held inside the IOLTA account waiting to be disbursed.

If a bank fails and FDIC insurance limits are enforced, separate coverage applies for each bank customer’s combined balances in their deposit accounts at the failed bank in each of the “ownership” categories in which the customer is holding deposit accounts (such as $250,000 for individual accounts, $500,000 for joint accounts, etc.). However, as mentioned above, the FDIC considers IOLTA accounts to be pass-through fiduciary accounts for FDIC insurance purposes which means that in the event of a bank failure, the FDIC would request records maintained in the ordinary course of business by the bank customer (the law firm using the IOLTA account) to see which clients or third parties are entitled to deposit insurance. It is important to remember that under Rule 1.15 of the Pennsylvania Rules of Professional Conduct, it is the responsibility of the lawyer to identify IOLTA accounts as IOLTA accounts, and also the responsibility of the lawyer to maintain complete records regarding the funds, including ownership thereof.

Guidance:

FDIC Insurance & IOLTA Accounts – When is it Enough Protection

Additional information regarding the Federal Deposit Insurance Corporation and deposit insurance can be found at www.fdic.gov.

FDIC Insurance for IOLTA Accounts

Guidance:

MAILING ADDRESS

PHYSICAL ADDRESS