Frequently Asked Questions

FAQs for Attorneys

How can I get answers to questions about my trust account(s)?
The North Carolina State Bar’s Trust Account Handbook explains all trust account practices and policies.

If you cannot find the answer you need using the Trust Account Handbook, staff at the NC State Bar may be able to assist with your question.

Questions about trust accounts generally fall into one of the following categories:

For questions regarding your ethical obligations pursuant to Rule of Professional Conduct 1.15, including client records, disbursement guidelines, client communication, required reports and reconciliations, and other trust account practices, contact the Ethics Department at .

To report misapplication of entrusted funds, fraud or theft, contact Trust Account Compliance Counsel at .

For questions, explanations or concerns regarding an NSF (nonsufficient funds) notification, contact Joe Commisso at or Julie Ferrer at .

For questions regarding IOLTA compliance, such as how to establish or close an IOLTA account or certify compliance, contact NC IOLTA at 919-828-0477 or .
How do I comply with the NC State Bar rules regarding NC IOLTA?

All active members of the North Carolina State Bar who maintain general client trust accounts in North Carolina must ensure that all their general client trust accounts are established as interest-bearing IOLTA accounts.

Each active member of the State Bar must certify annually that (1) all of the lawyer’s and/or firm’s general client trust accounts for North Carolina client funds are established as NC IOLTA Accounts or (2) neither the lawyer nor their employer maintains any general trust accounts holding North Carolina client funds. Certification is made electronically at the time dues are paid through the North Carolina State Bar Member Portal.

Lawyers must be in compliance with this requirement no later than June 30 of each calendar year. A lawyer who fails to comply with all administrative requirements of the NC IOLTA Rules — including the annual certification — shall be reported to the NC State Bar’s Administrative Committee, which may initiate proceedings to administratively suspend the lawyer’s active membership status and eligibility to practice law.
How do I notify IOLTA about new or closed accounts?

Lawyers must inform NC IOLTA when opening or closing IOLTA accounts. Notification can be made electronically through the North Carolina State Bar Member Portal or by submitting the NC IOLTA Information Update Form. Changes in employment or contact information should also be reported.
Where can I hold an IOLTA account?

As of July 1, 2010, lawyers may hold IOLTA accounts only at eligible banks — those that agree to pay IOLTA accounts the highest rate available to that bank’s other customers when the IOLTA accounts meet the same minimum balance or other account qualifications. NC IOLTA maintains a list of eligible banks. Many of these banks waive certain service charges which could otherwise be assessed against the interest earned, increasing the impact of the IOLTA accounts.

Our Prime Partner banks have agreed to go above and beyond these requirements, paying a net yield of 75% of the Federal Funds target rate or 0.75%, whichever is higher. These banks are specially recognized on the Eligible Bank List.

If you would like to have more information about IOLTA policies or accounts at a particular bank, please contact the NC IOLTA office.
What if I want to open my general trust account at a bank that does not currently hold IOLTA accounts?
What forms are required to open an IOLTA account?

Rule 1.15-2(l) requires lawyers to file a bank directive with the financial institution for every trust account, whether it is a general trust account, designated trust account or fiduciary trust account.

No other forms are required by NC IOLTA to open the account as an IOLTA account. However, lawyers should notify IOLTA once the account has been opened by either submitting an update through the North Carolina State Bar Member Portal or by submitting the NC IOLTA Information Update Form.
IOLTA Certification Document

Under NC IOLTA rules (Rule .1319), every lawyer must certify his/her IOLTA status to the NC State Bar by June 30 of each year. Failure to certify may result in suspension of the law license. Certification should be made when paying State Bar dues. If certification was not made when paying dues, this certification form may be used to certify: IOLTA Certification Document.
How should my general trust account be labeled?

A trust account must be clearly labeled as a trust account, and the name of the account should clearly identify the lawyer/firm — not NC IOLTA — as the fiduciary agent for the account. Lawyers/firms may use identifying names on their accounts (Real Estate Trust Account, General Trust Account, IOLTA Trust Account, etc.).
Which of my law practice accounts must be established and maintained as IOLTA accounts?

All general client trust accounts must be established and maintained as interest-bearing IOLTA accounts, interest from which is remitted to NC IOLTA at the NC State Bar. General client trust accounts are those accounts that hold nominal and short-term deposits of client funds. Lawyers retain discretion to determine whether a trust deposit is of sufficient size or duration to justify placement in a separate (dedicated) interest-bearing account for the benefit of single client or transaction.

IOLTA accounts are subject to all trust account requirements established by the NC State Bar Rules of Professional Conduct. For additional information about trust account requirements, see Trust Accounting Questions and Answers and Rules 1.15 thru 1.15-3 of the Rules of Professional Conduct.

You may also visit the State Bar’s website and download the Trust Account Handbook.
Does maintaining IOLTA accounts deprive clients of any funds to which they are entitled?

No. Trust moneys of the type placed in IOLTA accounts (nominal in amount or expected to be held for a short duration) have traditionally been deposited in lawyers’ pooled trust accounts. Prior to the IOLTA program, such accounts did not earn interest. The NC State Bar now requires general trust accounts to earn interest, which is remitted to NC IOLTA for funding law-related charitable purposes.

Of course, lawyers still retain discretion to determine whether a trust deposit is of sufficient size or duration of holding to justify placement in a separate (dedicated) interest-bearing account for the benefit of the client or a single transaction.

Should funds be placed into a general client trust account in error, NC IOLTA has policies and procedures through which the amount of interest erroneously remitted is refunded.
Are there tax consequences to maintaining IOLTA accounts?

According to the Internal Revenue Service, maintaining IOLTA accounts imposes no tax consequences to the client or the lawyer. See Revenue Ruling 81-209. Each IOLTA account bears the tax identification number of the NC IOLTA Board of Trustees to ensure that all accumulated interest is reported as income of the IOLTA program. NC IOLTA’s tax ID number and related name, “Board of TTEES of The N Carolina St Bar Pl For Int On Lawyers Tr Acct,” are for purposes of interest reporting only and should not appear on the checks or deposits slips. If your bank needs IOLTA’s tax ID number or other assistance, please contact the NC IOLTA office.
How are clients informed about NC IOLTA?
Can a lawyer hold North Carolina client funds in an out-of-state account?

Under the Rules of Professional Conduct, North Carolina lawyers must maintain all general trust accounts holding North Carolina client funds at a bank in North Carolina or a bank with branch offices in North Carolina. As Comment [4] to Rule 1.15 notes, a law firm with offices in another state may send a North Carolina client’s funds to a firm office in another state for centralized processing; however, the client funds are still subject to the requirements of the NC Rules of Professional Conduct. Therefore, the North Carolina client’s funds should be placed into a general trust account established in North Carolina, the interest from which will be remitted to NC IOLTA.
How are bank service charges on IOLTA accounts handled?

NC IOLTA pays routine service charges on IOLTA accounts. Some banks waive service charges on IOLTA accounts. It is permissible for banks that do not waive service charges on IOLTA accounts to deduct from interest or utilize earnings credit for routine service charges associated with the account. Routine service charges include monthly account maintenance charges, per-item check or deposit charges, etc.

Business costs or costs billable to others are the responsibility of the law firm and should not be charged against client funds in the IOLTA account or against the interest or the earnings credit of an IOLTA account. These charges may be deducted from the firm’s operating account, billed to the firm or deducted from funds maintained or deposited by the lawyer in the IOLTA account for that purpose. Examples of such costs include but are not limited to check printing, NSF/OD fees, stop-payment orders, wire transfer fees, account reconciliation, remote-capture capability, online banking, digital imaging, CD Rom statements or interest charged on uncollected balances (float).
How are IOLTA funds used?
The NC State Bar and the NC Supreme Court allow IOLTA funds to be used, after administrative expenses, to fund grants under the following four categories:

Providing civil legal aid to indigent residents;

Enhancement and improvement of grievance and disciplinary procedures for lawyers;

Development and maintenance of a fund for student loans for legal education on the basis of need; and

Such other programs designed to improve the administration of justice as may be proposed by the NC IOLTA Board of Trustees and approved by the NC Supreme Court.

IOLTA funds are not used for the Client Security Fund, which reimburses clients who have suffered financial loss as the result of dishonest conduct of lawyers engaged in the private practice of law in North Carolina.

IOLTA administrative costs are paid from program income and since its inception have represented less than 10% of income.
Who makes the IOLTA grant decisions?

Grant decisions are made annually by the NC IOLTA Board of Trustees, which administers the program according to the rules promulgated by the NC State Bar Council and approved by the NC Supreme Court. 27 NCAC 1D .1301-21 The board is a standing committee of the NC State Bar Council, the representative governing body of the State Bar, whose members are elected by the bar membership through the judicial districts. NC IOLTA trustees are appointed by the NC State Bar Council. NC IOLTA grants are for the calendar year, and all grant applications are reviewed annually by all the trustees.

A current list of members of the IOLTA Board of Trustees, along with a list of past board members, can be found here.
Where can I find rules governing NC IOLTA?

See 27 NCAC 1D, Sections .1301-.1321 of the NC State Bar’s Administrative Rules and Rule 1.15 of the NC State Bar’s Rules of Professional Conduct.

For more information about NC IOLTA, please contact our office.

NC IOLTA
217 E. Edenton Street
Raleigh, North Carolina 27601

PO Box 25996
Raleigh, North Carolina 27611-5996

(919) 828-0477
(919) 821-9168 Fax

Colleen Bishop, Administrative Assistant
Mary Irvine, Executive Director
Daniel Labarca, Program Manager
Claire Mills, Finance Director & Operations Manager

FAQs on Comparability

On Jan. 28, 2010, the NC Supreme Court approved revisions to the NC IOLTA Rules that require lawyers to hold their IOLTA accounts only at “eligible” banks that have agreed to pay comparable rates on those accounts (comparability requirement). The revised rule became effective on July 1, 2010.

What is comparability?

The comparability requirement in the IOLTA rules requires lawyers to hold their IOLTA accounts only at banks that agree to pay IOLTA accounts the highest rate available to that bank’s other customers when the IOLTA accounts meet the same minimum balance or other account qualifications.
How can attorneys determine that their bank is in compliance and is an eligible bank?

Banks are approved by NC IOLTA upon a finding that they are in compliance with the rule based on the documentation and ongoing reporting submitted. Effective July 1, 2010, lawyers must maintain NC IOLTA accounts only at eligible banks. NC IOLTA maintains a list of eligible banks, which is updated periodically. If a bank currently on the Eligible Bank List is no longer in compliance, NC IOLTA will work with the bank to notify attorneys and firms that the bank is no longer eligible.
Does the comparability requirement regulate banks?

No. The rule regulates the behavior of attorneys. The decision to offer attorney trust accounts or participate in IOLTA has always been and remains voluntary for banks. Setting such a requirement by rules governing attorneys is similar to other NC State Bar requirements for banks that want to hold attorney trust accounts, such as requiring NSF notification and reporting or record-retention requirements.
Does comparability set interest rates or require comparing rates between banks?

No. Comparability does not set rates or compare rates between or among banks. Rates are set by each bank for its customers based on the factors a bank normally considers when setting rates. Comparability only requires that participating banks pay interest rates comparable to what it already pays its similarly situated non-IOLTA customers — and IOLTA will pay any resulting fees attached to the higher-rate products.
How was comparability implemented with banks?

NC IOLTA worked with banks to provide technical assistance for implementation and compliance, and every participating bank with NC IOLTA accounts at the time of the rule change was certified as an eligible bank. Since comparability was implemented, several new banks have been certified and now offer NC IOLTA accounts.

Further, a number of banks have become Prime Partners, agreeing to go above and beyond the eligibility requirements to support the NC IOLTA program in its mission to ensure that low-income North Carolinians have access to critically needed legal aid.
Why make comparability a requirement? Why not negotiate rates?

Over the years, the staff and trustees of NC IOLTA worked to improve interest rates on IOLTA accounts in a seemingly never-ending cycle. Though some success was achieved with some banks, prior to the comparability rule the IOLTA rates never reached the higher levels paid on other high-balance accounts, and the negotiated rates on IOLTA accounts were slow to increase following periods of downturn.
What process was followed in NC to move to a comparability requirement?

Interest in implementing the concept was expressed by the NC Equal Access to Justice Commission and leadership of both the NC Bar Association and the NC State Bar. NCSB President John McMillan made exploring the concept a goal of his administration in 2008.

NC IOLTA trustees thus engaged a consultant to produce an analysis of our program to determine whether income would increase significantly under a comparability requirement. The consultant’s report found that some income increase could be expected even in times of economic downturn such as the Great Recession, but significant increases could be projected using low-, medium- or high-interest rate scenarios as applied to NC IOLTA data. Therefore, the consultant’s recommendation was that North Carolina should begin the process of changing to a comparability requirement, which could significantly increase the funds available for the support of the bar’s responsibility of ensuring equal access to justice.

The consultant’s report was presented to the NC IOLTA trustees and the NC State Bar Issues Committee during the April 2009 State Bar meeting. NC IOLTA staff and leadership worked with State Bar leadership and staff to draft an IOLTA rule revision that would include comparability requirements using resources available at the ABA that review and collect IOLTA rules and can comment on best practices. They also began a dialogue with the NC Bankers Association and started educating the bar about the concept.

The revisions to the NC IOLTA Rules that would require comparability were approved by the NC State Bar Council at its quarterly meeting in January 2010 and by the NC Supreme Court on Jan. 28, 2010. The revised rule has an effective date of July 1, 2010.

FAQs for Settlement Agents

An amendment to the Good Funds Settlement Act (N.C. Gen. Stat. § 45A-9) requires that interest-bearing accounts of settlement agents handling closing and loan funds be set up as IOLTA accounts. This requirement took effect on Jan. 1, 2012.

Who are the affected settlement agents?
Is it mandatory for settlement agents to establish or maintain an IOLTA account?

The statute requires that interest-bearing trust or escrow accounts holding funds related to North Carolina transactions be set up as NC IOLTA accounts remitting interest to the IOLTA program at the NC State Bar. It does not require that agents set up or maintain an interest-bearing account.
May a settlement agent’s IOLTA account be maintained at an out of state bank?

The State Bar has said that banks that do not have a brick-and-mortar branch in North Carolina may hold settlement agent accounts, in contrast to the lawyers’ professional responsibility rule that requires an in-state branch. Any banks not currently on our Eligible Banks list will need to communicate with NC IOLTA so we can ensure they are otherwise in compliance with NC IOLTA policies.
Must the NC State Bar’s bank directive be on file for a settlement agent’s NC IOLTA account?
How should settlement agents — including nonlawyers — notify NC IOLTA of the opening or closing of IOLTA accounts?