IOLTA vs non-IOLTA: Where to hold client funds


by Alecia Chandler   |   Michigan Bar Journal


Being a lawyer is not merely a vocation. It is a public trust, and each of us has an obligation to give back to our communities.

— Former U.S. Attorney General Janet Reno1

Lawyers play a variety of roles — advisor, negotiator, litigator, lobbyist — but one of the most important is that of a fiduciary. Lawyers are fiduciaries to our clients, creating a duty of “good faith, trust, [and] confidence”2 through our representation. Additionally, when handling funds, a fiduciary must exercise a “high standard of care in managing another’s money.”3

This includes, but is not limited to, attorney fees and costs paid in advance and settlement proceeds. The Michigan Rules of Professional Conduct (MRPC) expand the typical fiduciary role by requiring lawyers to maintain funds and property belonging to clients or third parties separate from their own in either an Interest on Lawyer Trust Account (IOLTA) or non-IOLTA.4 Prior to acceptance of and at reasonable intervals after receipt of funds to be held, the lawyer shall review the IOLTA to determine if changes have occurred that require the funds to be deposited into a non-IOLTA.5

Before determining which account the monies or property should be deposited in, it is important to know the difference between the two accounts. IOLTAs refer to pooled interest- or dividend-bearing accounts at eligible institutions that cannot earn income for the client or third person in excess of the costs incurred to secure such income. A non-IOLTA refers to interest- or dividend-bearing accounts in banks, savings and loan associations, and credit unions that contain larger or longer-term funds that can net income for the client.

To make this determination, lawyers must first do the dreaded math calculations. I say “dreaded” because many of us went to law school because math was not our forte but, nonetheless, we must do it to make reasonable determinations as a fiduciary. When completing the calculations, the interest rate obviously comes into play.

Interest rate returns on financial accounts have increased significantly, and that leaves lawyers who regularly handle large-dollar settlements to ask if retaining those funds in an IOLTA is appropriate. As lawyers, we have both an ethical and a fiduciary duty6 when funds are held on behalf of a client or third party. Therefore, it is essential to be aware of the interest rate returns and how it affects a client’s funds.

Under MRPC 1.15(d), lawyers must hold client and third-party funds in an IOLTA or non-IOLTA. MRPC 1.15(e) provides the factors to be considered when determining which account should be used to maintain the funds. Specifically, it requires consideration of the following:

  • The amount of interest or dividends the funds would earn while considering the amount of the funds to be deposited, the expected duration, and the rates of interest or yield at the financial institution;
  • Costs of establishing the account including financial institution charges, service fees, attorney fees involved in setting up the account, preparation of tax documents, and any other costs;
  • Capability of the financial institution or firm to calculate appropriate interest; and
  • Other relevant factors.

To make this determination, we must return to the dreaded math problem. Here is a sample calculation to assess which account the settlement funds should be deposited in:

$3 Million Settlement

(Principal Amount x Interest Rate) / Number of time periods $3,000,000 x .045 (4.5%) = $135,000 (annual interest) $135,000 / 12 months = $11,250 per month interest

$50,000 Settlement

(Principal Amount x Interest Rate) / Number of time periods $50,000 x .045 (4.5%) = $2,250 (annual interest) $2,250 / 12 months = $187.50 per month interest

As you can see from the calculations, if a lawyer is holding a large settlement for even a short period of time, the funds may earn substantial interest. Therefore, the lawyer must evaluate whether a non-IOLTA would be more advantageous for their client.7 In the $3 million settlement calculation example above, even if the lawyer is only holding the funds for two weeks while the payment clears the bank, a non-IOLTA would be appropriate as the client would receive around $6,000 in interest.

This is particularly important for firms that hold settlement funds while negotiating liens associated with representation. For example, personal injury lawyers may receive a $3 million settlement, but must negotiate the associated medical liens.8 The lawyer must remit the undisputed portion to the client when the payment clears and remove the calculable, undisputed portion of their attorney fees, but hold the remainder until the medical liens are resolved. By placing settlement funds in a non-IOLTA, the additional interest may help the client receive more money than if they were placed in an IOLTA where interest is not earned.

It is worth reminding lawyers that non-IOLTAs must be held at an approved financial institution9 authorized to do business in Michigan and insured by the federal government or “an open-ended investment company registered with the Securities and Exchange Commission.”10 Also, the funds must be available to be withdrawn

upon request; investment vehicles like certificates of deposit, which may only be withdrawn on a term basis, cannot be used. However, many mutual funds now make funds available for withdrawal within 24 hours. Before using mutual funds, it is absolutely critical that lawyers determine whether the funds are available upon request.

Non-IOLTAs may be an account established on a per-client basis or a pooled account. However, pooled accounts must ensure that the client funds are accounted for, and interest is calculated per client. Lawyers may not receive any interest or dividends from IOLTA or non-IOLTAs.11

IOLTAs are a useful and necessary tool to keep client funds and property separate from a law firm’s operating expenses while benefiting the community. However, non-IOLTAs are a similarly useful and necessary tool to not only keep client funds and property separate but also to benefit the client, which is the lawyer’s first and most paramount duty.

For more information, visit the Trust Accounts page on the State Bar of Michigan website at


“Ethical Perspective” is a regular column providing the drafter’s opinion regarding the application of the Michigan Rules of Professional Conduct. It is not legal advice. To contribute an article, please contact SBM Ethics at


1. U.S. Department of Justice, Remarks of Attorney General Janet Reno Access to Justice Forum: Ensuring the American Ideal, speeches/1996/03-19-1996c.pdf (all websites accessed October 16, 2023).

2. Black’s Law Dictionary (7th ed).

3. Id.

4. MRPC 1.15(d).

5. MRPC 1.15(j).

6. MRPC 1.15 Comment.

7. It should be noted that MRPC 1.15(j) provides that a good faith decision to hold funds in an IOLTA is not reviewable by disciplinary authorities. However, the decision must be made in good faith. Moreover, the Michigan Rules of Professional Conduct do not have any impact on civil claims for breach of fiduciary duty.

8. Ethics Opinion RI-373. This and other ethics opinions can be found at Ethics Opinion Search, SBM [].

9. State Bar of Michigan, Approved Financial Institutions, https://www.michbar. org/file/opinions/taon_list.pdf.

10. MRPC 1.15(a)(2).

11. MRPC 1.15(h).