FDIC Insurance Coverage for IOLTA Accounts
On December 31, 2012, the Dodd-Frank Deposit Insurance Provision, which extended temporary unlimited deposit insurance coverage to IOLTAs (the generic name for COLTAF accounts) and noninterest-bearing transaction accounts, expired. As of January 1, 2013, noninterest-bearing accounts will be added to any of a depositor’s other accounts, and the aggregate balance insured up to at least the Standard Maximum Deposit Insurance Amount, permanently increased by the Dodd-Frank Act to $250,000 per depositor, at each separately-chartered insured depository institution. Because IOLTAs are fiduciary accounts, they generally qualify for pass-through coverage on a per-client basis, provided the account is properly designated as a trust account and proper accounting of each client’s funds is maintained.
If a COLTAF account does qualify for pass-through coverage as a fiduciary account, then each separate client for whom a law firm holds funds in a COLTAF account may be insured up to $250,000 for his or her funds.
For example, if a law firm maintains a COLTAF account with $250,000 attributable to Client A, $150,000 to Client B, and $75,000 to Client C, the account would be fully insured if it meets the requirements for pass-through coverage. If the clients have other funds at the same insured depository institution, those funds would be added to their respective shares of the funds in the COLTAF account for insurance coverage purposes.
If you have questions about the December 31, 2012 expiration of the unlimited deposit insurance coverage for IOLTAs and/or noninterest-bearing transaction accounts, or about FDIC coverage limits and requirements in general, please visit http://www.fdic.gov/deposit/deposits/unlimited/expiration.html or call the FDIC toll-free at 1-877-275-3342 and ask for a Deposit Insurance Specialist.
The Colorado Lawyer Trust Account Foundation (COLTAF) administers Colorado’s Interest on Lawyer Trust Accounts (IOLTA) program. This program is an innovative partnership between the legal community and the banking community, whereby the interest on lawyers’ pooled trust accounts is used to make grants to improve access to civil justice statewide. IOLTA programs operate in all fifty states and in the District of Columbia, and are an increasingly critical piece of the funding picture for civil legal services for the poor.
COLTAF was established in 1982 by the Colorado Supreme Court, in response to severe cuts in federal funding for legal services. From 1982 through 2010, COLTAF has made grants in excess of 30.7 million dollars. Approximately 80% of these funds have gone to Colorado’s federally-funded legal services programs. The other 20% have gone to bar-sponsored pro-bono programs, domestic violence programs, and other justice-related organizations.
COLTAF’s only source of revenue is the interest earned on COLTAF accounts at banks across the state. Therefore COLTAF’s ability to provide resources for a vital community purpose is entirely dependent on banks waiving fees on COLTAF accounts and paying strong COLTAF interest rates. Lawyers can support COLTAF by maintaining their COLTAF accounts at one of COLTAF’s Prime Partners.