Most attorneys are familiar with IOLTA or Interest on Lawyers Trust Accounts. The purpose of the account is to house client payments and settlements until it’s ok to move the funds into your operating account or remit funds to your client.
Funds in the trust account may earn interest depending on the amount of the funds and the length of time they’re held in the trust account. Interest payments are pooled and used for the state’s IOLTA program to provide legal assistance to the poor, provide financial assistance to law students, and other programs approved by the state’s Supreme Court. All states have an IOLTA program, but participation is voluntary in some states and mandatory in others.
It’s more beneficial – and in some cases necessary – to have a dedicated merchant account for each IOLTA.
No Commingling of Funds
Setting up multiple merchants accounts, eliminates the need for commingling funds. Not only can commingling get confusing – you have to continually track which funds belong to clients and which funds do not – it’s also against most IOLTA rules. Getting caught commingling funds in an IOLTA can lead to disbarment.
Multiple merchant accounts makes accounting easier. The IOLTA rules typically require that you keep a ledger for each client where you account for credits and debits for that client. With payments going into each IOLTA and operating expenses coming out of a different account, you don’t have to pour over transactions reconciling your books. Having another merchant account will eliminate additional accounting and free up time for you to spend on other activities.
Legal and Ethical Compliance
There are state laws and ethics to follow with IOLTA’s. Mishandling the trust account can have serious consequences including disbarment. Attorneys can’t borrow from the IOLTA or remove funds before they’ve been earned and are required to remove funds from the account once they have been earned. Office expenses and overhead should not be paid from the trust account, but can be paid from an entirely separate operating account.
A benefit of working with HealPay for payment settlements: we do the necessary accounting for you. Once a consumer logs in to pay, SettlementApp and HealPay IVR smartly routes their payment to the correct IOLTA with no intervention on your part.
To prevent processing fees from being deducted from an IOLTA, we allow and encourage you to designate a separate account for fees and even an additional account for chargebacks. Not only do we help you remain effortlessly in compliance with IOLTA rules, HealPay also eliminates additional bookkeeping and helps keep your accounts simple and organized!
– HealPay, LaToya Irby and Erick Bzovi