Background on IOLTA

IOLTA (Interest on Lawyers' Trust Accounts) funding provides a large source of revenue for the provision of civil legal services in the United States. These funds are generated from deposits in lawyer trust accounts of such small size or short duration that insufficient interest is generated to accrue to the client possessing the funds. The deposits are pooled into IOLTA accounts and the interested generated is dedicated to justice-related activities. Without taxing the public, and at no cost to lawyers or their clients, interest from lawyer trust accounts is pooled to provide civil legal aid to the poor and support improvements to the justice system.

IOLTA programs exist in every state. In 2003, over $133.8 million was provided by these programs to support civil legal aid and other public interest activities. The amount of IOLTA income varies from year to year, depending on interest rates paid on the accounts.

IOLTA funders receive technical assistance and support through the National Association of IOLTA Programs (NAIP). The American Bar Association supports both the ABA's IOLTA Commission and NAIP on IOLTA-related issues (For more information see the ABA Commission on IOLTA.)

Litigation in Opposition

Opponents of IOLTA-funded civil legal services brought several legal challenges attacking the constitutionality of IOLTA. The essential claim of the litigation was that the program violates the Fifth Amendment in that it amounts to a taking of property of the client without just compensation. IOLTA proponents strongly argued that, by definition, interest generated on IOLTA deposits cannot exceed the administrative costs associated with maintaining a separate account in a financial institution. If the interest does exceed these costs, the attorney is duty bound to invest those funds in accounts that accrue to the benefit of the client.

The Constitutional challenges to IOLTA in the federal courts ended in the wake of the U.S. Supreme Court's decision in Brown v Legal Foundation of Washington (pdf, 492 Kb) , 538 U.S. 216 (2003), which found that Washington State's IOLTA program did not violate the Fifth Amendment. The long-standing cases against the Texas and Washington State IOLTA programs were dismissed in late 2003 and early 2004.

In October 2004 the Supreme Court declined to hear a case involving a Fifth Amendment claim brought in Missouri state court against that state's IOLTA program. That decision left standing a March 2004 appellate court decision to dismiss the claim against the IOLTA program.

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