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IOLTA Basics
An IOLTA, or Interest on Lawyer’s Trust Account, is used to hold client funds separately from the funds of a law firm or individual lawyer. An IOLTA account is an interest-bearing checking account. The interest earned from all IOLTA accounts within a state is pooled together to assist low-income individuals to afford legal aid.
An IOLTA account is used in three main situations. First being when a lawyer receives funds from a client to perform legal services. Second being when a lawyer receives funds from a settlement that must be paid to a client. Third being when a lawyer receives funds or is otherwise holding property for clients that the lawyer has not yet earned or must return at a later date. A lawyer cannot hold their fund and the client’s funds in the same account, so IOLTA accounts are used to separate these funds and hold smaller amounts of money from clients for a short span of time.
An important note to make here is that if a lawyer intends to hold a large sum of money for a client, or intends to hold the funds for an extended period of time, the lawyer should NOT place those funds into an IOLTA account but should rather place the funds into an account to be held in trust for that particular client.
Using Excel for Simple IOLTA Management
If allowed by your state, you can use Excel to track the balance in an IOLTA account as well as create individual client ledgers that list all IOLTA transactions. This information can then be copied to a new workbook and modified as needed in order to comply with many state’s IOLTA reporting requirements.
If you are skilled in using Excel, you will no doubt be able to create the needed worksheets within a workbook that will allow you to track and then report on the IOLTA account for your state. However, we have also included a simple IOLTA management template that you can use to track IOLTA account funds within Excel, if you prefer. You can modify this template, as needed, in order to track your IOLTA account information for your state. In the next lesson, we will examine using the “Simple IOLTA Template” to track the accounting data required for IOLTA reporting.
Using the Simple IOLTA Template
Simple IOLTA templates can be found in the “Templates” folder within this product. This workbook allows you to record the basic accounting information needed for IOLTA management. The template initially contains four worksheets: the “Firm Journal” and three “Client Name Journals.” The basic structure shown within each worksheet is a basic checking register. Within these worksheets, you will record all IOLTA transactions into the appropriate ledgers as they occur.
Note that every transaction that occurs within the IOLTA account MUST be recorded into the “Firm Journal” worksheet. For each client’s transaction, the transaction should be recorded into the “Firm Journal” as well as the “Client Journal” for the selected client. Each client for whom you hold funds in the IOLTA account should have their own “Client Journal” worksheet.
You can change the names of the individual “Client Name Journal” worksheets by double-clicking on them in order to highlight their titles. You can then replace the worksheet labels named “Client Name 1,” Client Name 2,” and so on with the names of your clients. Within each “Client Name Journal,” you can then type the client’s name into cell A2. Then enter the client’s case file/matter number into cell B2. For each IOLTA transaction that involves that particular client, you then enter the transaction’s type and/or check number into the “Transaction Type/Check Number” column. You enter the date of the transaction into the “Date” column, and then enter a brief description of the transaction into the “Transaction Description” column. For deposits made into the IOLTA account, enter the amount under the “Debit (Cash In)” column. For amounts that are spent, enter the amount under the “Credit (Cash Out)” column. The “Account Balance” column is a formula cell that will simply shown the current account balance for the selected client. Do not edit the contents of this cell. In the future you can then enter the transactions for that selected client into the client’s journal worksheet.
After entering each transaction’s details on the “Client Name Journal” for the selected client, you should also enter the same information into the “Firm Journal” worksheet. This journal will record all transactions made for all clients within the firm. Start by entering the name of the law firm into cell A2, if needed. For each transaction, enter the name of the client (as shown in cell A2 of the selected client’s “Client Journal” worksheet) underneath the “Client Name” column. Note that you can simply copy and paste this name from the selected client’s “Client Journal” A2 name cell. You then re-enter the transaction data into the same “Transaction Type/Check Number,” “Date,” Transaction Description,” “Debit (Cash In),” and “Credit (Cash Out)” fields. You can also copy and paste these cells from the selected client’s “Client Journal” into the corresponding cells within the “Firm Journal” worksheet. The “Account Balance” cell is a formula cell that will show the total IOLTA balance for all of the firm’s clients. This is also a formula cell that you should not edit.
*Learn about these topics and more in our tutorial: Microsoft Excel for Lawyers
