For immediate release: Nov. 16, 2005
For further information contact: Winnie Comfort or Tammy Kendig
Supreme Court Sets Standard for IOLTA Returns
Funds Benefit Legal Service Groups
The New Jersey Supreme Court has approved a new standard to evaluate the reasonableness of the yield on lawyer trust accounts, commonly referred to as IOLTA accounts, today announced Judge Philip S. Carchman, acting administrative director of the courts. Financial institutions have until January 31, 2006, to meet the new standard.
In accordance with the New Jersey Rules of Court, lawyers must place client funds in accounts separate from their own business accounts. Clients with substantial funds in trust receive all income earned from those accounts. Client funds that are insufficient to earn interest are pooled. Together, these funds are substantial enough to earn income from the bank where they are deposited. This income is directed to the IOLTA program.
In New Jersey, the income earned by IOLTA accounts is used to provide funding for Legal Services of New Jersey, which delivers civil legal aid to low-income people; the New Jersey State Bar Foundation, which sponsors law-related education programs; and discretionary grants awarded by IOLTA trustees to organizations providing legal assistance and information. Under the new "best customer" standard, banks must provide for IOLTA accounts the highest yield available among certain accounts as provided to their best customers with similarly-sized accounts. Alternatively, banks may offer either 1) 60 percent of the Federal Funds Target Rate paid on an interest-bearing checking account, or 2) a yield specified by IOLTA and agreed to by the financial institution. Attorneys must deposit their trust monies with banks that choose to meet these IOLTA requirements as approved by the Court.
The "best customer" standard ensures that the return to IOLTA on trust account balances will be both "reasonable" and "comparable" to the rates paid to other depositors with similar accounts at the particular financial institution. The new standard was developed by a working group whose members were appointed by Chief Justice Deborah T. Poritz in July 2005. The working group includes representatives from IOLTA, the Legislature, the New Jersey Department of Banking and Insurance, and the banking industry.