Lawyer Trust Accounts and FDIC Insurance: What You Need to Know

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If you are a lawyer, you are required to maintain a trust account to hold funds that belong to your clients. This account is also referred to as an IOLTA account (Interest on Lawyers’ Trust Accounts) or a client trust account. One question that often comes up is whether these accounts are FDIC insured. In this blog, we will explore the topic of lawyer trust accounts and FDIC insurance to help you understand what you need to know.

What is a Lawyer Trust Account?

A lawyer trust account is a bank account that holds funds that belong to clients or third parties. These funds can include money that is held in trust for a specific purpose, such as a retainer for legal services or funds that are being held pending the resolution of a legal matter. Lawyers are required to maintain a trust account to ensure that these funds are kept separate from their own personal funds.

Why are Lawyer Trust Accounts Important?

Lawyer trust accounts are important because they help to protect clients’ funds. By keeping these funds separate from their own personal funds, lawyers can ensure that they do not use the money for their own purposes. Additionally, lawyer trust accounts help to maintain the integrity of the legal profession by promoting transparency and ethical behavior.

Are Lawyer Trust Accounts FDIC Insured?

Lawyer trust accounts are FDIC insured, but only up to a certain amount. The Federal Deposit Insurance Corporation (FDIC) provides insurance coverage for deposits in banks and savings associations up to $250,000 per depositor, per insured bank, for each account ownership category. This means that if you have multiple lawyer trust accounts in the same bank, the FDIC insurance coverage applies to each account separately, up to the maximum amount.

However, it’s important to note that not all funds in a lawyer trust account are necessarily covered by FDIC insurance. For example, if the account contains funds that are not the property of a client or third party, such as funds that belong to the lawyer’s law firm, those funds may not be covered by FDIC insurance. Additionally, if the lawyer has commingled client funds in the account, it may be difficult to determine which funds are covered by FDIC insurance.

Lawyer trust accounts are an important tool for protecting clients’ funds and promoting ethical behavior in the legal profession. It’s important to understand the FDIC insurance coverage that applies to these accounts to ensure that you are properly protecting your client’s funds. By maintaining proper accounting records and ensuring that client funds are kept separate from personal funds, lawyers can help to maintain the trust and confidence of their clients.’

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