Lawyers, law firms, and financial institutions need to understand how Federal Deposit Insurance Corporation (FDIC) insurance applies to IOLTA accounts — especially in light of recent bank failures.

The FDIC classifies IOLTA accounts as a form of “fiduciary account.”

Such an account must meet certain conditions for client funds within an IOLTA to be protected, FDIC guidance explains: (1) “The fiduciary nature of the account must be disclosed in the bank’s deposit account records” and (2) "the name and ownership interest of each owner must be ascertainable from the deposit account records of the insured bank or from records maintained by the agent [i.e., law firm]….”

If the account meets those criteria, FDIC includes each individual client’s funds within the IOLTA as part of that client’s total deposits at the financial institution where the IOLTA is held. FDIC’s maximum insured amount of $250,000 per person applies to this total. This means that if a client holds personal funds in other accounts at the same bank where their lawyer holds their IOLTA, it can affect the extent to which the funds held in trust by the lawyer are insured by FDIC. The FDIC guidance includes an example on page 24.

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