|
[Main Tabs]
[Table of Contents - 4000]
[Index]
[Previous Page]
[Next Page]
[Search]
4000 - Advisory Opinions
Interest on lawyer trust accounts
FDIC--98--2
June 16, 1998
Gladys C. Gallagher, Counsel
This is in response to your letter requesting that we reaffirm our
previous opinions issued with respect to the IOLTA programs in other
states, and FDIC Opinion Letter No.
92--30 concerning deposit insurance coverage of such accounts.
The IOLTA programs have been established under State law and require
attorneys who hold customer funds on deposit to place the funds in
interest-bearing accounts. The interest on the funds is paid to an
entity (generally the State bar association) that is exempt from tax
pursuant to section 501(c)(3) of the Internal Revenue Code; the
interest so paid is used for certain charitable purposes specified by
State law.
The FDIC staff has said on several occasions that funds held in
interest-bearing accounts pursuant to IOLTA programs (IOLTA deposits)
may be held in NOW accounts in insured nonmember banks. I understand
you have copies of these letters. My understanding is that an IOLTA
deposit may be held in a NOW account if, under State law as formally
interpreted by the State Attorney General, the interest on the IOLTA
deposit must be paid to an entity that qualifies as a nonprofit
organization under 501(c)(3) of the Internal Revenue Code.
You have enclosed copies of the Indiana Foundation's Articles of
Incorporation and Internal Revenue Service exempt organization
determination letter. You also enclosed an opinion issued by the
Attorney General of the State of Indiana that concludes that the
Foundation would hold the entire beneficial interest in the earnings of
the IOLTA Accounts.
In my view, based on the information you have provided, funds held
by lawyers under the Indiana IOLTA program would be eligible to be
maintained in NOW or similar type accounts.
Deposit Insurance Coverage of IOLTAs
You also wish to ascertain that deposit insurance coverage is
available for IOLTA accounts.
Section 330.4 of the FDIC's regulations require that the deposit
account records of an insured depository institution expressly
disclose, by way of specific references, the existence of any fiduciary
relationship including, but not limited to, relationships involving a
trustee, agent, nominee, guardian, executor or custodian, pursuant to
which funds in an account are deposited and on which a claim for
insurance coverage is based. These records must also disclose the
existence of a relationship which might provide a basis for additional
insurance, and the details of the relationship and the interests of
other parties in the account must be ascertainable either from the
account records of the records of the insured depository institution or
from records maintained, in good faith and in the regular course of
business, by the depositor or by some person or entity that has
undertaken to maintain such records for the depositor. See 12 C.F.R.
sections 330.4(b)(1) and 330.4(b)(2).
An IOLTA account must therefore disclose that the funds in the
account are held by the nominal account holder (the lawyer) on behalf
of others. If this disclosure requirement is
{{12-31-98 p.4984.31}}met, the FDIC then will be able
to ascertain the interests of other parties in the IOLTA account from
the records of the insured depository institution or from the records
of the lawyer (or someone hired by the lawyer to perform this task). If
this record keeping requirement is satisfied, funds attributable to
each client will be insured to the client in whatever right and
capacity that client owns the funds. For example, if an IOLTA account
contains funds that belong to an individual, those funds will be
insured up to $100,000 as individual funds. These funds will be
aggregated and insured to the statutory limit with any other funds
which the client may hold individually at the same insured depository
institution. The accrued interest which is attributable to the
tax-exempt entity will also be recognized as a separately insured
interest if the disclosure and record keeping requirements are met.
Please feel free to call me at (202) 898-3833 if you have any
further questions.
[Main Tabs]
[Table of Contents - 4000]
[Index]
[Previous Page]
[Next Page]
[Search]
|
