FAQ for Financial Institutions

Attorneys routinely receive funds to be placed in trust for future use. The IOLTA Program allows attorneys to invest small or short-term deposits to generate money through the use of an interest-bearing trust account. This interest is remitted to the Nebraska Lawyers Trust Account Foundation (NLTAF) for distribution to Legal Aid of Nebraska.

Attorneys will need specific information from banks to complete their trust account certification page on the Nebraska Supreme Court’s website.

Many of Nebraska’s citizens cannot afford to pay a lawyer for needed legal assistance. The money generated from this program is used to provide free legal aid to those who cannot afford to pay for it. Nebraska’s indigent must meet the Federal poverty guidelines to qualify for legal assistance.

Participation in the IOLTA program presents an excellent opportunity for additional public service by Nebraska’s financial and legal communities.

Yes. The Federal Reserve System, relying upon an opinion of the Nebraska Attorney General, has determined that participation by attorneys and law firms in the IOLTA program conforms to Section 303 of the Consumer Checking Account Equity Act of 1980 [Title III of P.L. 96-221 (12 U.S.C. § 1832(a)]. NLTAF, a 501(c)(3) organization, is the sole beneficiary of the interest generated from these special accounts.

Financial institutions may cite their participation in IOLTA in their Community Reinvestment Act (CRA) reports, which is part of an institution’s community service. Financial institutions may also attract new deposits by offering IOLTA accounts. Some institutions specifically note their IOLTA participation in their annual reports.

“Financial Institution" includes any state or federally chartered bank, savings bank, savings and loan association, or building and loan association insured by the Federal Deposit Insurance Corporation. It also includes any federal credit union that participates in the National Credit Union Administration Share Insurance Fund.

Financial institutions are responsible for transmitting interest income reports to NLTAF each month.

Interest on the account should be paid by the tenth (10th) working day of each month. Interest not remitted monthly is required to be paid at least quarterly to NLTAF.

No. The interest rate paid on an IOLTA account must be the same or higher as that paid on similar accounts. The Supreme Court Rule states the rate of interest payable on any interest-bearing trust account shall be the same rate of interest paid by the financial for all other holders of similar accounts.

IOLTA’s regulations provide that charges or fees which exceed interest earned in any remitted period will be paid by NLTAF. Banks may waive fees. In no instance should the principal of an attorney’s IOLTA account be used to pay service fees or other IOLTA-related charges.

No. Financial institutions participating in the IOLTA program will be compensated for administrative costs associated with IOLTA accounts by deducting customary charges and fees from the interest earned on those accounts. Reasonable service charges are, of course, permitted for the preparation and issuance of the statements required.

Yes. Funds which are large in amount or are to be held for a long period of time are customarily deposited in a separate interest-bearing specific client trust account.

Under the rule, attorneys can establish interest-bearing trust accounts for short-term or nominal deposits.

NLTAF, which receives the interest from participating trust accounts, is exempt from federal income tax. Nebraska relies on Internal Revenue Service Ruling 81-209 stating that interest earned on nominal or short-term client advances is not included in the gross income of that client.

Many financial institutions designate an IOLTA Contact person to administer IOLTA accounts. Financial institutions are requested to advise NLTAF if there a change in the IOLTA Contact and to provide said person’s contact information.

Financial institutions are required to report trust account overdrafts to the Office of the Counsel for Discipline of the Nebraska Supreme Court.

No. Since the Nebraska Lawyers Trust Account Foundation is a 501(c)(3) charitable organization, the financial institution does not need to report interest income on IRS form 1099. Section 6049 of the Internal Revenue Code specifically exempts 501(c)(3) organizations from the preparation of Form 1099. Neither a 1099 form nor other reports of interest should not be prepared or submitted to the IRS or the associated law firms.

Yes. IOLTA trust accounts are not subject to backup withholding. Contact the NLTAF office to obtain the tax identification number.