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What you need to know about FDIC and unlimited coverage Attorney Trust Accounts

What you need to know about FDIC and unlimited coverage.

IOLTA Accounts Have Unlimited Insurance until December 31, 2012

IOLTA accounts will be fully guaranteed by FDIC insurance, without limit at all banks starting on January 1, 2011.

On December 29, 2010, President Obama signed HR 6398 which corrected an oversight in the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) which inadvertently excluded IOLTA accounts from the unlimited FDIC insurance program that extended the Transaction Account Guarantee (TAG) Program put into place in 2008 to help stabilize the banking industry.

The Dodd-Frank Act (signed into law on July 21, 2010) also permanently raises the standard maximum deposit insurance amount to $250,000.

While the TAG Program allowed financial institutions to opt-out, Dodd-Frank does not. Therefore, an IOLTA account held at any FDIC member bank will have unlimited coverage until December 31, 2012.

IOLTA accounts were included under the unlimited insurance provision of the 2008 TAG Program because “… the interest on IOLTAs does not inure to the benefit of either the law firm or the clients. Thus, from the perspective of the law firm and the clients, the account produces the same economic result as a noninterest-bearing transaction account.” (FEDERAL DEPOSIT INSURANCE CORPORATION, 12 CFR Part 370, RIN 3064-AD37, Temporary Liquidity Guarantee Program, p.44)

The New Jersey IOLTA Rule is clear that client funds must be placed at interest to a client or to IOLTA.

Rule 1:28A-2(2) requires that “Funds shall be deposited in an IOLTA non-interest bearing trust account authorized by this Rule when an attorney determines that a trust account deposit will not be placed at interest for a client.” The only exception would be for an account which normally carries a very low balance and that has been registered as such on the annual IOLTA registration form. Note also that sub-accounts must be either interest-bearing to a client OR to IOLTA.

In New Jersey, law firms must maintain an attorney trust account at an approved financial institution. The approval of a bank to offer trust accounts in New Jersey does not imply an endorsement of that bank’s safety and soundness. Approval is given on behalf of the Supreme Court of New Jersey by the Office of Attorney Ethics because a bank agrees to report overdrafts and cooperate with the IOLTA program. It is the law firm’s responsibility to select a bank (or banks) based on financial condition, convenience and other factors.

FDIC coverage for fiduciary accounts is different from ordinary accounts.

In its Frequently Asked Questions section, the FDIC says “Special disclosure rules apply to multi-tiered fiduciary relationships. If an agent pools the deposits of several owners into one account and the disclosure rules are satisfied, the deposits of each owner will be insured as that owner’s deposits.” (See

The FDIC website offers information, examples of how to calculate coverage and insurance calculators at

  • Unlimited FDIC coverage per depositor applies to pooled attorney trust accounts only.

  • Each client’s funds in a pooled IOLTA account are separately insured, as if the client had an account at that bank. Placing separate client deposits in a common trust account dictates keeping meticulous trust account records as required by Court Rule 1:21-6 and the Office of Attorney Ethics.

  • To qualify for FDIC insurance your account must be titled properly as a fiduciary account, for example, Law Office of Thomas Jones, Attorney Trust Account. This is also a requirement of Rule 1:21-6. IOLTA accounts carry the Tax I.D. of the IOLTA Fund. Permission to use our Tax I.D. is given in writing by IOLTA to the bank when a law firm returns an IOLTA Participation form indicating that an account qualifies to be interest-bearing to IOLTA.

  • Ordinary FDIC coverage is applicable to client sub-accounts, up to $250,000 per individual. A husband and wife are each insured separately, up to $500,000, provided your deposit documentation clearly describes the ownership of their funds.

  • A client might have a separate banking relationship at the same institution as the firm’s trust account which would share the FDIC coverage for that single depositor.

  • When a lawyer has a concern that a particular deposit in a sub-account at any bank will exceed insurance coverage limits, the lawyer could consider utilizing a pooled or common trust account OR second trust account in the client’s name at a different financial institution.

  • New trust accounts may be reported to IOLTA at any time. The 2011 IOLTA registration form is available online at

How are Official Checks Insured?*

Official checks, such as cashier’s checks and money orders issued by banks, are “deposits” as defined under the FDI Act (12 U.S.C. 1813(1)) and Part 330 of the FDIC’s regulations. The payee of the official check (the party to whom the check is payable) is the insured party. If an official check is negotiated to a third party, the FDIC would recognize that person as the insured party, subject to certain requirements. (12 CFR Section 330.5(b)(4).) Because official checks meet the definition of a noninterest-bearing transaction account, the payee (or the party to whom the payee has endorsed the check) would be insured for the full amount of the check upon the failure of the bank that issued the official check.

How are Sweep Accounts Insured?*

Under the FDIC’s rules and procedures for determining account balances at a failed bank (12 CFR Section 360.8), funds swept (or transferred) from a deposit account to either another type of deposit account or a non-deposit account are treated as being in the account to which the funds were transferred prior to the time of failure. So, for example, if pursuant to an agreement between a bank and its customer, funds are swept daily from a noninterest-bearing transaction account to an account or product (such as a repurchase agreement) that is not a noninterest-bearing transaction account, the funds in the resulting account or product would not be eligible for full insurance coverage. This is how sweep account products were treated under the T AG Program.

How are Multiple Accounts Insured?*

Pursuant to Section 343, all funds held in non interest-bearing transaction accounts will be fully insured, without limit. As also specifically provided for in Section 343, this unlimited coverage is separate from, and in addition to, the coverage provided to depositors with respect to other accounts held at bank. This means that funds held in noninterest-bearing transaction accounts will not be counted in determining the amount of deposit insurance on deposits held in other accounts, and in other rights and capacities, at the same bank. Thus, for example, if a depositor has a $225,000 certificate of deposit and a no-interest checking account with a balance of $300,000, both held in a single ownership capacity, he or she would be fully insured for $525,000 (plus interest accrued on the CD), assuming the depositor has no other single ownership funds at the same institution. First, coverage of $225,000 (plus accrued interest) would be provided for the certificate of deposit as a single ownership account (12 CFR 330.6) up to the usual limit of $250,000. Second, full coverage of the $300,000 checking account would be provided separately, despite the checking account also being held as a single ownership account, because the account qualifies for unlimited separate coverage as a noninterest-bearing transaction account.

*Excerpted from:
12 CFR Part 330
Final Rule: “Deposit Insurance Regulations; Unlimited Coverage for Noninterest-bearing Transaction Accounts”

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