Every New Jersey attorney in private practice who holds client money must follow the state’s IOLTA account rules: nominal or short-term client funds go into a pooled Interest on Lawyers Trust Accounts (IOLTA) account at an approved bank, the account must be registered with the IOLTA Fund of the Bar of New Jersey each year, only a licensed attorney may sign checks drawn on it, and the interest earned is remitted directly to the Fund to support civil legal aid.1IOLTA Fund of the Bar of New Jersey. Trust Accounts FAQ Missing the annual registration makes an attorney administratively ineligible to practice.2New Jersey Courts. Notice – IOLTA – 2025 Annual Registration Requirement – Final Notice
Which Client Funds Belong in an IOLTA Account
Rule 1:28A-2(a) sets the trigger. Client funds go into the IOLTA account when they are nominal in amount, will be held for a short period, or otherwise are unlikely to earn meaningful interest for the client individually.3IOLTA Fund of the Bar of New Jersey. Guidelines For Financial Institutions The working test is practical: would a separate interest-bearing account for that one client earn more than the bank fees and administrative cost of maintaining it? If no, the deposit belongs in the pooled IOLTA account.
No fixed dollar threshold appears in the rules. The attorney has to use reasonable judgment based on the amount, the expected holding period, and current interest rates.
When a Separate Account Is Required Instead
If a client deposit is large enough or will sit long enough to generate net interest for that client, it should go into a separate interest-bearing account for the client’s benefit. Rule 1:21-6 is clear that all interest on such a separate account belongs to the client alone and cannot be kept by the attorney.4Court Caddy. New Jersey Court Rules Rule 1:21 – Practice of Law
Low Balance Accounts vs. Active IOLTA Accounts
Not every trust account becomes a full interest-bearing IOLTA account. The IOLTA Fund recognizes a “low balance” category for accounts whose average client balance generally stays under $2,500. At that level, bank service charges would eat up any interest, so converting the account would cost the Fund money. Attorneys with those accounts are classified as inactive IOLTA participants until circumstances change.5The IOLTA Fund of the Bar of New Jersey. How to Comply
New sole practitioners, part-time attorneys, and lawyers who rarely hold client funds usually fit here. The designation is not a free pass: both low balance and active accounts must be registered with the IOLTA Fund, and both require annual re-registration. If the practice grows and balances begin to exceed the threshold regularly, the account needs to be converted to a full interest-bearing IOLTA account.
Opening and Registering the Account
Setting up a compliant account means coordinating with both a bank and the IOLTA Fund.
- Choose a financial institution approved by the Supreme Court to hold attorney trust funds under Rule 1:21-6(a), insured by the FDIC or an equivalent federal agency. Attorneys are not required to pick a bank based on the IOLTA rate it pays, but the Fund publishes a list of Preferred Banking Partners that voluntarily pay higher rates.6IOLTA Fund of the Bar of New Jersey. IOLTA Preferred Banking Partners
- Bring the firm’s Tax Identification Number to open the account. Until a separate IOLTA number is issued, the attorney’s Tax ID is the primary identifier.7IOLTA Fund of the Bar of New Jersey. Account Opening Procedures for a New Trust Account
- Title the account “ATTORNEY TRUST ACCOUNT” or “IOLTA ATTORNEY TRUST ACCOUNT.” The Office of Attorney Ethics recordkeeping rules require that labeling.8New Jersey Courts. Office of Attorney Ethics – Outline of Recordkeeping Requirements
- Complete the IOLTA Participation Form from the Fund’s website and submit it so the bank knows where to remit interest.9The IOLTA Fund of the Bar of New Jersey. IOLTA Participation Form
Once the account is active, the bank calculates interest on the pooled funds, keeps a reasonable return comparable to what it earns on similar non-IOLTA deposits, and remits the rest directly to the IOLTA Fund.3IOLTA Fund of the Bar of New Jersey. Guidelines For Financial Institutions The attorney never touches the interest.
Who May Sign Trust Account Checks
Only a New Jersey-licensed attorney may sign checks drawn on an attorney trust account. The task cannot be delegated to a secretary, paralegal, or any other non-attorney staff. Rubber-stamp facsimile signatures are also prohibited.8New Jersey Courts. Office of Attorney Ethics – Outline of Recordkeeping Requirements This is one of the strictest aspects of New Jersey trust account compliance and a frequent source of discipline.
Annual Registration and Missing the Deadline
Every attorney with a trust account must register it with the IOLTA Fund every year. For 2026, registration opened on January 21, 2026, with a deadline of March 31, 2026.10The IOLTA Fund of the Bar of New Jersey. The IOLTA Fund of the Bar of New Jersey11IOLTA Fund of the Bar of New Jersey. Registration The requirement applies to both active IOLTA accounts and low balance accounts.
Attorneys who do not complete the annual registration are declared administratively ineligible to practice law in New Jersey.2New Jersey Courts. Notice – IOLTA – 2025 Annual Registration Requirement – Final Notice That status blocks the attorney from representing clients, appearing in court, or doing any legal work until the registration is cured.
Recordkeeping Rules Under RPC 1.15
New Jersey RPC 1.15 requires attorneys to keep client funds completely separate from their own property. The only exception is depositing a small amount of personal money to cover bank service charges. Complete records of all trust account transactions must be kept for seven years.12Court Caddy. New Jersey Rules of Professional Conduct – RPC 1.15 Safekeeping Property
When an attorney receives funds or property in which a client or third party has an interest, the attorney must promptly notify that person and deliver whatever is owed. If a dispute arises over funds in the account, the disputed portion stays in trust until the dispute is resolved. Clean records are also what makes random audits by the Office of Attorney Ethics survivable.
FDIC Pass-Through Insurance for Client Funds
Client funds in an IOLTA account qualify for FDIC “pass-through” insurance. Each client’s share of the pooled account is insured separately up to the standard $250,000 per depositor limit, rather than the full account being treated as one deposit belonging to the attorney.13FDIC.gov. Pass-through Deposit Insurance Coverage Three conditions have to hold:
- The funds must actually belong to the clients, not the attorney.
- The bank’s records must reflect the fiduciary nature of the account.
- The bank, the firm, or another party in the normal course of business must keep records showing which clients own how much.
If any condition fails, FDIC insures the whole account as a single deposit of the attorney, which can leave client money unprotected if the bank fails. If any single client’s share nears $250,000, consider splitting funds across institutions.
Federal Tax Treatment of IOLTA Interest
Neither the attorney nor the client owes federal income tax on IOLTA interest. The IRS held in Revenue Ruling 87-2 that because neither party has control over or a right to the interest earned in the pooled account, it is not includible in either party’s gross income.14Internal Revenue Service. Revenue Ruling 87-2 Attorneys do not prepare or file a 1099 for IOLTA interest, and neither the client nor the attorney is named as a recipient on any 1099 the bank issues.1IOLTA Fund of the Bar of New Jersey. Trust Accounts FAQ
Consequences of Noncompliance
Beyond the loss of eligibility to practice for missed registration, the Office of Attorney Ethics conducts random audits of trust account records. Violations of RPC 1.15 or Rule 1:21-6 can produce discipline ranging from reprimand to suspension. Commingling personal funds with client funds, failing to maintain required records, and allowing a non-attorney to sign trust checks are among the most common audit findings that lead to formal ethics proceedings.