Financial institutions are a vital component of the success of the Kentucky IOLTA Fund.  Banks voluntarily partner with Kentucky's legal community by enrolling in the IOLTA program.  A banking representative on the IOLTA Board of Trustees generously provides invaluable insight and assistance to the IOLTA program. See FAQ below for more information on becoming a participating bank.

The Kentucky IOLTA Fund is proud to partner with over 143 Kentucky banks and welcomes partnerships with many more.

Banks voluntarily agree to participate in the IOLTA program.  An IOLTA account can be opened at any bank or other financial institution that meets certain criteria set forth in Kentucky Supreme Court Rule 3.830:

• Authorized to do business in Kentucky,

• Insured by the Federal Deposit Insurance Corporation, and

• Has an agreement with the IOLTA Fund to participate

Financial institutions wishing to participate in the IOLTA program simply complete, sign, and return a Financial Institution Agreement to Participate.  To request a Financial Institution Agreement to Participate, contact Program Manager Gwen Smallenburg at gsmallenburg@kybar.org or (800) 874-6582.  When a completed Agreement is received by the IOLTA office, the bank is enrolled as a participating bank in the IOLTA program.  The enrollment will be acknowledged by the IOLTA program and any attorney enrollments on file at the IOLTA office are immediately remitted to the newly-enrolled bank, with a request for their conversion to IOLTA accounts at the bank's earliest convenience.

There is no approval process for opening an IOLTA account and, so, an attorney or law firm may open a client trust or escrow/IOLTA account at their discretion.  But anytime a new account is established, a New IOLTA Account Enrollment Form should be completed so that the account is enrolled in Kentucky's mandatory (for attorneys) IOLTA program.  This form also serves as the attorney's or law firm's authorization for the Kentucky IOLTA Fund to receive the interest earned on the account.

As stated above, the account may be opened as needed.  Then the attorney should complete a New IOLTA Account Enrollment Form, which is available online by logging into the Kentucky Bar Association website to access their member profile.  Once submitted, the Kentucky IOLTA Fund will enter the account into its records and process it on to the bank via secure email.

New IOLTA Account Enrollment Forms received by the bank from the IOLTA office require the following procedure:

• Previously-established, non-interest-bearing escrow account is converted to an interest-bearing IOLTA account.  Many banks prefer to open the account with interest-bearing IOLTA status at the onset and, so, the form simply completes the process.

• The Kentucky Bar Foundation, Inc.'s nonprofit tax identification number should be added to the account as the recipient of interest generated by the account.  This will ensure that the interest is properly reported as being paid to the Kentucky IOLTA Fund, a nonprofit organization.

• The name on the account may be changed to "Kentucky Bar Foundation IOLTA Account for (name of attorney or firm)."   This step may prevent the Internal Revenue Service from issuing a "B" notice to the lawyer because the named holder of the account and the tax identification number do not match.  But this account name change does not limit a lawyer's flexibility in choosing the name to be printed on checks and deposit slips.

• The standard monthly bank statement for an IOLTA account continues to be mailed directly to the customer, as well as any other correspondence or notices relating directly to the operation of the account.

The Kentucky IOLTA Fund respectfully requests that participating banks consider paying a minimum interest rate of 1.00% on all IOLTA accounts.  Additionally, two options for determining the interest rate for IOLTA accounts are outlined on the Financial Institution Agreement to Participate.  Below are excerpts from Kentucky Supreme Court Rule 3.830 (the rule that governs the Kentucky IOLTA Fund).

Kentucky Supreme Court Rule 3.830(4) establishes the required interest rates for IOLTA accounts:

• Participating financial institutions that maintain IOLTA accounts shall pay on the accounts the highest interest rate or dividend generally available from the institution to its non-IOLTA account customers when IOLTA accounts meet or exceed the same minimum balance or other account eligibility qualifications.  In determining the highest interest rate or dividend generally available from the institution, participating financial institutions may consider other factors, in addition to the IOLTA account balance, that are customarily considered by the institution when setting interest rates or dividends for its non-IOLTA customers.  Such factors should not discriminate between IOLTA accounts and accounts of non-IOLTA customers.

Pursuant to SCR 3.830(5),a participating financial institution may satisfy the above comparability requirements by electing one of the following options:

• (i) Pay an amount on funds that would otherwise qualify for the investment options equal to 70% of the federal funds targeted rate as of the first business day of the month or other IOLTA remitting period, which is deemed to be already net of allowable reasonable service charges or fees. The foregoing option of paying 70% of the federal funds targeted rate shall only apply when such rate is established in the range of 1.0% to 4.0% unless otherwise agreed to by IOLTA and the participating financial institution.

• (ii) Pay a yield rate specified by IOLTA, if IOLTA so chooses, which is agreed to by the participating financial institution. The rate would be deemed to be already net of allowable reasonable fees and would be in effect for and remain unchanged during a period of no more than twelve months from the inception of the agreement between the financial institution and IOLTA.

Banks participating in the IOLTA program have the option of remitting interest either monthly or quarterly.  Banks are required to designate whether they elect to remit monthly or quarterly when they complete their Agreement to Participate.

Adhering to the time schedule selected by the bank when the Agreement to Participate was signed, the bank should report all interest generated on IOLTA accounts by account number.  A form for this purpose should be requested from Program Manager Gwen Smallenburg at gsmallenburg@kybar.org or (800) 874-6582.  We ask that each account listed include attorney or firm name, average balance, APY, gross interest, any bank fee charged,* and the net amount.  The report is then totaled, and the net amount due to the IOLTA Fund should be remitted to the Fund either via a check mailed to the Fund or via an Automated Clearing House (ACH) transaction initiated by the Fund.  Many banks find it helpful for reporting purposes to have all IOLTA accounts in the bank on the same monthly cycle.

*Banks are allowed to deduct reasonable service fees from IOLTA accounts.  However, due to IOLTA's charitable nature, many participating banks contribute even more to IOLTA's success by not charging service fees on IOLTA accounts.  Charges relating to overdrafts, purchase of checks, wire transfers, etc. remain the responsibility of the attorney.

No.  Since IOLTA is a special fund of The Kentucky Bar Foundation, Inc., a 26 U.S.C. § 501(c)(3) tax-exempt organization with beneficial ownership of interest generated, it is not necessary to issue a 1099 at year's-end because the interest is exempt from tax under federal and state tax laws.  However, any 1099 issued should be mailed to the Kentucky IOLTA Fund, 514 W. Main Street, Frankfort, Kentucky 40601-1812.

If an account is closed for any reason, the closure should be noted on the next report immediately following the closure.

If an IOLTA account is overdrawn, notice should be sent to the attorney or firm who maintains the account - and also to the Kentucky Bar Association Office of Bar Counsel, 514 West Main Street, Frankfort, KY 40601-1812.  Notice does not need to be sent to the Kentucky IOLTA Fund.

Click here to read an article in the Kentucky Banker magazine.