Two legislative bills that target Interest on Lawyers Trust Accounts in Massachusetts were killed in committee on June 22 after bar leaders opposed their potential to become bureaucratic nightmares.
An Act Relative to Certain Trust Accounts (Senate Bill 18) and An Act Providing for Consent and Full Disclosure in Bank Deposits Held in Trust for Another (House Bill 1310) were put into study, which halts any further action during this session, according to Jayne Tyrrell of Boston, executive director of the Supreme Judicial Court IOLTA Committee.
The bills were strongly opposed by leaders of the Massachusetts Bar Foundation, the Boston Bar Association and legal services organizations. These groups testified before the Massachusetts Joint Committee on Banks and Banking.
House Bill 1310 would require lawyers to annually file an affidavit with every financial institution that establishes an IOLTA account. The affidavit would say that the lawyer has or will obtain the written consent of the client to the remittance of the interest, dividend or income earned from the account. Also, the bill requires identities of all direct and indirect recipients of that interest in the prior calendar year. If a bank fails to obtain such an affidavit, it becomes liable to the client both for the interest that would have been earned during the period of deposit and for the client’s legal fees, according to bar leaders.
Senate Bill 18 would require lawyers to explain the entire IOLTA program and its 49-page Supreme Judicial Court rule to each client. Whenever a lawyer sought to deposit a client’s funds in an IOLTA account, the lawyer would file a separate affidavit with the bank swearing that they provided these explanations, bar leaders testified.
"The proposed legislation would dismantle the IOLTA program, which is a crucial source of income for legal services in Massachusetts," says Craig Stewart of Boston, who is president of the Massachusetts Bar Foundation.
Joining Stewart was Robert Foster, chair of the Boston Bar Association Delivery of Legal Services Section, who also testified in opposition to the bills before the joint
committee in April.
"In short, Senate Bill 18 and House Bill 1310 would create new layers of bureaucracy and new liabilities for banks; increase the cost of attorney services to clients, and expose clients to unnecessary federal income tax liability, without providing any benefit to the clients who would not receive any net interest from the deposited funds," says Foster.
The extra administrative duties will add extra billable hours to a client’s service, create more paperwork and confusion among those involved in IOLTA, and add liability to both the lawyer and the financial institutions if the new measures were not met, notes Stewart.
"This may have a minor impact on a litigator. But for those who do real estate and will be working with IOLTA every day, this will become quite a burden," he adds.
In effect, tampering with IOLTA will create such a roadblock that the poor will ultimately suffer more, Foster says.
"The Boston Bar Association opposes tampering with a program which is functioning effectively and which would deprive low income people of essential services," says Foster.
On the other hand, some state officials believe the bills open up the IOLTA program to the public and show how funds are being invested, according to Massachusetts Senator Marian Walsh (Norfolk and Suffolk Districts) who sponsored Senate Bill 18.
"This legislation is part of our sunshine laws. It lets the client know what’s going on," Walsh says.
Such legislation would balance the duty of lawyers and financial institutions to the client. A blanket affidavit should be required and annually filed, claims Walsh.
The bills were sponsored last year after the June 1998 U.S. Supreme Court decision in Phillips v. Washington Legal Foundation, which held that interest generated from IOLTA belongs to the client.
"Despite their nominal or short-term nature, the fact remains that client funds held by an attorney, and any interest generated from those funds, belong to the client," Walsh says in a statement. She adds that the Senate bill provides necessary disclosure to the client.
"It is nothing more than a consumer bill that sheds light and informs. Although with this decision, it might make sense to amend the bill to give people access to this interest," she adds.
Back to Top