In light of recent bank failures, it is important for lawyers and law firms to understand how FDIC insurance applies to trust accounts, particularly IOLTA accounts holding funds for multiple clients.

Per the FDIC, trust accounts, including IOLTA accounts, are treated as fiduciary accounts, “deposit accounts owned by one party but held in a fiduciary capacity by another party.” For purposes of FDIC insurance, the FDIC requires (1) “the fiduciary nature of the account…be disclosed in the bank’s deposit account records” and (2) "name and ownership interest of each owner must be ascertainable from the deposit account records of the insured bank or from records maintained by the agent.” As long as FDIC requirements are met, each client is protected up to the standard deposit insurance limits, currently $250,000 per client per financial institution. If a client has funds in other accounts with the bank where the lawyer holds entrusted funds, that may affect whether the funds the lawyer holds for the client are insured to the deposit insurance limit.

FDIC guidance on insurance can be found here.

Further questions related to a lawyer’s professional responsibility when acting as a fiduciary should be directed to the Ethics staff at ethicsadvice@ncbar.gov.