Bank Fees in IOLTA Account: Who Pays and How

Bank fees in an IOLTA account are the firm's cost, not the clients', so client money must never pay them. Firms handle them in one of two ways: the bank charges them to the firm's operating account, or the firm keeps a small amount of its own money in trust to absorb them, tracked on its own ledger.

Why bank fees in an IOLTA account are a problem at all

Bank fees in an IOLTA account are a problem because every dollar in that account, apart from any permitted firm cushion, belongs to a client. A monthly service charge comes out of the pooled balance, so unless the firm has put its own money there, client funds pay it.

The amounts are usually small, which is why the issue is easy to ignore. A 15 dollar monthly charge seems trivial against a balance of tens of thousands. But the reconciliation will show it. After the fee, the bank holds 15 dollars less than the client ledgers say the firm owes, and the account is short by that amount. Over a year the gap grows to 180 dollars, spread invisibly across every client.

Fees also arrive in less predictable forms: a charge for an incoming wire, a fee for a returned deposit, a charge for ordering checks, or a fee for a stop-payment order. Each one reduces the pooled balance the moment the bank posts it. A balance that falls below what is owed is a shortage even if the account itself never goes below zero, and one that does go below zero creates a separate set of duties, covered in what to do about a trust account overdraft.

Can a lawyer keep a cushion in the IOLTA account for bank fees?

Some states, North Carolina among them, let a lawyer keep a small amount of the firm's own money in the IOLTA account to cover bank charges. The amount must be limited to what that purpose needs. Anything above that is the firm's money mixed with client money, which is the definition of commingling.

The North Carolina wording is a useful model. Its North Carolina State Bar Rule 1.15-2 general trust account rules say lawyer funds may be kept in a trust or fiduciary account only in amounts sufficient to open or maintain the account, pay bank service charges, or pay any tax levied on the account. The rule's section on interest also contemplates that bank service charges and taxes may be deducted from the interest an account earns.

How large is "sufficient"? North Carolina's rule gives no number. A practical approach is to look at a year of statements, find the largest month of fees, and keep a cushion that covers two or three months at that level. Write the reasoning down. If the firm ever needs to explain why its own money was in the account, a dated note showing how the cushion was set is far better than a round number nobody can justify.

Charging IOLTA bank fees to the firm's operating account

Charging IOLTA bank fees to the firm's operating account keeps the trust account free of firm money altogether. The bank debits each fee from operating instead of from trust, so the pooled balance only ever holds client funds. Ask your bank whether it can set the account up this way before relying on a cushion.

When the bank agrees, check the first few statements to confirm the arrangement works. Two things can go wrong:

• Only some fees move. The monthly maintenance charge goes to operating, but per-item charges such as wire or check-order fees still post to trust.
• The arrangement lapses. A bank system change, a new account number or a change of branch staff can quietly route fees back to the trust account.

If a fee does reach the trust account despite the arrangement, replace it promptly with a deposit from operating and note the date and amount. Then raise it with the bank so the next one goes to the right place.

Which IOLTA fees belong to a client instead of the firm?

Some IOLTA fees are caused by one client's matter, not by keeping the account open, such as a wire sent on that client's instruction or the client's own check returned unpaid. Whether a fee may be charged to the client depends on the engagement terms and the state's rules.

If the firm does pass a fee on, three conditions should hold. The client agreed in advance, usually in the engagement letter. The fee is recorded on that client's ledger, so the ledger, not the pool, bears it. And the client actually has enough money on the ledger to cover it. A fee charged to a client ledger with no balance simply moves the shortage from the pool to that client, and the ledger goes negative.

Retainers raise the same question from a different angle. When a client's advance deposit is being drawn down for fees and costs, a bank charge recorded against it must be one the client agreed to pay. How those advance deposits are tracked is explained in retainer trust accounting for advance fee deposits.

Showing IOLTA bank fees on the three-way reconciliation

On the three-way reconciliation, IOLTA bank fees are handled through a separate ledger for the firm's own funds in the account. The cushion deposit goes onto that ledger, each fee comes off it, and the ledger's balance is included in the ledger total. The three figures then agree, and no client ledger has paid for a fee.

The example below is an invented firm-funds ledger for the first quarter of 2026.

Each fee is recorded the day it posts, so the ledger never shows money the bank no longer holds. The top-up restores the cushion to its chosen level without exceeding it. The reconciliation report should label this ledger plainly as the firm's funds, separate from the client list.

One more reason to read every fee line: a run of small, regular debits described as charges can hide theft, because nobody checks them. The same pattern is discussed in how church embezzlement happens and gets found. PreciseBankFlow lists every statement line that does not match the trust register, so a fee nobody recorded is visible the month it appears.