The Future of IOLTA: Solutions to Fifth Amendment Takings Challenges Against IOLTA Programs
James D. Anderson   |   1999 U. Ill. L. Rev.

Following federal cutbacks in the early 1980s, state legislatures and state bar associations searched for alternative methods to fund legal services for low-income individuals. One creative funding concept that state legislatures and state supreme courts implemented was the Interest On Lawyers' Trust Accounts (IOLTA) program. The IOLTA funding concept permits state foundations that provide legal services for the poor to receive the interest earned from a trust account that is created by attorneys and law firms pooling nominal and short-term client funds. Because the attorney's ethical and fiduciary obligations to the client were satisfied, the IOLTA program gained widespread acceptance in the legal community. Although the program has generated a vast amount of money for indigent legal services, the Supreme Court has jeopardized the viability of the IOLTA program through its recent decision in Phillips v. Washington Legal Foundation. The Phillips Court held that clients have a valid property right in the interest proceeds earned on the funds in an IOLTA account, which may result in the courts concluding that IOLTA programs constitute an unconstitutional taking of private property under the Fifth Amendment. This note examines the legal issues concerning the IOLTA program and introduces solutions for its continued existence in light of the Phillips opinion.