In many jurisdictions, when a client gives money to a lawyer (e.g. an advance on fees, or money to hold for a transaction such as a real estate sale) the lawyer must place those funds in a separate trust account; the rules governing the practice of law do not let the lawyer claim the money until it is earned. However, the interest earned on those moneys is often less than the amount the bank charges to administer the interest. Before IOLTA, a client was legally entitled to any interest his account generated. But because of unscrupulous banking and lawyering practices, the bank or the lawyer may have kept the earned interest (which often went unnoticed by the client).
IOLTA programs were designed to convert the earned interest to private organizations providing legal services. IOLTA programs were first established in Australia and Canada in the late 1960s to generate funds for legal services to the poor. The Florida Bar Foundation launched the first American IOLTA program in 1981.
Explicitly, IOLTA applies only to funds that are "nominal in amount or held for a short period of time" so larger amounts of money held for single clients are claimed to be exempt. That means, in effect, that IOLTA transfers may involve small amounts of money held for a long time, or significant amounts of money held for a short time.
Typically, the aggregated interest is paid to and administered by a state bar association and used to subsidize various legal programs. Examples of programs funded are those that assist with indigent defense, family law matters, other pro bono projects, and community legal education programs.
A client is ostensibly allowed to receive his legally earned interest if the funds are large enough or will be held for a long enough period of time to generate net interest that is sufficient to allocate directly to the client. In practicality however, because of the banking and lawyer ethics rules required to establish a separate trust account for an individual client, most lawyers cannot or are unwilling to preserve a client's rights to any legally earned interest.