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LawBiz® TIPS – Week of January 3, 2017

Trust Accounts and Ethical No-Nos

In terms of client trust accounts, the fundamental question for lawyers is this: When you first receive funds, which account should they be placed into—the trust account or the general account? In most instances, this is the rule of thumb to follow:

  • If the funds are provided on retainer, then they are for a task that is not completed, and the hours are not yet earned. That means the money goes into the client trust account.
  • If the funds have been earned when you receive them, then they should go into the general account.

The ABA’s Model Rule of Professional Responsibility 1.15 specifically addresses the impermissibility of commingling the lawyer’s own funds with client funds, except when necessary to pay bank service charges on the trust account. In short, money earned by a lawyer for provision of services belongs to the lawyer and must be removed from the client’s trust account when earned. This must be done immediately (unless jurisdictional rules state otherwise), with the earned money being placed in the lawyer’s general account. (Some jurisdictions place additional requirements on the withdrawal of funds from a trust account.)

Lawyers should provide in their engagement letters that the client authorizes the lawyer to debit trust account funds after a reasonable time from the date of billing—for example, 15, 30, or 45 days, whichever is most reasonable under the circumstances. This provides a date certain for payment to the lawyer. Note that the client, in most jurisdictions, will retain the right to dispute the charges. Once disputed, funds should be transferred back to the client’s trust account until the dispute is resolved.

No check should be drawn from the client’s trust account until after the draft or check is honored and the deposit is confirmed to be valid.



Trust Accounts and Ethical No-Nos

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