Fees – To Trust or To General Account? Part II

When discussing flat or fixed fees, it seems to me that the number of hours to be devoted to the matter is irrelevant. If you compute the flat fee based on the number of hours you anticipate and, further, you include that in your discussion with the client (suggesting that the fee will increase if the anticipated number of hours exceeds the estimate), the picture begins to look like hourly billing. Traditionally, hourly billing fees require deposit of retainers into the trust account first, then withdrawal and deposit into the general account once the fee has been earned.

The real issue, I believe, is when the fee is earned. Whenever earned, however you describe it, it’s yours and MUST be withdrawn from the client’s trust account. Otherwise, it’s commingling which violates the RPCs.

Some lawyers whom I’ve advised will split the fee … part of it will be a non-refundable retainer for the privilege of having you be their lawyer … and taking you off the market for another client (the adverse party or other work) and the balance placed into the trust account and withdrawn as the work is performed. I prefer this method because it makes a clear distinction between the two elements, one non-refundable and one to be paid only when earned/work performed.

Even with the latter segment, however, I encourage you to clarify the event or date which is the trigger for allowing you to take money from the trust account and place it into the general account. This avoids waiting for the client to say “yes” after the fact … and allows you to get the money sooner; of course, this assumes that you’re always ahead of the client and not waiting for the client to place more money in the trust account in advance of your billing.

Another element that I recommend in the engagement agreement is the “protest process.” Give your client a way to “stop” you from taking money from the trust account. In other words, provide that if you don’t receive a complaint or dispute in writing from the client in 10 business days from the date of the invoice or statement, it is presumed that the client approves the billing. The client may protest later and you will have to deal with it, but at least you will have a prima facie reason for the transfer and the money will be in your pocket (not the trust account) allowing you to fight the client with his/her money rather than yours.

Categorized in: Cash Flow - Finances