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Maintaining Trust: Rules, Snares, and Worries in Trust Account Management
Every lawyer-client relationship begins (or should begin) with an engagement agreement that sets forth how and when the lawyer will be paid. This agreement will normally control the financial relationship between client and lawyer, and almost anything (except unconscionable or unreasonable fees) can be negotiated between the parties. As a general rule, however, the client's payment for work that has been performed is to be deposited into a lawyer's general account and payment for work that will be performed is to be deposited into a client's trust account. The engagement agreement should set forth in detail the circumstances under which funds may or must be transferred from the client's trust account to the lawyer's general account. When the lawyer is entitled to make the transfer, the lawyer must make the transfer or be guilty of commingling personal and client funds, which is prohibited by the rules of professional conduct.
Ethical Snares
It all seems straightforward and clear. Yet, lawyers constantly face ethical snares on the use of and accounting for client trust accounts. These often begin with a fundamental question for the lawyer: 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 American Bar Association's Model Code of Professional Responsibility, Rule 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.
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