If I charge clients a flat fee and a payment for costs, do I place the funds in trust?
I have recently decided to start charging clients a flat rate for some of the legal services I provide. Some of the services will require a payment for costs. In order to keep things simple I wish to include the amount for costs in the flat rate that I charge. Do I have to place the funds in my trust account?
According to Florida Ethics Opinion 93-2 “advances for costs and expenses must be deposited in the attorney’s trust account and withdrawn and applied against such expenses as they are incurred and paid.”
The opinion states that a “flat fee’ which includes costs:
….should be first deposited in the trust account. Then that portion, if any, of the payment that is considered an earned fee upon receipt should promptly be withdrawn from the trust account. Any portion that does not constitute earned fees must remain in the trust account.
The fact that costs are to be paid out of this “flat fee” complicates matters somewhat. As required by Rule … 5-1.1(a), any advance of costs is to be held in trust until used to pay those costs. Therefore, the attorney must make a good faith estimate of the amount of costs to be incurred and must hold that amount in the trust account. Failure to hold the estimated costs in the trust account would result in the attorney paying the costs out of his or her own funds, which would violate Rule 4-1.8(e) (lawyer may not provide financial assistance to client, except to advance costs and expenses). Not holding the estimated costs in the trust account would also result in a commingling violation under Rule [5-1.1(a)] when those funds, which should have been left in trust, are removed and commingled with the attorney’s own funds.
To summarize, a fee paid to the firm that is understood to be earned upon receipt must be placed in the operating account. If money for costs is part of a prepaid lump sum that includes a fee that is deemed earned when paid, then the entire amount must be placed in trust and the earned fee portion promptly withdrawn. If money for costs is part of a prepaid lump sum that includes an advance deposit against fees to be drawn as the services are performed, then the entire amount must be deposited in the trust account, and the fees must be withdrawn within a reasonable amount of time after they are earned. The costs must be disbursed as they are incurred.