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When can flat fees that haven’t been earned be taken out of a trust account?

CosmoLex TeamDecember 30, 2020

When can flat fees that haven’t been earned be taken out of a trust account?

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Flat Fees

When it comes to trust accounts, a single slip-up can get you disbarred, and yet misunderstandings abound. In a trust account, a lawyer holds the money in trust for a client – which means the money belongs to the client.

You can’t take the money out until you’ve earned it. And when you do withdraw funds from a trust account, they must first be deposited into your firm’s operating account before being used to pay bills, staff payroll, etc.

But things get murky around flat fees because different states have different regulations.

Do flat fees go into a trust account?

Historically, flat fees didn’t go into a trust account – because they were considered non-refundable therefore already the lawyer’s money. But now some states – like California – require flat fees to be deposited into a trust account.[1]

Flat fees deposited into a trust account can typically be earned in stages. This means that the lawyer and client agree ahead of time (in writing) on what those stages will be. After the completion of each stage, the lawyer can withdraw an agreed-upon amount of the flat fee and deposit it into the firm’s operation account.[2] Once all the stages are completed, the flat fee will be used up.

You can’t withdraw money you haven’t earned

If you do deposit a flat fee into a trust account and agree to staged withdrawals – whether because of state regulations or other reasons – you must stick with that approach.

Even if you need the money for payroll now and you know that the current stage will be completed in just a few days, you still can’t withdraw a single cent from the trust account.

It’s not your money yet, and legally, that would be considered stealing.

Many states conduct random audits of trust accounts. Any discrepancies can lead to an attorney getting disbarred. Withdrawing money early isn’t worth the risk. And even if the discrepancy in the trust account is small or a genuine mistake, it’s still your license on the line.

One of the best ways to prevent confusion is to monitor your accounts. Use a practice management system that makes staying on top of your accounts easy so you don’t end up in a bind.

And if the flat fee is in your trust account, treat it like you would client money in other scenarios – track time to prove you’ve done the work and provide invoices.[3]


References

1. Advance Fee Deposits and Your Client Trust Account
2. What Every Family Lawyer Should Know about Trust Accounts
3. Do I Need to Track My Time If I Charge My Legal Clients a Flat Fee?

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CosmoLex by ProfitSolv
CosmoLex is cloud-based law practice management software that integrates trust & business accounting, time tracking, billing, email & document management, and tasks & calendaring, in a single application.
+1 866-878-6798
Company
  • About CosmoLex
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  • Enterprise-grade Security
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  • CosmoLex Careers
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Support
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US    CA   UK

Image
CosmoLex is part of ProfitSolv, a collection of best-in-class software solutions for professional services firms, allowing the freedom for growth and innovation. Using a product-centric and customer-first approach, ProfitSolv collaborates with firms to offer better client services.

© 2023 ProfitSolv, LLC, All rights reserved. ProfitSolv, CosmoLex, and respective logos are trademarks or registered trademarks of ProfitSolv, LLC and its affiliates.

Legal | Privacy Policy | GDPR | Subscription Agreement

1100 Cornwall Road, Suite 215 Monmouth Junction, NJ | All product names and trademarks are the property of their respective owners.

CosmoLex by ProfitSolv
CosmoLex is cloud-based law practice management software that integrates trust & business accounting, time tracking, billing, email & document management, and tasks & calendaring, in a single application.
+1 866-878-6798
Company
  • About CosmoLex
  • Additional Services
  • Bar & Affinity Partners
  • Enterprise-grade Security
  • Pricing
  • CosmoLex Careers
Resources
  • Educational Resource Center
  • CosmoLex Webinar Series
  • Blog
Support
  • Knowledge Base
  • Training Classes
  • Share Your Experience
  • Find a Certified Consultant
  • New Feature Request
  • Partner Portal

US    CA   UK

Image
CosmoLex is part of ProfitSolv, a collection of best-in-class software solutions for professional services firms, allowing the freedom for growth and innovation. Using a product-centric and customer-first approach, ProfitSolv collaborates with firms to offer better client services.

© 2023 ProfitSolv, LLC, All rights reserved. ProfitSolv, CosmoLex, and respective logos are trademarks or registered trademarks of ProfitSolv, LLC and its affiliates.

Legal | Privacy Policy | GDPR | Subscription Agreement

1100 Cornwall Road, Suite 215 Monmouth Junction, NJ | All product names and trademarks are the property of their respective owners.

  • Features
    • Legal Billing & Payments
      • Electronic Payment Processing
    • Business Accounting
    • Trust Accounting
    • Practice Management
      • File Sharing & E-signature
    • Legal CRM
    • Websites
  • Pricing
  • Happy Customers
  • Compare To
    • Desktop Systems
      • CosmoLex vs PCLaw
      • CosmoLex vs Quickbooks
      • CosmoLex vs Tabs3
      • Other Desktop Software
    • Cloud-based Systems
      • CosmoLex vs Clio
      • CosmoLex vs MyCase
      • CosmoLex vs PracticePanther
      • Other Cloud-based Software
    • Manual Systems
    • Starting a New Law Firm
  • Resources
    • Educational Resource Center
    • CosmoLex Webinar Series
    • Blog