How Should Lawyers Explain Trust Accounting to Clients?
Trust accounts function very differently from other businesses’ client accounts and reflect the unique level of responsibility and trust in the lawyer-client relationship.
It’s a good practice to help your clients understand what’s happening with their money in the first place, but if you can successfully explain trust accounts and why they’re different, that can add to clients’ appreciation for the legal services they receive.
Explaining the trust account
In explaining trust accounts, it may help to first let clients know why things are different in the legal world.
Tell them that a lawyer is a fiduciary, meaning that their clients’ financial interests must come first. In order to legally enshrine the responsibility, lawyers use trust accounts.
A trust account holds money that a client will use to pay for legal services. Because legal work can be expensive, clients put forward money to show that they are able to pay for services before they’re rendered. But because a lawyer must act as their client’s fiduciary, they can’t just pocket that money.
Instead of putting the money into their own business account, they must hold it in trust for the client. This means that even though the money is in an account held by the law firm, it is still legally the client’s money—and the law firm can’t touch it until they’ve performed the agreed-upon service and billed the client.
Helping clients understand why it matters
The key difference between a deposit or up-front payment in another business and putting money into a trust account is that the money in a trust account still belongs to the client. The law firm can’t dip into the funds until they’ve been earned and billed for—not even for something as small as a credit card fee. Understanding this can ease clients’ financial anxieties.
And if you can help your clients appreciate this important difference in fiduciary responsibility between law firms and other businesses, you will build even more of that valuable asset—client trust.
From the law firm’s end, using a practice management system that has safeguards in place to help you remain compliant can reduce some of your anxiety around trust accounts, too.
But the bottom line is that you can explain trust accounts to clients by avoiding big words and emphasizing your role and responsibility to act in their financial interest.