What is the difference between an operating retainer and a trust retainer?
An operating retainer refers to funds received from clients that are deposited into the law firm’s operating account. A trust retainer refers to funds received from clients that are deposited into the attorney’s trust or escrow account.[1]
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The Five Obstacles of Legal Accounting
Download this eBook to learn the five most common legal accounting challenges and how to avoid making costly mistakes. Topics covered in this resource, include:
- Client Trust Accounting
- Proper Accounting of Case Costs
- Differentiating Income and Revenue
- Data Entry Errors Between Billing and Accounting Systems
- Understanding Where the Money Came From
In most states, a retainer paid by a client in advance for unearned fees and future costs is considered to be the client’s funds and must be deposited into the attorney’s trust account and remain there until the fees have been earned and the client has had a chance to review the invoice for services provided.[2][3] The exceptions to this rule are New York and New Jersey, which allow the client and the law firm set out in the fee agreement whether the retainer for advance fees and costs will be deposited into the firm’s operating or the firm’s trust account. In Illinois, if the retainer is paid in exchange for the attorney committing to provide future legal services, the lawyer must deposit the retainer into the operating account.[2]
But when a retainer is paid specifically to the attorney in exchange for the attorney being available during a specific time period or for a specified matter, that retainer belongs to the attorney as it is not a payment in advance for future service, and it must be deposited into the law firm’s operating account.[4]
Before depositing client funds, check your local and state ethical rules to determine whether or not the funds are an operating retainer or a trust retainer.
References
1. The Do’s and Don’ts of Handling Client Funds
2. Advance Payment Retainers: Whose Property? What Account?
3. FAQ on Fees and Retainers
4. Managing Client Trust Accounts
eBook
The Five Obstacles of Legal Accounting
Download this eBook to learn the five most common legal accounting challenges and how to avoid making costly mistakes. Topics covered in this resource, include:
- Client Trust Accounting
- Proper Accounting of Case Costs
- Differentiating Income and Revenue
- Data Entry Errors Between Billing and Accounting Systems
- Understanding Where the Money Came From
