Advance Payment Retainers: Whose Property? What Account?

An advance payment retainer is a sum provided by the client to cover payment of legal fees expected to be earned during the course of a client representation; to the extent the legal fees advanced are not earned during the representation, the lawyer agrees to return them to the client. But to whom does an advance payment retainer belong: the lawyer or the client? To what account should the funds be deposited: the lawyer’s or law firm’s operating account or the client trust account?

How the lawyer or law firm that receives the retainer treats it may vary from one lawyer or law firm to another. The New York Rules of Professional Conduct (the Rules) do not mandate what the lawyer should do with the funds although there are ethics opinions providing guidance. Regardless, some attorneys consider the funds to be the client’s property (until the fees are earned) that should be deposited in the client trust account. Other attorneys view the advance payment as their own and place the funds in their operating account, not to be commingled with any client funds. And still other attorneys decide to open a separate sub-account in the client’s name to avoid any confusion or issues should the client change his mind about the engagement soon after making the retainer payment. While none of these options are per se unethical, some present greater benefits to the lawyer or client, and all present ethical duties that the attorney and law firm should be aware of.

Client’s or Lawyer’s Funds?