Many solos and small firms charge their clients “nonrefundable” fees, intending to take an advance fee that can be used immediately to pay bills. In Pennsylvania, lawyers have termed these fees “nonrefundable,” and, have placed these funds directly into their operating accounts. In early May, the American Bar Association issued Formal Ethics Opinion 505, in which it opined that a fee is never “nonrefundable” and that a fee paid in advance of the provision of services can never be placed into a lawyer’s operating account. The opinion’s synopsis states:

Under the Model Rules of Professional Conduct, a fee paid to a lawyer in advance for services to be rendered in the future must be placed in a client trust account …This protects client funds and promotes client access to legal services in the event the representation terminates before all contemplated services have been rendered. All fees must be reasonable, and unearned fees must be returned to the client. Therefore, it is not accurate to label a fee “nonrefundable” before it actually has been earned, and labels do not dictate whether a fee has been earned.