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What Are Client Trust Accounts?

What Are Client Trust Accounts?

Client trust accounts involve any private legal practice that handles clients’ money. Client trust accounts ensure that clients’ money is not subject to seizure from law offices’ creditors or personal financial problems of a lawyer. Client trust accounts are a insurance guarantee that clients money will not be taken prior to the conclusion of the clients’ legal issue. 

Since private law offices are at the mercy of banks if their loans become delinquent, their accounts can be garnished. Sometimes, a lawyer’s personal bank account can be garnished if the individual happens to have personal financial problems. It can be difficult to distinguish between a client’s money or the law firm’s money. 

Therefore, Client trust accounts create the distinction between client money and the corporate accounts of law firms or of lawyer’s themselves.  To further create this distinction, each state judiciary makes their own trust account rules to delineate the nature of this financial trust. 

Each lawyer can open one client trust account per lawyer in a firm. Client’s advance fees or case deposits are not considered money a lawyer has earned. Advance fees or deposits are money set aside to cover costs of cases. Therefore, the money is not earned by the lawyer or law firm until the conclusion of the client’s legal matter. 

Advance fees or case deposits must then be placed into accounts until the case is concluded or the money is used for its purpose. All legal practices that charge these fees or deposits must open a client trust account. 

In some states, civil case settlements are considered applicable to trust account rules. Particularly, most states require that a lawyer fully disclose, to the client, the nature of the lawyer’s contingency fee Some state trust account rules consider client over payment of bills partially earned income. 

The procedure of bill overpayment requires that any money overpaid, must go into the client trust account. The percentage of earned money can be extracted for the lawyer, and then the rest must be given back to the client. The client may also choose to leave the residual money in the account for future services. 

Escrow funds may also be applicable to trust account rules. Escrow funds or other funds that are associated with personal property or real estate transactions must be deposited into trust accounts. Most other moneys associated with a government or fiduciary obligation must be set aside in the client trust account because the money is not earned by the law firm or the lawyer personally.