Legal Trust Accounting : Don’t Get Surprised by Flat Fees

The following is an excerpt from our free white paper, “Trust Accounts Made Simple”.

Before you get caught up in the alternative fee engagement movement and are about to completely redesign your firm billing practices, take a second to consider your trust account obligations.

Just because you’re not billing hourly doesn’t mean you can deposit your up-front flat fee straight into your operating account. A precedent in the D.C. Bar Court of Appeals in 2009 states:

In sum, a flat fee is an advance of unearned fees because it is money paid up-front for legal services that are yet to be performed.
– In Re Robert W. Mance III, 2009 D.C. App. LEXIS 473 (2009)

A flat fee is not a non-refundable fee. Nor can you artificially front-load all of your work.   You have to legitimately earn the money.

Check with your jurisdiction.  You may be required to put flat fee payments in your trust account.  And if In re Mance isn’t affecting you yet, it may soon. More precedents supporting its conclusion continue to pop up around the country.

So how do you work with flat fees?  If you put flat fee payments in your trust account, you can arrange to transfer funds to your operating account based on milestones established in your fee agreement. Events, such as arraignments, or the passage of time can reflect work performed and thus be used to structure fee agreements for non-billable, non-contingency matters.