505
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| (The only “nonrefundable” fees are the “quite rare” retainers (often called “true retainers”) — which can be analogized to option contracts. Those: (1) require a lawyer to be available to provide services for a defined period (which will be separately billed at the time), and (2) must be taken into income immediately.<br>Otherwise, what many lawyers call “retainers” involve “lawyer taking] possession — but not ownership of funds to secure payment for the services the lawyer will render to the client in the future.” Those can include a “flat fee” or “fixed fee” — which must remain in trust until the lawyer performs the agreed-upon work (this sometimes involves “dividing the representation into segments”). Under the ABA Model Rules, those types of fees “cannot be nonrefundable.” Lawyers should use the term “advance” rather than “retainer” in these common circumstances — and “[e]xplain that the sum deposited will be applied to the balance owed for work on the matter, and how and when this will happen” -- such as monthly invoices, “dividing the representation into reasonable segments and providing for withdrawal of a reasonable portion of the deposited fee as the representation progresses, and the fee becomes partially earned.” All but a handful of states require such unearned advance fees to be placed in trust — a few states provide for such “nonrefundable” or “earned on receipt” fees (mentioning Washington, Oregon, Arizona, Florida and New York). Under ABA Model Rule 1.16(d), lawyers must refund any unearned fees when a representation ends (the calculation of which sometimes involves a court’s apportionment). |