Fork in the Road

Fork in the Road (Photo credit: Flicktone)

As clients demand further cost certainty from their attorneys, it appears that offers of alternative fee arrangements (which I am defining here, generally, as non-billable hour models) are beginning to affect law firm choice .  Certainly, there are a number of alternative fee arrangements that lawyers may utilize, or derive; and, the flat fee option, and its derivatives, are some ones.  In fact, some practitioners (estate planners, for example) have been using flat fee arrangements for quite some time.

But, not every lawyer charging flat fees knows about the options available for how to account for them.  In Massachusetts, flat fees may be deposited into your operating or your IOLTA account.  (Don’t believe me?  Read this: ‘Flat fees occupy a middle ground and can either be deposited to a trust account and withdrawn as earned or deposited to a personal or operating account subject to refund where required.’)  Functionally, it doesn’t matter which option you choose; practically, it’s a matter of preference.  Since the unearned portion of flat fees must be returned (like retainers, where non-refundable retainers are not allowed in Massachusetts), placing the flat fee into the IOLTA account means that, while you will have to do some more work in tracking the money (when you reconcile the account), you’re virtually assured of having the money available to you to refund (so long as you manage your trust accounts correctly), should you need to refund it (if representation is terminated, by either side, before the fee is earned — for example).  While deposit of the flat fee into the operating account carries with it less burdensome administrative requirements, you are more likely to spend that money to support your firm, rather than holding it back for a potential refund — so, you risk not having the unused portion of the flat fee to refund, should the need arise.  The question is likely further informed by the maturity of the law firm: If you’re operating on a shoestring budget, as a new practitioner, you’ll likely want to deposit your flat fee into your trust account, to be sure you have the money to give back, if you need to give it back; but, if you’re running a practice with significant billings, you may feel more confident that you will have money in your operating account to refund, should you need to make a refund.

The coming revision to the ethics rules, which I wrote about in this space previously, may include a definition for flat fees, and specific direction as to the treatment of those, per proposed new Comment 2A to Rule 1.15.

This post originally appears in the Massachusetts Bar Association’s eJournal.

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