When can a lawyer take money out of a retainer?

Retainers are helpful resources for law firms to manage their client’s payments. Not only do they provide funds to kick start their working relationship, but they also make it easier to pay invoices.

Retainers are often paid into an Interest on Lawyer Trust Accounts (IOLTAs). Attorneys are entitled to pay themselves out of the account as they complete client work. However, the key to this transaction is that the attorney has to complete the work before taking the trust account money^[1].

What triggers this permission is client approval. Fees can be transferred once a client reviews and approves an invoice from the attorney. This can be a verbal agreement, but written is always preferable. (And may be mandatory in contingent fee situations.)

Once you’ve cleared with your client that you’re entitled to the funds, make sure to disburse them promptly^[2].

This isn’t the case in every state, though. New York and New Jersey allow clients and law firms to agree on whether detainees are laid into an operating or a trust account. These terms are spelled out in the fee agreement^[3]. On the other hand, in Illinois, retainers are deposited into operating rather into trust accounts if they are intended for future legal services.

Attorney bills can sometimes be greater than the sum total of retainer funds. If they pay the remaining balance, that money shouldn’t go into the trust account. Trusts are intended to hold funds that you haven’t earned yet, but in these cases, you’ve earned those funds.

References

1. Common Lawyer Trust Account Mistakes
2. Managing Client Trust Accounts
3. The 8 Rules of IOLTA Accounts