Middle of the road: the treatment of flat fees

As clients demand further cost certainty from their attorneys, it appears that offers of alternative fee arrangements (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; the flat fee option, and its derivatives, are some of them. In fact, some practitioners, like estate planners, have been using flat fee arrangements for quite some time.

However, even those who use flat fees may be unaware of 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 Read this: "Flat fees occupy a middle ground and can either be deposited to a trust account and withdrawn as earned or deposited to a personal or operating account subject to refund where required.")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.

The unearned portion of flat fees must be returned, like retainers (non-refundable retainers are not allowed in Massachusetts). So placing the flat fee into the IOLTA account means that, while you will have to do some more work tracking the money when you reconcile the account, you're virtually assured of having the money available to you (so long as you manage your trust accounts correctly) to refund should you need to, such as when representation is terminated by either side before the fee is earned.

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 new 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.

Tip courtesy of Jared Correia, Law Office Management Assistance Program.

Published May 12, 2013


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