Must a New York lawyer deposit a refundable advance fee in a client trust account, and who keeps the interest it earns?
NY State Bar Ethics Opinion 570: Advance fee payments and trust accounts
Short answer: The opinion concluded that refundable advance fee payments need not be treated as client funds or held in a trust account, and the lawyer may keep any interest, but the lawyer may not commingle them in the trust account if treating them as the lawyer's own, and must promptly return any unearned portion.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.
Plain-English summary
A lawyer received from new clients advance payment of fees expected to be earned during the representation, agreeing to return any portion not earned. Though she assumed these advances were not client funds and need not go in a trust account, she had deposited them there anyway, and asked whether she could keep the interest. The committee framed the answer as turning on whether advance fee payments are client funds under DR 9-102(A): if they were, the interest would belong to the client (citing ABA Formal Op. 348, N.Y. State 532, and Nassau County 84-2).
The committee concluded that advance payments of legal fees need not be considered client funds and need not be deposited in a client trust account, so the lawyer may retain the interest earned on them. It reasoned that DR 9-102(A) expresses the fiduciary duty not to commingle the property of others with the lawyer's own, and that funds clearly belonging to others (settlement proceeds, estate distributions, real estate closing funds) are covered, but a refundable fee advance the lawyer treats as her own is not. Two consequences followed. A lawyer who treats the advances as her own, and keeps the interest, may not deposit them in the client trust account, because that would be impermissible commingling. Alternatively, the lawyer may agree to treat advance fee payments as client funds and deposit them in the trust account, in which event any interest earned must be remitted to the client. In either case, the lawyer must promptly return any portion of the advance not earned in rendering services (DR 2-110(A)(3)). The opinion clarified N.Y. State 532.
Currency note
This opinion was issued in 1985, before New York replaced the Code of Professional Responsibility with the Rules of Professional Conduct in 2009 (safekeeping property now appears at Rule 1.15 and return of unearned fees on termination at Rule 1.16). New York's later rules and case law on advance fees and "nonrefundable" retainers may have changed the analysis. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.
Common questions
Q: Must a refundable advance fee go in a client trust account?
A: No. The committee held advance fee payments need not be treated as client funds or deposited in a trust account.
Q: Who keeps the interest on an advance fee?
A: The lawyer, if the advance is treated as the lawyer's own funds. The committee held any interest earned on fee advances may be retained by the lawyer in that case.
Q: Can the lawyer deposit the advance in the trust account anyway?
A: Not if the lawyer treats it as the lawyer's own funds; the committee held that would be impermissible commingling. The lawyer may instead agree to treat the advance as client funds in the trust account, but then the interest belongs to the client.
Q: What happens to fees that are not earned?
A: They must be returned. The committee held the lawyer is obliged to promptly return any unearned portion of the advance on termination of the representation (DR 2-110(A)(3)).
Background and rules framework
The opinion interpreted DR 9-102(A), the anti-commingling and trust-account rule, and DR 2-110(A)(3), the duty to return unearned fees on withdrawal. The closest current Model Rule analogues are Rule 1.15 (safekeeping property) and Rule 1.16(d) (returning unearned fees on termination).
Citations and references
Rules of Professional Conduct:
- MR 1.15 (safekeeping property of clients and third persons)
- MR 1.16(d) (returning unearned fees on termination)
- NY DR 9-102(A); DR 2-110(A)(3)
Other opinions cited:
- N.Y. State 532 (1981): escrow agent's duties; clarified here as to advance fees
- ABA Formal Op. 348 (1982): interest on client funds belongs to the client
- Nassau County 84-2 (1984): treatment of interest on client funds
See also
- NY State Bar Op. 575: Escrow deposits and the duty to consider an interest-bearing account
- NY State Bar Op. 582: Interest on the escrow float before a settlement check clears
- NY State Bar Op. 600: Using attorney credit to back a client's credit
Source
- Landing page: https://nysba.org/opinion-570/