Can an elder-law lawyer make an attorney fee agreement irrevocable and non-refundable so the prepaid fee counts as a Medicaid spend-down?

Plain-English summary

An elder-law lawyer often helped clients "spend down" assets to qualify for Medicaid. Prepaying a funeral plan can count as a legitimate spend-down only if the plan is irrevocable, so the lawyer asked whether he could similarly draft his own attorney fee agreements to be irrevocable, as another way to help a client spend down assets. He acknowledged the general problem with non-refundable fees but asked whether an irrevocable agreement could be drafted.

The committee answered no: fee agreements may not be irrevocable, because such agreements would violate RPC 1.5's requirements for fees and the client's right under RPC 1.16(d) to a refund of unearned fees on termination. It explained that a lawyer may not charge an unreasonable fee (RPC 1.5(a)) and that time and labor required is a reasonableness factor (RPC 1.5(a)(1)). Because circumstances can reduce the work, the client may make a decision that shortens the matter, the client or lawyer may die, the lawyer may be disbarred, or the client may fire the lawyer, fees already paid may have to be returned or future obligations adjusted (RPC 1.16(d) and RPC 1.5, Comment 4). The committee added that whether an expenditure is "irrevocable" enough to satisfy Medicaid eligibility is a legal question it could not answer, but that if the applicable regulations would prohibit adjusting the fee to reflect the work actually done when the representation ends, the lawyer cannot enter the proposed agreement.

In practice

Under the Washington rules as they stood at the time of the opinion, the committee treated the client's right to a refund of unearned fees as something a lawyer cannot contract away. The opinion holds that an irrevocable, non-refundable fee agreement conflicts with RPC 1.5's reasonable-fee requirement and RPC 1.16(d)'s refund obligation, because events that reduce the work, the client ending the representation, death, or disbarment, may require returning paid fees or adjusting future ones. The committee declined to decide the Medicaid-law question of what makes an expenditure "irrevocable," but framed the consequence in the alternative: if the Medicaid regulations would forbid adjusting the agreed fee to match the work actually performed, then the lawyer cannot use the kind of agreement proposed.

Common questions

Q: Can a lawyer make a fee agreement irrevocable so the prepaid fee counts toward a Medicaid spend-down?

A: No. The committee concluded fee agreements may not be irrevocable, because that would violate RPC 1.5 and the client's right under RPC 1.16(d) to a refund of unearned fees when the representation ends.

Q: Why can't a fee be locked in as non-refundable?

A: Because reasonableness under RPC 1.5(a) turns partly on the time and labor required (RPC 1.5(a)(1)), and events such as a shortened matter, the client firing the lawyer, or death may require returning paid fees or adjusting future ones under RPC 1.16(d) and RPC 1.5, Comment 4.

Q: Did the committee decide whether such a fee would satisfy Medicaid rules?

A: No. The committee said what counts as an irrevocable expenditure for Medicaid eligibility is a legal question it could not answer, but noted that if those regulations bar adjusting the fee to the work done, the lawyer cannot enter the proposed agreement.

Background and rules framework

The opinion interpreted Washington RPC 1.5(a) and 1.5(a)(1) (Model Rule 1.5, reasonable fees and the time-and-labor factor) and RPC 1.16(d) (Model Rule 1.16, returning unearned fees on termination), along with RPC 1.5, Comment 4. The committee read these rules together to mean a fee cannot be made permanently non-refundable when later events may reduce the work or end the representation.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.5 / Washington RPC 1.5(a), 1.5(a)(1), Comment 4 (reasonable fees; time and labor)
• Model Rule 1.16 / Washington RPC 1.16(d) (returning unearned fees on termination)

See also

• WA Ethics Op. 2176: keeping uncashed trust-account funds
• WA Ethics Op. 2178: pre-representation judgment to secure fees

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1624

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Advisory Opinion: 2179
Year Issued: 2008
RPC(s): RPC 1.5, 1.16(d), 1.5(a), 1.5(a)(1)
Subject: Non-refundable fee arrangements for Medicaid clients

I. Facts

The inquiring lawyer practices elder law and frequently helps his clients ‘spend down’ their financial holdings to meet eligibility requirements for Medicaid benefits. One way to spend down financial holdings is to prepay funeral plan expenses. However, under the rules, prepaying funeral plan expenses will only qualify as a legitimate spend-down if the funeral plan is irrevocable. The lawyer wants to draft his attorney fee agreements so as to be irrevocable as an additional way to help the client spend down financial holdings.

II. Question

The lawyer is aware of the problem with non-refundable attorney fees, but asks if there is any way that an irrevocable fee agreement could be drafted.

III. Answer

Attorney fee agreements may not be irrevocable. Such agreements would violate the requirements for fees in RPC 1.5 and the client’s right to refund of unearned fees upon the termination of the representation identified in RPC 1.16(d).

IV. Analysis

“A lawyer shall not make an agreement for, charge, or collect an unreasonable fee”. . . .See RPC 1.5(a). One of the factors in determining the reasonableness of the fee is the time and labor required. RPC 1.5(a)(1). A lawyer who expends a great deal of time working on a client’s case may reasonably charge a larger fee than one who spends only a short period of time working on the case. While lawyer and client might be able to anticipate the amount of time necessary for completion of the work as initially contemplated, the client may make some decision in the midst of the representation which reduces the amount of the lawyer’s work, the client may die, the lawyer may die or be disbarred, or the client may fire the lawyer. In each of these cases, fees already paid would have to be returned and/or the client obligations for future payments amended. RPC 1.16(d) and RPC 1.5, Comment 4.

What constitutes an irrevocable expenditure satisfying the Medicaid eligibility requirements is a legal question which this Committee may not answer. However, if the applicable regulations would prohibit adjustment of an agreed fee in light of the work actually done when the representation is ended, then the inquiring lawyer cannot enter into the kind of fee agreement he is proposing.