Can the portion of a flat fee meant to cover specified costs (like a filing fee) be treated as the lawyer's property, or must it go in trust?

Plain-English summary

A lawyer and client agreed on $1,500 for bankruptcy representation, with the fee agreement specifying that $300 would pay the government filing fee and the remaining $1,200 was the lawyer's fee. The committee was asked whether the $300 cost portion could be classified as part of a flat fee and treated as the lawyer's property on receipt, or whether it had to be placed in the lawyer's IOLTA account until the cost was incurred.

The committee answered that the cost portion must go in trust. RPC 1.5(f)(2) makes a flat fee the lawyer's property on receipt (so it is not deposited in trust) only for "specified legal services," and by its plain terms a flat fee does not include advance payments to cover anticipated expenses. RPC 1.15A(c)(2) requires a lawyer, except as provided in RPC 1.5(f), to deposit advance-paid legal fees and expenses into a trust account, to be withdrawn only as fees are earned or expenses incurred. The committee concluded that advances for expenses paid alongside a flat-fee arrangement must be deposited into the lawyer's trust account; if the client pays the full amount in one check, it should be deposited into the IOLTA account and the fee portion withdrawn once the check clears. The committee noted it did not address flat-fee agreements where fees and costs are not segregated and specified, or where the costs are variable.

In practice

Under the Washington rules as they stood at the time of the opinion, the committee held that the flat-fee "property on receipt" treatment under RPC 1.5(f)(2) reaches only specified legal services, not an advance earmarked for a known expense like a filing fee, which must be held in IOLTA under RPC 1.15A(c)(2) until incurred. The opinion identifies the segregated, specified cost advance as the controlling fact: where a single payment combines a flat fee and a specified cost, the committee directs depositing the whole amount in trust and withdrawing the fee portion once the check clears. The committee expressly left open flat-fee arrangements with unsegregated or variable costs.

Common questions

Q: Can a Washington lawyer keep the filing-fee portion of a flat fee as earned on receipt?

A: No. The committee held that an advance specified for expenses cannot be part of a flat fee that is the lawyer's property on receipt; it must be deposited in the IOLTA account and held until the expense is incurred.

Q: Why doesn't the flat-fee rule cover the cost portion?

A: The committee held that RPC 1.5(f)(2) makes only a flat fee for "specified legal services" the lawyer's property on receipt, and by its plain terms a flat fee does not include advance payments for anticipated expenses.

Q: What if the client pays fees and costs in one check?

A: The committee said the single check should be deposited into the IOLTA account, with the fee portion withdrawn once the check clears.

Q: Does this cover every flat-fee-plus-costs arrangement?

A: No. The committee said it did not address flat-fee agreements where fees and costs are not segregated and specified, or where the costs are variable.

Background and rules framework

The opinion interprets Washington RPC 1.5(f)(2) (the flat-fee provision making a flat fee for specified legal services the lawyer's property on receipt) and RPC 1.15A(c)(2) (Model Rule 1.15, requiring advance fees and expenses to be deposited in trust except as provided in RPC 1.5(f)), with RPC 1.5(a) on reasonable fees and expenses. It distinguishes a flat fee for legal services from an advance earmarked for a specified expense, which remains trust property until incurred.

Citations and references

Rules of Professional Conduct:

• Washington RPC 1.5(f)(2) (flat fee for specified legal services as the lawyer's property on receipt)
• Model Rule 1.15 / Washington RPC 1.15A(c)(2) (advance fees and expenses deposited in trust)
• Model Rule 1.5(a) / Washington RPC 1.5(a) (reasonable fees and expenses)

See also

• WA Ethics Op. 2210: trust-account debit card for filing fees
• ABA Formal Op. 475: safeguarding fees subject to division

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1674

Original opinion text

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

Advisory Opinion: 2222
Year Issued: 2012
RPC(s): RPC 1.5(a), 1.5(f)(2), 1.15A, 1.15A(c)(2)
Subject: Deposit of Flat Fees and Costs

FACTS:

Lawyer and client agree that lawyer will be paid $1,500 for bankruptcy representation. The fee agreement states that $300 of that amount will be used to pay the government filing fee and the remaining $1,200 is the lawyer’s fee.

QUESTION PRESENTED:

May the portion of the fee that will be used to pay for costs be classified as part of a flat fee and treated as the lawyer’s property on receipt, or must the portion for costs be placed into the lawyer’s IOLTA account until the costs are incurred?

SHORT ANSWER:

A sum paid in advance specified for expenses cannot be part of a flat fee agreement and must be placed in the lawyer’s IOLTA account and maintained there until the expenses are incurred.

DISCUSSION:

Rule 1.5(a) states: “A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.”

Rule 1.5(f)(2) provides in relevant part:

A lawyer may charge a flat fee for specified legal services, which constitutes complete payment for those services and is paid in whole or in part in advance of the lawyer providing the services. If agreed to in advance in a writing signed by the client, a flat fee is the lawyer's property on receipt, in which case the fee shall not be deposited into a trust account under Rule 1.15A.

It is clear by the plain terms of RPC 1.5(f)(2) that a “flat fee” agreement can only cover specified “legal services” and does not include advance payments to cover anticipated expenses.

Rule 1.15A(c)(2) provides:

Except as provided in Rule 1.5(f), and subject to the requirements of paragraph (h) of this Rule, a lawyer shall deposit into a trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred.

Thus, advances for expenses paid in conjunction with a flat fee arrangement for legal services must be deposited into the lawyer’s trust account. If the payment is advanced as one check it should be deposited into the lawyer’s IOLTA account, and the fee portion should be withdrawn when the check clears.

This opinion does not address a flat fee agreement where the fees and costs are not segregated and specified or where the costs are variable.