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Understanding the Difference Between Trust Accounts and General Retainers

Note: General retainers are typically supported for U.S. firms only.

A general retainer and a trust (or client) account are both ways clients pay lawyers in advance, but they’re handled very differently — especially from an accounting and ethical perspective. The following is a very high-level explanation of the two. 

 

What is a General Retainer?

A general retainer is payment to secure the lawyer’s availability, not necessarily for specific future work. 

Some of the key characteristics of a general retainer include:

  • Funds in the retainer are earned by the lawyer immediately upon payment.
  • Funds belong to the law firm right away and are deposited into the firm’s operating account.
  • Depending on the jurisdiction or agreement terms with the client, retained funds might not be refundable.
  • Funds are used when a client wants ongoing or priority access to a lawyer.

For example, let's say a company pays a law firm $5,000 per month so the firm will be available for quick consultations and conflicts won’t prevent representation. Even if the client barely uses the lawyer that month, the lawyer usually keeps the fee because the payment was for availability.

Note: General retainers are mostly used in the U.S.

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What is a Trust Retainer or Trust Account?

A trust retainer or account is money paid in advance for future legal services or expenses. Some of the key characteristics of a trust account include:

  • Funds are not earned when they are first received. They still belong to the client until work is completed.
  • Funds must be deposited into a trust account.
  • The lawyer transfers funds from the trust account to the operating account only after earning them through billable work.
  • Unused funds are refundable to the client.

For example, let's say a client gives a lawyer $10,000 for an upcoming litigation matter. The client's money then sits in trust and as the lawyer bills their time, a portion of that money (e.g., $2,000) to cover the work is transferred from the trust to the operating account. The remainder of the trust amount ($8,000) stays in the trust account until it's either earned or refunded.

Note: Trust accounts are used in firms across the globe.

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