In South Carolina, unearned advance fees generally belong in trust until earned or spent on expenses, according to South Carolina Judicial Branch.
Key takeaways
- Check which state's rule governs the matter before copying invoice terms.
- Check the agreement for any applicable advance-fee exception.
- Record when card and electronic payments move from operating to trust.
- Check collection status before scheduling a payout from a multi-client trust account.
That rule carries an exception, unless the lawyer and the client have entered into a written agreement concerning the handling of fees paid in advance pursuant to Rule 1.5(f).
Card or electronic payments of unearned fees may be temporary deposits in the operating account if they are promptly moved to trust, according to North Dakota Court System. The North Dakota wording calls these temporary deposits, so your invoice should name the client trust account as the final destination for that money.
Who these retainer rules cover
The rules quoted in this article are rules for lawyers, and the reader is a bookkeeper or owner who invoices law-practice clients and takes advance fees or retainers. The California rule requires that attorneys who handle money belonging to their clients, including fees advanced for services not yet performed, deposit the funds in one or more clearly identifiable trust accounts, according to State Bar of California.
Each named text belongs to one jurisdiction. Read the North Dakota, South Carolina and California wording as the rule of that state, not as the rule everywhere. This article does not present any of these quotes as a rule for businesses that are not law practices.
Before you copy any of this wording onto an invoice, ask the client which rule governs the matter and whether a written agreement applies. Your invoice terms should follow that answer, not a rule from another state. This article gives no advice on any specific trust account.
Illinois appears in the reference table for its timing. According to Lawyers Trust Fund of Illinois, the Illinois Supreme Court announced changes to Rules of Professional Conduct 1.5 and 1.15 with an effective date of July 1, 2023. Before relying on an Illinois invoice term, read the current text.
Rule 1: Put unearned advance fees in trust
Deposit unearned advance fees into a client trust account
Except as provided in Rule 1.5(f), a lawyer shall deposit into a client trust account legal fees and expenses that have been paid in advance, according to North Dakota Court System. Your invoice should describe an advance payment as a deposit, so the bookkeeper can separate it from fees already earned. The wording should also match the destination named in that text.
The South Carolina text starts from the same point with unearned legal fees and expenses that have been paid in advance, according to South Carolina Judicial Branch. Your agreement with the client is the document to check for the written-agreement exception that the South Carolina text describes.
California's rule 1.15 covers fees advanced for services not yet performed, with those funds placed in clearly identifiable trust accounts, according to State Bar of California. A bookkeeper working from that rule should be able to point to the account that received each advance payment.
Rule 2: Withdraw only as fees are earned
Withdraw only as fees are earned or expenses incurred
The North Dakota text says funds are "to be withdrawn by the lawyer only as fees are earned or expenses incurred," according to North Dakota Court System. That wording ties withdrawal to a result, not to the invoice date.
The South Carolina text uses the same withdrawal limit for unearned fees, again subject to the written-agreement exception under Rule 1.5(f), according to South Carolina Judicial Branch. Your bookkeeping should tie each withdrawal to a completed piece of work or a documented expense, so the withdrawal date has a reason next to it.
Put the trigger in plain terms on the invoice. A sentence that says the deposit is held in trust and applied as fees are earned and expenses are incurred gives the client and the bookkeeper the same reading of the payment. Use an invoice approval checklist when reviewing that wording.
Illustrative example: An unearned advance
An illustrative advance payment of 400 goes into trust. With 0 earned fees and 0 incurred expenses, none of that advance is withdrawn under the ordinary withdrawal rule. The bookkeeper records the deposit date and account, then checks for earned fees or documented expenses before recording a withdrawal. This example assumes no applicable exception; check the governing rule and agreement before using the wording.
Rule 3: Card and electronic payments of unearned fees
Move card or electronic payments promptly to trust
The North Dakota text says a lawyer may accept credit card payments or electronic funds transfer payments for unearned fees as temporary deposits into the lawyer's general operating account, according to North Dakota Court System. It adds the condition "if the funds in which a client or a third-party has an interest are promptly transferred from the general operating account to the client trust account."
Your bookkeeping should record the date each card or electronic payment reaches operating and the date it reaches trust, so the gap between those dates can be shown. Payment instructions for these methods should name the trust account as the place the funds end up, because the operating account is a temporary step under that text.
Rule 4: Wait for collected funds before paying out
Disburse only collected funds
A lawyer shall not disburse funds from an account containing the funds of more than one client or third person unless the funds to be disbursed have been deposited in the account and are collected funds, according to South Carolina Judicial Branch. Your payout calendar should start from the date the funds are collected, not from the date the invoice was sent. For invoice scheduling, see invoice payment schedules and due dates.
Allow at least ten (10) days for other deposited instruments
For another instrument payable at or through a depository institution, the South Carolina text says at least ten (10) days have passed since the date of deposit without notice to the lawyer that credit for, or collection of, that instrument has been delayed or is impaired, according to South Carolina Judicial Branch. The quoted clause is labeled (vi), so read it with the surrounding text in that South Carolina rule.
Your records should mark the deposit date of each other instrument, so the ten-day window can be counted from a known date. A simple note beside the deposit entry is enough to show that date later.
Records and annual registration to keep
California Rule of Court 9.8.5 and State Bar Rules, title 2, division 1, rule 2.5 require licensees to register annually all client trust accounts, including IOLTA and non-IOLTA, that were open at any point during the reporting period, according to State Bar of California. The same requirement says licensees complete a self-assessment and certify compliance with the rules of safekeeping, according to State Bar of California.
North Dakota's rule adds a separate-property point: a lawyer shall hold property of clients or third persons that is in a lawyer's possession in connection with a representation separate from the lawyer's own property, according to North Dakota Court System.
Your records should carry a separate line for each advance fee, with the client name, the deposit date and each withdrawal date. Keep the card and electronic payment dates with the same records, so a transfer date can be shown when someone asks for it.
The table below sets out the quoted wording from each named source.
| Publisher | Source | Advance fee wording | Timing or condition wording |
|---|---|---|---|
| State Bar of California | Client trust account protection program page | "fees advanced for services not yet performed" | "deposit the funds in one or more clearly identifiable trust accounts" |
| North Dakota Court System | Rule 1.15 page | "legal fees and expenses that have been paid in advance" | "withdrawn by the lawyer only as fees are earned or expenses incurred" |
| South Carolina Judicial Branch | Rule 1.15 page | "unearned legal fees and expenses that have been paid in advance" | "unless the lawyer and the client have entered into a written agreement" |
| Lawyers Trust Fund of Illinois | Home page | "changes to Rules of Professional Conduct 1.5 and 1.15" | "that will take effect on July 1, 2023" |
Your next step
Today, check your retainer invoice wording against your state's advance-fee rule and note when each deposit is withdrawn. Use the rule text from the state that governs the matter, and keep the quoted wording with the invoice file, so the terms can be traced back to it.
Related guides: Deposit invoice: 4 steps to split the remaining balance · Recurring invoice dates: 14 rules in 4 tools · Bank statement imports: 12 rules across 5 apps.
FAQ
Where do unearned advance fees go?
Under the North Dakota text, a lawyer shall deposit into a client trust account legal fees and expenses that have been paid in advance, according to North Dakota Court System. The South Carolina text says a lawyer shall deposit unearned legal fees and expenses that have been paid in advance into a client trust account, according to South Carolina Judicial Branch. That South Carolina text includes an exception for a written agreement under Rule 1.5(f), according to South Carolina Judicial Branch. Your invoice terms need to be read against that exception.
Can a card payment of an advance fee go into the operating account?
Under the North Dakota text, yes, as a temporary deposit followed by prompt transfer to trust, according to North Dakota Court System. Your records should show the transfer date from operating to trust.
When can funds be paid out after a deposit?
The South Carolina text says a lawyer shall not disburse from an account containing the funds of more than one client or third person unless the funds to be disbursed have been deposited and are collected funds, according to South Carolina Judicial Branch. For another instrument, the same text says at least ten (10) days have passed since the date of deposit without notice that credit or collection has been delayed or is impaired, according to South Carolina Judicial Branch. Your payout schedule should start from the date funds are collected, not the invoice date.
Do trust accounts need to be registered?
California requires licensees to register annually all client trust accounts, including IOLTA and non-IOLTA, according to State Bar of California. That registration covers accounts that were open at any point during the reporting period, according to State Bar of California. This answer is about California's rule, so other states' rules need their own check.
Does the Illinois change affect these rules?
The Illinois announcement concerns Illinois rules, so check the current Illinois text before applying it to an invoice. The Illinois Supreme Court announced changes to Rules of Professional Conduct 1.5 and 1.15 with an effective date of July 1, 2023, according to Lawyers Trust Fund of Illinois.
Do these rules apply to businesses that are not law practices?
These are rules for lawyers, not general rules for other businesses. The California text refers to attorneys who handle money belonging to their clients, according to State Bar of California. For other businesses, the rules that govern them are a separate question.