Earned vs unearned fees, and when money can leave the trust account

The basic rule

ABA Model Rule 1.15(c) is short: a lawyer deposits legal fees and expenses paid in advance into a client trust account, to be withdrawn only as fees are earned or expenses incurred. Most states have a version of it.

That gives two kinds of money:

• Unearned. Paid for work you have not done yet, or for costs you have not paid yet. It is the client’s money. It sits in trust, on that client’s ledger.
• Earned. You have done the work, or paid the cost, and you are entitled to the money. It is yours. It moves to your operating account.

The comment to Model Rule 1.5 states the consequence: a lawyer may require advance payment of a fee, but is obliged to return any unearned portion. Rule 1.16(d) says the same on termination: refund any advance payment of a fee or expense that has not been earned or incurred.

Advance fees, retainers and flat fees

The word “retainer” causes most of the confusion, because it is used for three different things.

Advance fee deposit. The client pays an amount up front and you bill against it: an hourly matter with a deposit, for example. This is unearned when paid. It goes in trust and comes out as you bill. Florida’s comment to Rule 5-1.1 describes these as funds against which costs and fees are billed, and says they are the property of the client or whoever paid on the client’s behalf.

True or general retainer. A payment made only to secure your availability for a period or a matter, not as payment for any legal work. Florida’s comment says retainers in this sense are earned on receipt and, being the lawyer’s funds, may not be placed in the trust account. California’s Rule 1.5(d) defines a true retainer the same way, as a fee paid to ensure the lawyer’s availability “but not to any extent as compensation for legal services.”

Flat fee. A fixed amount for described services, regardless of how much work they take. California’s Rule 1.5(e) defines it that way and allows it to be paid in whole or in part in advance. Whether a flat fee paid up front is earned when paid, earned in stages, or earned only when the work is done is the question on which states differ most.

When money can move from trust to operating

Under Rule 1.15(c), money moves when it is earned or the expense has been incurred. In practice:

• Hourly work against a deposit. When the time has been worked and billed. Sending the invoice before you move the money gives the client a chance to question it while it is still in trust.
• Costs. When you pay the cost from trust on the client’s behalf, or when you have paid it from operating and are reimbursing yourself.
• Flat fees. As the agreement and your state’s rule allow. California’s comment to Rule 1.15 says a lawyer and client may agree on when or how an advance fee is earned and may be withdrawn, subject to Rule 1.5. Milestones written into the engagement letter (a portion on filing, a portion at the hearing) make that clear.
• Contingent fees. When the recovery comes in and the fee is fixed under the signed agreement.

Two rules work on both sides of that line.

Do not take it early. Money withdrawn before it is earned is client money in your operating account.

Do not leave it late. Once a fee is earned and undisputed, leaving it in trust mixes your money with clients’ money. Model Rule 1.15(b) allows your own money in trust only to cover bank charges. California’s Rule 1.15(c)(2) requires the lawyer’s portion of mixed funds to be withdrawn at the earliest reasonable time after the lawyer’s interest becomes fixed.

If the client disputes it, it stays. The comment to Model Rule 1.15 says a lawyer need not pay out funds the lawyer reasonably believes represent fees owed, but may not hold funds to coerce the client, must keep the disputed portion in trust, and must promptly distribute the undisputed portion. Florida’s Rule 5-1.2(e) likewise limits electronic transfers of fees out of trust to fees that are earned and not in dispute.

The “earned on receipt” question

Some lawyers write “earned on receipt” or “non-refundable” into flat fee and retainer agreements so the money can go straight to operating. The ABA Model Rules do not say when that label is allowed, and the states that do address it do not all say the same thing. Two examples:

California. Rule 1.5(d) allows a fee to be called “earned on receipt” or “non-refundable” only if it is a true retainer and the client agrees in writing, after disclosure, that the client will not be entitled to a refund. A flat fee is not a true retainer. Rule 1.15(b) allows a flat fee paid in advance to go into the operating account only if the lawyer discloses in writing that the client may require it to be held in trust until earned and that the client is entitled to a refund of any unearned amount if the representation ends early or the services are not completed. If the flat fee exceeds $1,000, the client’s agreement and those disclosures must be in a writing signed by the client. Without them, the comment says, the flat fee goes in trust.

Florida. The comment to Rule 5-1.1 treats a retainer in the narrow sense, paid to guarantee availability, as earned on receipt and not to be placed in trust, while advances billed against are the client’s property and must be held in trust. It adds that the rules’ test of excessiveness applies to all fees, “including retainers, nonrefundable retainers, and minimum or flat fees.”

Other states have their own rules, opinions and case law on this, and some are stricter. The safe reading of the label is narrow: calling a fee earned on receipt does not by itself make it earned, and under Model Rule 1.16(d) an unearned advance is still refunded when the representation ends. Read your state’s Rule 1.5 and Rule 1.15, and any ethics opinions on flat fees, before you put that phrase in an engagement letter.

Putting it in the engagement letter

Most disputes about earned and unearned fees start with an agreement that did not say. A clear letter states:

• whether each payment is an advance against future work, a flat fee, or a true retainer
• where the money will be held, and any disclosure your state requires to hold it elsewhere
• when and how each part is earned, with milestones for a flat fee
• how the client will see what was withdrawn, such as an invoice or a trust statement
• what is refunded if the representation ends early

The engagement letter guide has a sample outline with a section for each of these.

How Coil handles this

Coil records every advance deposit in trust against the client and matter it belongs to, and every transfer out against the same ledger, so what each client still has in trust is always visible. It refuses any transfer or disbursement that would take a client below zero, and a deposit dated in the future is not spendable until its date. Invoicing is in testing and not available today, so for now the invoice that explains a withdrawal comes from wherever you bill. See trust accounting software.

Last checked October 28, 2026. This is general information, not legal advice. Rules differ by state and change; check your own bar’s rules before relying on it.