Legal Definitions - client trust account

A client trust account is a specialized bank account that a lawyer or law firm uses to hold money belonging to their clients, keeping it entirely separate from the law firm's own operational funds. This separation is a fundamental ethical and legal requirement designed to protect client money, ensuring it is used only for its intended purpose and remains accessible to the client.

Here are some examples of how a client trust account is used:

• Example 1: Real EstateTransaction Deposit

  Imagine a client is selling a commercial property. The buyer's initial deposit, often a significant sum, is sent to the seller's lawyer to demonstrate commitment to the purchase agreement. The lawyer deposits this money into a client trust account.

  This illustrates the term because the deposit money does not belong to the lawyer; it belongs to the client (the seller) until the transaction closes, or to the buyer if the deal falls through. Holding it in the trust account ensures these funds are protected and can be properly disbursed or returned according to the terms of the sale agreement, without being mixed with the law firm's own operating capital.

• Example 2: Funds for Litigation Expenses

  A client hires a lawyer to represent them in a complex intellectual property dispute. The client provides the lawyer with a specific amount of money intended to cover anticipated court filing fees, expert witness retainers, and costs for obtaining specialized research reports.

  The lawyer places these funds into the client trust account. As the case progresses, the lawyer will draw from this account to pay the court, the expert witnesses, and the research providers directly. This demonstrates that the money is held in trust for these specific client-related expenses, ensuring it is not treated as the law firm's income until it is actually disbursed for the client's benefit.

• Example 3: Proceeds from an Estate Sale

  A lawyer is assisting a client with the administration of their deceased parent's estate. As part of the process, a valuable collection of artwork owned by the estate is sold, and the proceeds from this sale are sent to the lawyer.

  The lawyer deposits these funds into the client trust account. This money belongs to the estate (and ultimately the heirs) and must be held separately until all estate debts, taxes, and administrative costs are settled. Only then can the remaining funds be properly distributed to the client and other beneficiaries, ensuring the estate's assets are managed responsibly and transparently.