What Happens to Lawyer's Trust Account Money When Sued for Malpractice?

When a client sues their lawyer for malpractice, a critical question arises: what happens to the money in the lawyer's trust account? This article seeks to clarify the legal and financial implications, ensuring both clients and lawyers have a better understanding of the situation.

Trust Account Ownership and Function

In many legal jurisdictions, lawyer's trust accounts (or client trust accounts) are governed by strict rules. The funds deposited in these accounts are not the lawyer's property but are considered the property of the clients for whom the funds were collected.

The primary function of trust accounts is to ensure that client funds are held in a separate, secure account. These funds are used to pay any disbursements for the clients' cases, such as court fees, expert witness fees, and other professional expenses. Once these payments are made, the remaining funds are either returned to the client or kept in the account for future disbursements as needed.

Client Funds During Legal Proceedings

When a lawyer settles a case, they may temporarily hold the full amount of the settlement, including their fee. However, this amount can only be held for a short period until it clears. After clearing, the lawyer must ensure that their fee is transferred to their own personal account and then any remaining funds are either returned to the client or placed back into the trust account for future use.

When the client wins a malpractice suit against their lawyer, they can only recover the funds that were originally theirs. The client must prove that these funds were held in their trust account and that they did not exceed any fees the lawyer was entitled to under the case settlement.

Legal Consequences of a Malpractice Verdict

Even if the lawyer is found liable for malpractice, the malpractice verdict affects only the lawyer's personal assets. The money in the trust account is protected from such claims. The client can only recover the funds that were in their account before the lawyer tried to withdraw them. Any additional funds that the lawyer attempted to keep for their own use would have to come from the lawyer's personal assets, not the trust account.

If the lawyer has relevant insurance coverage, the insurance company may pay out claims in full, and the remaining assets in the trust account would not be touched. However, if the malpractice claim exceeds the lawyer's insurance limits, the client may have to exhaust the lawyer's personal assets to recover the funds.

Conclusion

In summary, the money in a lawyer's trust account is never the lawyer's property. If a client brings a malpractice claim, they can only recover their own funds from the trust account. Any additional compensation must come from the lawyer's personal assets, with the court determining which assets are used to satisfy the judgment.

Understanding the function and legal protections of trust accounts is crucial for both clients and lawyers. This ensures that the financial relationship between the client and lawyer remains transparent and fair.