Linda Artesani explains what a legal retainer is and how it works differently across practice areas. In family law, retainers go into a trust account and are applied to invoices as work is done. Personal injury firms usually skip retainers and recover costs after settlement instead.
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Hi there, Linda Artesani from the Accountants Law Lab. Today we're gonna learn about an essential term that you're gonna come across when working with law firms and attorneys, and that word is retainer. In legal terms, a retainer is an upfront payment made by a client to a law firm to secure secure the attorney's services, whether they're ongoing or for a specific case or a specific matter. And the payment is usually just a, a deposit against future services and expenses. A retainer fee will vary depending on the type of law firm. So the practice area and the severity of the case. For example, if you are working with a family law firm, they're most likely gonna have a retainer engagement with a client when they take on the matter or case, and they'll hold that money into an account, a bank account called a trust bank account or an IOLTA account. And that money will stay there until the legal, the law firm services are provided, the revenue's generated, and then the invoice will be created, and then we'll take that trust money and we'll apply it against the— we'll take it out of the retainer and apply it against that open invoice to pay the invoice. And then send that off to the client so they know how their money is being allocated. The flip side of that is if you work with a personal injury firm, it's totally different. They don't typically take a retainer upfront, but there's a lot of expenses that will happen that the law firm pays for. And then when the money is, when they're awarded the case and the insurance company pays out that, those funds, that's when the monies will be divvied out. So totally different. Typically not a retainer with a personal injury case, But you will see it in most of the other legal practice areas that you're gonna have retainers and trust money. Some areas, depending on where the attorney is practicing law, they're allowed to pay for the client expenses out of that retainer, and some do not. It's a good question to ask the attorney that you're working with to find out how exactly they are handling the expenses give, provided Like a filing fee gets— happens in a law firm. The matter is taken. There's a filing fee right away to file the case in court. Do you pay that filing fee with the EI-ULT or a trust account money, the money that belongs to the client? Or do you pay for it with law firm money, and then it gets paid back? So it's a good question to ask the attorney as you start to work with attorneys and retainers. Now let's talk about how we enter this retainer into QuickBooks. These funds should be entered as a sub-liability account or a trust-type liability account. And this way we can track the funds to ensure separation of the law firm's funds. If it were a journal entry, it would look like this. We would debit the bank account. That would increase the amount of money inside that bank account, and we're gonna credit that client trust liability. It's to establish that your client is holding these funds in safekeeping until they are earned and/or, or returned to the client. Now, if you use billing software like LeanLaw or MyCase or Clio, your entry is going to look entirely different. You're going to actually enter that retainer inside the legal tech software. And maybe even the client will request this, the retainer from the client right out of the software, and then it's paid, and all of that will come through beautifully inside the Legal Billing system, and then it will get pushed into QuickBooks for you. So you don't even have to worry about debits and credits that way. In closing, remember that a retainer is nothing more than a deposit to secure the attorney's services. That's how it's defined. Once the attorney has earned these funds, it becomes their money. However, the attorney can't use the funds before earning them or they'll face severe consequences. I hope this video helped you understand the meaning of a retainer and how to enter it into QuickBooks. If you want to learn more about legal accounting, we have a course called Fast Track Legal Accounting, and you can find that at our website, www.accountantslawlab.com. You can also join our private mastermind group. We meet weekly. We have all sorts of conversations around the legal tech software, the billing software, and so much more. And retainers are definitely a topic we speak about. So we'd love to have you join us. If you wanna continue to follow me, just hit the subscribe button and follow me and we'll see— you won't miss any of the videos. And on that note, I hope you have a wonderful day. Bye now.
