Value of Lawyer Time Managing Trust Accounts Eclipses IOLTA Funding for Legal Aid

One of the most interesting statistics to come out of Clio’s 2018 Legal Trends Report concerns the amount of time that lawyers spend managing their trust accounts. According to Clio’s report, lawyers spend around an hour day on the byzantine task to trust account management.  And although the Clio number seems high on its face, even if we were to halve it for the sake of argument, (i.e., 2 hours/week rather than 5 hrs/week), at a billable rate of $200/hour, that would mean that lawyers are losing $20,000 in billable time annually dealing with trust accounts ($200/hr * 2 hr/wk * 52 hrs/yr).

Now if you’re a regular reader of this blog, you know where I stand on lawyer trust accounts.  With the widespread availability of credit cards, trust accounts are an anachronism since they’re no longer required as a means to ensure that lawyers receive their fees.  In fact, it’s because of trust accounts that  lawyers’ adoption of credit cards was impeded since credit card payments needed to be split between trust and operating accounts.

Even now, trust accounts continue stifle innovation in billing and payment, and create cash flow problems for solo and small firm lawyers.  Yet trust account rules do nothing to prevent lawyers from helping themselves to their clients’ money.

But for all of the downsides of trust accounts, many in the legal profession object to their elimination because interest on lawyers’ trust accounts supports legal aid services.  In 2009, IOLTA fees totaled $124 million, according to Alanet which in turn funded legal aid programs across the country.

So all of this brings me back to the Clio Report.  What if regulators agreed to ditch trust accounts and require lawyers all lawyers to pay $500 — just two hours of billable time — to fund legal aid.  With roughly 800,000 practicing lawyers, we could raise $400 million.  I predict that nearly all lawyers would be willing to pay $500 to be rid of the nonsense of trust accounts once and for all and to recapture $19,500 in opportunity costs and foregone billable hours. Moreover, eliminating trust accounts would enable lawyers to experiment with different payment mechanisms.

Up until now, we never had any real data on how much the cost of trust attorneys is burdening lawyers, particularly solos and smalls. Now that we know, courtesy of Clio, just how harmful and costly trust accounts really are, let’s fix the problem and raise more money for legal aid besides by getting rid of them.

 

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