Trust Accounting and Client Funds Under the Colorado Rules
Client funds and trust accounts
Colo. RPC 1.15 requires lawyers to hold client and third-person funds in trust, separate from the lawyer's own funds. Commingling is prohibited except for funds reasonably sufficient to pay bank charges. Trust accounts must be at a Colorado Lawyer Trust Account Foundation (COLTAF)-approved financial institution; nominal or short-term client funds go into an IOLTA account. The lawyer must keep complete records-receipt and disbursement journals, client ledgers, and monthly reconciliations-and preserve them. Client funds must be delivered promptly when due, and disputed funds must remain in trust until the dispute is resolved. Colorado requires overdraft notification to OARC.
Fees held in trust
Advance fee retainers are client funds until earned. A lawyer may deposit a flat fee into an operating account only if the written fee agreement complies with Rule 1.5(f): it must be signed by the client, state that the fee is earned on receipt, and explain the client's right to terminate and receive a refund of unearned amounts. Without that compliant agreement, the fee stays in trust. Earned fees are transferred to operating only after the client is billed or the fee is earned under the agreement.
Worked example
A client pays a $12,000 advance retainer. The lawyer deposits it in the firm operating account and pays office rent. This violates Rule 1.15: the unearned retainer is client property. The correct approach is to deposit $12,000 into the trust account, transfer only earned fees after sending a detailed invoice, and refund the unearned balance at the end of the representation. If the client disputes a $2,000 charge, that amount stays in trust until the dispute is resolved.
Traps that cost marks
- Treating an advance retainer as the lawyer's money on receipt.
- Using trust funds to pay firm overhead or to cover a negative operating balance.
- Failing to reconcile monthly or to keep individual client ledgers.
- Paying a third-party medical lien without confirming the client's consent and the accuracy of the amount.
- Ignoring the overdraft-notification rule; a single bounced trust check can trigger a disciplinary investigation.