The Use of Advance Payment Retainers in the Estate Planning Context

David A. Berek (Credit Suisse Family Wealth Management) and Fred McMorris (McMorris Law Offices, Schaumburg, Illinois) have recently published their article entitled Engagement Letters, Fees, and the Dowling Case, 96 Ill. B.J. 262 (2008).

Here are some excerpts from their article:

Ethical issues for trust and estate practitioners can be particularly acute because the practice area potentially involves multiple clients and highly emotional issues as final wishes and finances. An important key risk management consideration for trust and estate practitioners is the use of engagement letters, especially in light of the recent development in Dowling v Chicago Options Assoc, Inc, 226 Ill 2d 277, 875 NE2d 1012 (2007).
   

The Dowling case specifically discusses fee arrangements, and provides a guide on how to detail fee arrangements, in, for example, an engagement letter. * * *
   

[A]n important element of any engagement letter is to describe the fee arrangement in detail. The Dowling opinion noted that any written fee arrangement or retainer agreement, regardless of the type of retainer contemplated, should clearly define the kind of retainer being paid. If the parties agree that the client will pay a security retainer, that term should be used in the agreement. The agreement should also state that the funds remain the property of the client until used to pay for services rendered and that the funds will be deposited in a client trust account.
   

The Dowling opinion not only offers a review of the two types of retainers that were previously recognized by the Illinois Supreme Court: classic and security interest retainers, but also recognizes the viability of advance payment retainers in Illinois.
   

A classic retainer, also referred to as a true or general retainer, is paid by a client to the attorney to secure the attorney's availability during a specified period or for a specified matter. This type of retainer is earned when paid and immediately becomes property of the attorney, regardless of whether the attorney ever actually performs any services for the client.
   

Under a security retainer, funds paid to the attorney are not considered present payment for future services but are intended to secure payment of fees for the future services the attorney is expected to perform. This type of retainer remains the property of the client and therefore must be deposited in a trust account and kept separate from the attorney's own property until the lawyer applies it to charges for services that are actually rendered. Any unused portion of the retainer is refunded to the client * * *.
   

An advance payment retainer consists of a present payment to the attorney in exchange for the commitment to provide legal services in the future. Ownership of this retainer passes to the attorney immediately upon payment.
   

“[A]dvanced payment retainers should be used "only sparingly, when necessary to accomplish some purpose for the client that cannot be accomplished by using a security retainer." * * *
   

"Advance payment retainer agreements must be in writing and they must clearly disclose to the client the nature of the retainer, where it will be deposited, and how the lawyer or law firm will handle withdrawals from the retainer in payment for services rendered."
   

The written advance payment retainer agreement must
   

• advise the client of the option to place his or her money into a security retainer.
• clearly advise the client that the choice of the type of retainer to be used is the client's alone.
• explain if the attorney is unwilling to represent the client without receiving an advance payment retainer, including the attorney's reasons why.
• set forth the special purpose behind the retainer and explain why an advance payment retainer is advantageous to the client.

These points are important from a drafting perspective, because if "the parties' intent cannot be gleaned from the language of their agreement, we conclude that the agreement must be construed as providing for a security retainer."