A
- ABA Model Rules
- The Model Rules of Professional Conduct published by the American Bar Association, which serve as the basis for attorney ethics rules in most U.S. jurisdictions. State bars adopt, modify, or supplement these rules to govern attorney conduct, including the handling of client funds.
- ABA Model Rule 1.15
- The ABA Model Rule governing safekeeping of client property. It requires attorneys to hold client funds in a separate trust account, keep complete records of all trust property, promptly deliver funds owed to clients, and provide a full accounting upon request. Most state ethics rules derive their IOLTA and client-fund requirements from this rule.
- ACH
- Automated Clearing House — the U.S. electronic network that processes batch credit and debit transfers between bank accounts. ACH is commonly used for settlement disbursements because it is low-cost and widely supported, though transfers typically settle in one to three business days.
- Attorney Fees
- The portion of a gross settlement amount retained by the law firm as compensation for legal services rendered, typically calculated as a percentage of the gross settlement under a contingency fee agreement. Attorney fees are disbursed from the trust account only after a signed settlement statement is executed and all liens are resolved.
- Attorney Referral Fee
- Compensation paid by the receiving attorney to the referring attorney for directing a client to that attorney's practice. Per ABA Model Rule 1.5(e), referral fees are permissible if: the total fee is reasonable, the client is informed in writing, and both attorneys either share responsibility for the matter or the referring attorney's share is proportionate to the services performed.
- Audit Trail
- A complete, chronological record of all transactions, changes, and events associated with a trust account or matter. A defensible audit trail captures who performed each action, when, and what changed, enabling bar auditors and courts to reconstruct the full financial history of a client's funds. Per ABA Model Rule 1.15, attorneys must maintain trust records for at least five years (or longer, depending on state rules).
See also:ABA Model Rule 1.15
See also:Three-Way Reconciliation
B
- Balance Billing
- The practice of a healthcare provider billing a patient (or their attorney) for the difference between the provider's billed charges and the amount paid by an insurer or lien holder. In personal injury cases, balance billing disputes often arise after a medical lien is reduced and the provider attempts to collect the remaining balance from settlement proceeds.
C
- Case Costs
- Litigation expenses advanced by the law firm on behalf of the client, including filing fees, expert witness fees, deposition costs, medical record retrieval, and investigation expenses. Under a contingency fee agreement, case costs are typically reimbursed to the firm from the client's net settlement proceeds before the client's share is disbursed.
- Client Trust Account
- See Trust Account. A bank account separate from the attorney's operating funds, maintained specifically to hold client funds, settlement proceeds, and third-party funds entrusted to the attorney. Often used interchangeably with 'attorney trust account.'
- Commingling
- The prohibited act of mixing a client's funds with the attorney's personal or operating funds in the same bank account. Commingling is a serious ethical violation under ABA Model Rule 1.15 and virtually all state equivalents, and can result in suspension or disbarment. Even depositing a small amount of attorney funds into a trust account (beyond the minimum needed to cover bank fees) can constitute commingling.
- Common Fund Doctrine
- An equitable principle that permits an attorney who recovers a fund benefiting multiple parties (such as subrogation lien holders) to require those parties to contribute proportionately to the attorneys' fees and litigation costs. In personal injury cases, the doctrine is used to reduce Medicare, Medicaid, and insurer lien amounts by an equitable share of the attorney's fee.
- Contingency Fee
- A fee arrangement in which the attorney is compensated only if the case is won or settled, typically as a fixed percentage of the gross settlement or judgment. Per ABA Model Rule 1.5(c), contingency fee agreements must be in writing and specify the method of determining the fee, including any deductions for costs.
- Conversion (of Client Funds)
- The intentional or reckless use of client funds for the attorney's own purposes or benefit, distinct from the client's matter. Conversion of client funds is among the most serious ethics violations and almost always results in disbarment. Unlike commingling (which may be inadvertent), conversion involves actual misappropriation.
E
- Eligible Institution
- A financial institution approved by the state IOLTA program to hold attorney trust accounts. To qualify, the institution must typically be insured by the FDIC, agree to remit net interest earned on IOLTA accounts to the state's IOLTA foundation, and comply with overdraft notification requirements. Each state publishes a list of approved eligible institutions.
- ERISA Lien
- A reimbursement claim asserted by an employer-sponsored health plan governed by the Employee Retirement Income Security Act (ERISA) for medical benefits paid on behalf of a plan participant who later recovers damages from a third party. ERISA plans often contain strong anti-subrogation language that, unlike state law claims, may be enforceable against the full settlement amount, making them particularly complex to negotiate.
- ERISA Subrogation
- The right of an ERISA-governed health plan to step into the shoes of the plan participant and pursue reimbursement of benefits paid, directly from a third-party tortfeasor's settlement proceeds. Federal preemption under ERISA Section 514 may override state anti-subrogation statutes, making ERISA lien resolution a specialized area requiring careful analysis of the plan documents.
- Escrow
- An arrangement in which a neutral third party holds funds, documents, or assets on behalf of two or more parties to a transaction until specified conditions are met. In the context of personal injury settlements, escrow may refer to funds held pending resolution of outstanding liens or disputes over the allocation of settlement proceeds.
- Escrow Account
- A designated bank account used to hold funds in escrow. In legal practice, an attorney trust account functions similarly to an escrow account, holding settlement proceeds until all conditions for disbursement are satisfied — including satisfaction of medical liens, reimbursements, and execution of the settlement agreement.
F
- FedNow
- The Federal Reserve's instant payment infrastructure, launched in 2023, which enables real-time, 24/7/365 settlement of payments between participating financial institutions. Unlike ACH (which batches transactions), FedNow settles each payment individually within seconds, making it suitable for time-sensitive disbursements.
- Fee Sharing
- The division of a legal fee between two or more attorneys who are not members of the same firm. Per ABA Model Rule 1.5(e), fee sharing is permitted only if the division is proportionate to the services performed by each lawyer (or each assumes joint responsibility), the client is informed in writing and does not object, and the total fee is reasonable.
- Fee Splitting
- Often used interchangeably with fee sharing, fee splitting refers to dividing legal fees with non-attorneys, which is generally prohibited under ABA Model Rule 5.4 and state equivalents. The term is also used colloquially to describe improper fee arrangements that do not comply with the requirements of ABA Model Rule 1.5(e).
- Fiduciary Duty
- The highest standard of legal obligation, requiring an attorney to act solely in the client's best interest with respect to the client's funds and property. In the context of trust accounting, the fiduciary duty requires attorneys to safeguard client funds, avoid commingling, maintain accurate records, and promptly disburse funds when the client is entitled to them.
- Full and Final Release
- See General Release. A legal document signed by the plaintiff that discharges all claims against the defendant arising from the incident in dispute, in exchange for the settlement payment. Execution of the release is typically a condition precedent to the defendant's obligation to fund the settlement.
G
- General Release
- A legal document signed by the claimant releasing the defendant and related parties from all claims — known and unknown — arising from the incident that gave rise to the litigation or claim. Typically a prerequisite to receiving settlement funds, the general release is executed before or concurrently with disbursement.
- Gross Settlement
- The total amount of money paid by the defendant or insurer to resolve a personal injury or other civil claim, before any deductions for attorney fees, case costs, or medical liens. The gross settlement figure is the starting point for preparing the settlement statement and calculating net recovery.
H
- Hold Harmless
- A contractual provision in which one party agrees to indemnify and protect another party from liability or claims arising from a specified event or action. In settlement disbursement, an attorney may require a medical provider to execute a hold harmless agreement as part of a lien reduction arrangement, confirming that the provider will not pursue additional recovery from the client.
- Hospital Lien
- A statutory claim asserted by a hospital against a patient's personal injury recovery, to secure reimbursement for emergency or inpatient medical services provided to the patient as a result of the injury. Hospital lien statutes exist in most states, but vary significantly in scope, notice requirements, and enforceability.
I
- Indemnification
- A contractual or legal obligation of one party to compensate another for losses or liabilities incurred. In the context of settlement disbursements, indemnification clauses may appear in lien reduction agreements, requiring the attorney or client to indemnify the lien holder against future claims or balance billing from other providers.
- IOLTA
- Interest on Lawyers' Trust Accounts — a program through which attorneys hold small or short-term client funds in pooled interest-bearing trust accounts, with the net interest remitted to the state IOLTA foundation to fund civil legal aid and law school programs. IOLTA programs are mandatory in 47 states and the District of Columbia, per each jurisdiction's rules of professional conduct. Individual client funds that are large enough or held long enough to generate net interest for the client are held in separate, individual interest-bearing accounts rather than the pooled IOLTA account.
- IOTA (FL variant)
- Interest on Trust Accounts — the name used in Florida for its mandatory attorney trust account interest program, equivalent to IOLTA in other states. Florida's IOTA program, administered by the Florida Bar Foundation, requires attorneys to maintain qualifying client funds in IOTA accounts at approved financial institutions, with interest remitted to the Foundation.
See also:IOLTA
K
- KYB/KYC
- Know Your Business / Know Your Customer — compliance processes used by financial institutions and regulated entities to verify the identity of business clients (KYB) and individual customers (KYC) in order to comply with anti-money laundering (AML) regulations and prevent financial fraud. In the context of legal disbursements, KYC procedures may be required when onboarding clients for electronic payment methods or when wire transferring settlement funds.
L
- Lien Holder
- Any party that holds a legally enforceable claim against settlement proceeds for services rendered or payments made on behalf of the plaintiff, including health insurers, Medicare, Medicaid, workers' compensation carriers, and medical providers. Lien holders must generally be paid or released before the plaintiff's net recovery can be disbursed.
- Lien Holdback
- The portion of settlement proceeds withheld from disbursement to the client pending resolution of a disputed or unresolved lien. A lien holdback allows the law firm to release the undisputed portion of the client's recovery promptly while preserving funds to satisfy remaining lien obligations.
- Lien Negotiation
- The process of negotiating with medical providers, insurers, or government agencies to reduce the amount owed on a lien claim against settlement proceeds. Effective lien negotiation can increase the client's net recovery by reducing payments to lien holders. Attorneys may invoke the common fund doctrine, the made-whole doctrine, or other equitable arguments as leverage.
- Lien Reduction
- The outcome of a successful lien negotiation, resulting in the lien holder accepting less than the full face value of the lien. A lien reduction is typically documented with a payoff letter or reduction agreement from the lien holder, specifying the reduced amount and any conditions of acceptance (e.g., payment by a certain date).
- Lump Sum Settlement
- A one-time, single payment to the plaintiff in full satisfaction of all claims, as opposed to a structured settlement that involves periodic payments over time. Lump sum settlements are the most common form of resolution in personal injury cases and result in the law firm receiving and disbursing the full settlement amount through the trust account.
M
- Made-Whole Doctrine
- An equitable principle providing that a subrogating insurer or lien holder cannot recover from the plaintiff's settlement until the plaintiff has been 'made whole' — fully compensated for all losses suffered. Where the total settlement is less than the plaintiff's total damages, the made-whole doctrine may bar or limit the lien holder's recovery. Applicability varies significantly by state and by whether the plan is governed by state or federal law.
- Mandatory Bank Approval
- The requirement in most states that an attorney maintain trust accounts only at financial institutions that have been approved by or have entered into agreements with the state IOLTA program or state bar. Approved institutions agree to (1) remit net interest on pooled IOLTA accounts to the state foundation and (2) notify the state bar of any overdrafts on attorney trust accounts.
- Medicaid Lien
- A claim by a state Medicaid program for reimbursement of medical expenses paid on behalf of a Medicaid-enrolled plaintiff who recovers damages in a personal injury action. Federal law (42 U.S.C. § 1396p) and the Supreme Court's ruling in Arkansas Department of Health & Human Services v. Ahlborn limit Medicaid liens to the portion of the settlement attributable to past medical expenses.
- Medicare Conditional Payment
- A payment made by Medicare for medical services related to a personal injury when it is reasonably anticipated that a primary payer (such as a liability insurer) will ultimately be responsible. When a settlement is reached, Medicare must be reimbursed for its conditional payments before the plaintiff receives proceeds, pursuant to the Medicare Secondary Payer Act (42 U.S.C. § 1395y(b)).
- Medicare Set-Aside (MSA)
- A financial arrangement that allocates a portion of a workers' compensation or liability settlement to cover future medical expenses that would otherwise be paid by Medicare. MSAs are used to protect Medicare's interest when settling cases involving Medicare beneficiaries with anticipated future medical needs related to the injury. CMS (Centers for Medicare & Medicaid Services) has formal review thresholds for workers' compensation MSAs; liability MSAs do not have a formal CMS review process but are used voluntarily.
- Medical Lien
- A legally enforceable claim asserted by a medical provider or insurer against a personal injury plaintiff's settlement proceeds, to secure reimbursement for medical treatment provided for injuries arising from the incident. Medical liens include hospital liens, provider liens, health insurance subrogation claims, Medicare conditional payments, Medicaid liens, ERISA liens, and workers' compensation liens.
- Medical Provider Lien
- A lien asserted by a treating physician, clinic, or other healthcare provider for medical services rendered to an injury plaintiff on a lien basis — meaning the provider agreed to defer payment until the matter is resolved. Provider liens are governed by state statutes and may require specific notice procedures to be enforceable.
N
- Net Recovery
- The amount of settlement proceeds remaining for the client after deducting attorney fees, case costs, and payments to lien holders from the gross settlement amount. The net recovery is the client's actual take-home amount and is typically reflected as a line item on the settlement statement.
- NPI (Provider Verification)
- National Provider Identifier — a unique 10-digit identification number issued by CMS to every healthcare provider (individual or organization) that submits claims to federal healthcare programs. In the context of settlement disbursements and lien resolution, NPI numbers are used to verify medical provider identities and ensure accurate payoff to the correct entity.
O
- Overdraft Notification
- A mandatory reporting mechanism required in virtually all states under which financial institutions holding attorney trust accounts must promptly notify the state bar or disciplinary authority whenever a trust account is overdrawn, regardless of the reason. Overdraft notification requirements help regulators identify misappropriation of client funds and potential ethical violations early.
P
- Payoff Letter
- A written communication from a lien holder or creditor specifying the exact amount required to fully satisfy an outstanding lien or debt as of a given date, along with the expiration date of the quoted payoff figure and wire or payment instructions. Payoff letters are essential to finalizing settlement disbursements and must be obtained before issuing checks or electronic payments to lien holders.
R
- Referral Fee
- Compensation paid to an attorney or other party for referring a client or matter to another attorney. In the legal context, referral fees between attorneys are governed by ABA Model Rule 1.5(e) and state equivalents. Referral fees paid to non-attorneys are generally prohibited under ABA Model Rule 5.4. See also Attorney Referral Fee.
- Reimbursement
- The repayment to an insurer, government program, or other party for expenses they have previously paid on behalf of the plaintiff. In personal injury settlements, reimbursement obligations to Medicare, Medicaid, ERISA health plans, and workers' compensation carriers must be satisfied from settlement proceeds before the client receives net recovery.
- Release
- A legal document signed by the plaintiff that relinquishes specific legal claims against named defendants or parties in exchange for settlement consideration. The scope of the release — whether limited to specific claims or a general/full release — is a key term negotiated in any settlement.
- RTP (Real-Time Payments)
- Real-Time Payments — a payment rail operated by The Clearing House enabling instant, 24/7 money transfers between participating U.S. financial institutions. RTP payments settle in seconds and are irrevocable once sent. Like FedNow, RTP is increasingly used for rapid disbursement of settlement proceeds, particularly for time-sensitive client payments.
S
- Settlement Agreement
- A binding contract between the plaintiff and defendant (and/or insurer) that specifies the terms under which the dispute is resolved, including the total settlement amount, payment terms, release of claims, and any confidentiality obligations. The settlement agreement governs when and how funds are transferred and released.
- Settlement Check
- The payment instrument (physical check or electronic transfer) issued by the defendant's insurer or counsel to the plaintiff's attorney in satisfaction of the settlement agreement. Settlement checks are deposited into the law firm's IOLTA trust account and held until they clear, after which the funds may be disbursed pursuant to the settlement statement.
- Settlement Disbursement
- The process of distributing settlement proceeds from the attorney trust account to the appropriate parties — including the client, medical lien holders, referring attorneys, and the law firm itself — following execution of the settlement agreement and lien resolution. A compliant disbursement requires a signed settlement statement, resolved liens, cleared funds, and proper trust account accounting.
- Settlement Statement
- A written accounting provided to the client at the conclusion of a contingency fee matter, itemizing the gross settlement amount, attorney fees, all deductions for costs and lien payments, and the client's net recovery. Per ABA Model Rule 1.5(c), the settlement statement (or a functional equivalent) must be provided in writing, and the client must sign it before disbursement is made.
- Statement of Accounting
- A detailed financial statement provided to the client at or after disbursement, showing all funds received, all amounts disbursed, and the final accounting for the matter. Often used interchangeably with 'settlement statement,' though a statement of accounting may be provided after disbursement to confirm all transactions in a client's trust account ledger.
- Structured Settlement
- A settlement in which the defendant's insurer funds an annuity that makes periodic payments to the plaintiff over time, rather than paying a single lump sum. Structured settlements are often used in cases involving significant future medical needs or to minimize the plaintiff's income tax exposure. Under 26 U.S.C. § 104(a)(2), compensatory damages for personal physical injury received as periodic payments are excludable from gross income.
- Subrogation
- The legal right by which an insurer or government program that has paid benefits on behalf of a claimant steps into the claimant's legal position to recover those payments from the responsible party's settlement proceeds. Subrogation rights arise by contract (insurance policy language), statute (Medicare, Medicaid, workers' compensation), or common law.
See also:Settlement Statement
T
- Third-Party Settlement
- A settlement in which the plaintiff resolves claims against a third-party tortfeasor (someone other than the plaintiff's own insurer), typically a negligent driver, property owner, or product manufacturer. Third-party settlements are the most common scenario in personal injury matters and require the law firm to disburse settlement proceeds through the trust account.
- Three-Way Reconciliation
- The gold standard of attorney trust account reconciliation, performed monthly and consisting of three steps: (1) reconciling the trust account bank statement to the firm's checkbook/ledger balance, (2) reconciling the firm's client ledger balances (one per client) to the total trust account balance, and (3) confirming that all three figures agree. Three-way reconciliation is required by most state bar rules and is the primary mechanism for detecting errors, fraud, and commingling.
- Trust Account
- A separate bank account maintained by an attorney exclusively to hold client funds and third-party funds entrusted to the attorney. Under ABA Model Rule 1.15 and state equivalents, trust accounts must be kept separate from the attorney's own funds (no commingling), reconciled regularly, and maintained with complete records for each client. Most attorney trust accounts are held as IOLTA accounts at approved financial institutions.
- Attorney Trust Account
- A bank account, separate from the law firm's operating accounts, that holds funds belonging to clients or third parties in connection with legal representation. The terms 'attorney trust account,' 'client trust account,' and 'IOLTA account' are often used interchangeably, though technically IOLTA refers to the specific program under which pooled trust account interest is remitted to fund legal aid.
- Two-Way Reconciliation
- A simplified reconciliation method in which only the bank statement balance is compared to the firm's check register or ledger balance — without cross-checking individual client sub-ledgers. Two-way reconciliation is less rigorous than three-way reconciliation and is insufficient under most state bar trust accounting rules, which require the additional step of reconciling individual client ledger balances to the total trust account balance.
See also:Three-Way Reconciliation
W
- Wire Transfer
- An electronic funds transfer sent directly between financial institutions via Fedwire (operated by the Federal Reserve) or SWIFT (for international transfers). Wire transfers are typically same-day and irrevocable, making them the preferred method for large settlement disbursements where speed and finality are important. Unlike ACH, wire transfers carry higher per-transaction fees.
- Workers' Compensation Lien
- A statutory right of reimbursement held by a workers' compensation carrier for medical and disability benefits paid to an injured worker who recovers damages from a third party. Workers' compensation lien statutes vary by state and may limit the carrier's recovery to amounts proportionate to the worker's net recovery after attorney fees and costs.