What Should Be Included in a Settlement Statement A Guide for Lawyers

A meticulously prepared settlement statement is a cornerstone of client trust and a vital component of a law firm’s financial integrity. This document provides a transparent and detailed breakdown of all funds received and disbursed in a legal matter, ensuring clarity for the client and maintaining compliance for the firm. For legal professionals, mastering the art of drafting a comprehensive settlement statement is not just good practice; it’s a professional necessity.

This guide will walk you through the critical components of a settlement statement, offering a clear roadmap for lawyers and paralegals. We will also explore how leveraging an all-in-one legal practice management software like RunSensible can transform this often-tedious task into a streamlined and error-free process.

The Core Components of a Settlement Statement

Of course. Here is the expanded and more detailed version of the section “The Core Components of a Settlement Statement,” along with a new, in-depth look at legal trust accounting and how RunSensible’s features can help.

The Core Components of a Settlement Statement: A Detailed Breakdown

A settlement statement, often referred to as a closing statement or disbursement summary, is more than just a formality. It is a critical document that embodies your firm’s commitment to transparency and ethical practice. A vague or inaccurate statement can lead to client confusion, disputes, and even ethical grievances. Let’s dissect each component to ensure your statements are comprehensive, clear, and compliant.

1. Gross Settlement Amount This is the top-line figure—the total, unadjusted amount paid by the opposing party to resolve the client’s claim. It’s the starting point from which all other calculations will be made.

• Best Practice: State the source of the funds clearly (e.g., “Total Settlement from Defendant A’s Insurance Carrier”). If a settlement involves multiple parties contributing different amounts, list each contribution separately and then provide a total gross settlement figure. This level of detail leaves no room for ambiguity.

2. Attorney’s Fees This section must transparently show how the firm’s fee is calculated, directly referencing the signed fee agreement with the client.

• Contingency Fees: This is the most common structure in personal injury cases. Don’t just list the final fee. Show the calculation. For example: “33.3% Contingency Fee on Gross Settlement ($100,000.00 x 0.333) = $33,300.00.” If your fee percentage changes based on the stage of litigation (e.g., pre-litigation vs. post-trial), make sure the statement reflects the correct, applicable percentage.
• Hourly Fees: While less common for settlement-based cases, if applicable, you should provide a summary of the hours billed and the total fee. It is good practice to attach a detailed invoice as a supplement.
• Flat Fees: Clearly state the agreed-upon flat fee for the legal services rendered.

3. Itemized Case Expenses and Costs Transparency is paramount here. Clients have a right to know exactly how their settlement funds are being used to cover litigation costs. Grouping all expenses into a single “costs” line item is poor practice. Instead, provide a detailed, itemized list.

• Hard Costs: These are direct, out-of-pocket expenses paid to third parties. Your list should be exhaustive and include items such as:
  • Court and filing fees
  • Service of process fees
  • Expert witness consultation and testimony fees
  • Court reporter and deposition transcript costs
  • Medical record retrieval fees
  • Trial exhibit preparation costs
  • Mediation or arbitration fees
• Soft Costs (if applicable): These are in-house expenses like photocopying, postage, or legal research subscriptions. Your fee agreement must explicitly state that these costs will be charged to the client. Clearly label them as such on the statement.
• Best Practice: For every expense listed, include the date, the vendor/payee, and the amount. Meticulous record-keeping throughout the case lifecycle is essential for an accurate final accounting.

4. Payments to Third Parties (Liens and Other Obligations) A significant portion of a settlement is often allocated to satisfying liens and other financial obligations incurred by the client. The lawyer has a fiduciary duty to identify and resolve these claims before disbursing funds.

• Medical Liens: From hospitals, chiropractors, or other healthcare providers who treated the client on a lien basis.
• Health Insurance Subrogation: Claims from the client’s health insurance carrier (e.g., Medicare, Medicaid, or a private insurer) seeking reimbursement for medical bills they paid related to the injury.
• Other Liens: This can include outstanding child support liens, workers’ compensation liens, or any other third party with a legal claim to a portion of the settlement proceeds.
• Best Practice: Before finalizing the settlement statement, obtain a final lien amount in writing from each holder. Your statement should list each payee and the exact amount being disbursed to them. It is also crucial to secure a signed release from the lienholder upon payment, confirming the obligation has been fully satisfied.

5. Net Amount Due to the Client This is the final, bottom-line number for your client. After all deductions for fees, costs, and third-party payments, this figure represents the total funds the client will personally receive.

• Best Practice: Present this figure clearly and prominently. The calculation should be simple to follow: Gross Settlement – Total Attorney’s Fees – Total Case Costs – Total Third-Party Payments = Net to Client. Verbally walk your client through this final calculation during your closing meeting to ensure they understand exactly how their final amount was determined.

6. Signatures and Acknowledgement The settlement statement must be a signed document. It requires a signature line for the client and the responsible attorney.

• • Client’s Signature: This confirms that the client has reviewed the statement, understands the disbursement of all funds, and agrees with the final accounting. It is a vital piece of documentation that protects both the client and the firm from future disputes.
  • Attorney’s Signature: This certifies the accuracy of the statement on behalf of the firm.

The Critical Role of Legal Trust Accounting in Settlements

A settlement statement is only the final output. The actual management of the funds is governed by strict ethical rules surrounding legal trust accounting. Settlement checks are not firm revenue upon receipt. They are client funds and must be handled with the highest degree of care in a dedicated trust account (often an IOLTA – Interest on Lawyers’ Trust Accounts).

The Process:

1. Deposit: The gross settlement check is deposited into the firm’s client trust account. These funds are now held in trust for the client. They do not belong to the law firm and must never be commingled with the firm’s operating funds.
2. Reconciliation: This is the non-negotiable process of ensuring the trust account records are perfectly accurate. It involves a three-way reconciliation: comparing the internal trust ledger (tracking funds for each client), the overall trust account checkbook register, and the monthly bank statement. Every penny must be accounted for. Reconciliation confirms that sufficient funds are available for disbursement and prevents accidental overdrafts or misuse of client funds.
3. Disbursement: Only after the settlement check has cleared and the client has signed the settlement statement can funds be disbursed. This involves writing checks from the trust account to pay the law firm’s earned fee, reimburse case costs, pay all third-party lienholders, and finally, pay the client their net share.

Mastering Trust Accounting and Reconciliation with RunSensible

Manually managing a trust account is fraught with risk. A single error can lead to commingling of funds, bounced checks, and severe ethical violations. This is where RunSensible’s legal accounting and trust management features provide an indispensable safety net.

RunSensible is built with the specific needs of legal professionals in mind, offering a suite of tools to make trust accounting secure, simple, and compliant:

• Unified Trust and Operating Accounts: Manage both your trust and operating accounts from a single platform, while maintaining the strict separation required by law.
• Easy Reconciliation and Auto-Matching: RunSensible’s “auto-matching” technology intelligently links your bank transactions with your internal records, dramatically speeding up the reconciliation process. The system flags discrepancies, allowing you to perform a three-way reconciliation in a fraction of the time, ensuring your accounts are always in perfect balance.
• Secure Trust Deposits and Withdrawals: Easily record every deposit into your trust account and manage all withdrawals. The system maintains a detailed ledger for each client matter, so you always know the exact balance being held for a specific client.
• Integrated Check Generation: Generate checks for all disbursements—to the firm, lienholders, and the client—directly from the RunSensible platform. This creates a clear, auditable trail and links every payment directly to the corresponding case file.
• Granular User Permissions: Protect the integrity of your financial data with robust permission controls. You can grant full access to your accountant or bookkeeper, provide senior partners with oversight capabilities, and limit clerks or paralegals to view-only or data entry roles. This ensures that only authorized personnel can perform critical financial functions, significantly reducing the risk of internal fraud or error.

By leveraging a dedicated solution like RunSensible, you transform legal accounting from a high-risk administrative burden into a streamlined, compliant, and secure part of your practice. You can generate settlement statements with confidence, knowing the underlying financial data is accurate, reconciled, and ethically managed.

Streamline Your Settlement Statements with RunSensible

Creating accurate and professional settlement statements can be time-consuming and prone to manual errors. This is where an all-in-one legal practice management software like RunSensible becomes an invaluable asset for any modern law firm.

RunSensible is designed to streamline your firm’s operations, from client intake to final settlement. Here’s how it can revolutionize your settlement process:

• Document Automation: With RunSensible, you can create standardized legal settlement statement templates. This ensures consistency and accuracy across all cases, eliminating the need to start from scratch each time. The software can automatically populate client and case details, saving you hours of administrative work.
• Integrated Time and Expense Tracking: Say goodbye to missed billable hours and unrecorded expenses. RunSensible’s integrated time and expense tracking features allow you to accurately log every cost associated with a case in real-time. This ensures that all disbursements are captured and reflected on the final settlement statement.
• Automated Billing and Invoicing: The platform simplifies the creation of invoices and the calculation of attorney’s fees, whether they are based on billable hours or a contingency agreement. This automation reduces the risk of mathematical errors and ensures compliance with your fee agreements.
• Comprehensive Trust Accounting: Proper management of settlement funds is crucial. Settlement funds are deposited into a firm’s trust account and disbursed from there. RunSensible offers robust trust accounting features to help you manage these funds with precision and in compliance with ethical obligations.

By centralizing case information, automating document creation, and simplifying financial management, RunSensible empowers you to focus on your clients while ensuring every settlement is handled efficiently and accurately.

 

FAQs

1. What is the purpose of a settlement statement? A settlement statement provides a detailed accounting of all funds in a legal settlement. Its primary purpose is to show the client the total amount recovered and how those funds are distributed, including attorney’s fees, case expenses, and the final net amount paid to the client.

2. Is a settlement statement the same as a settlement agreement? No. A settlement agreement is the legally binding contract that outlines the terms of the resolution between the disputing parties. A settlement statement is the financial document that breaks down the distribution of the settlement funds after the agreement has been reached.

3. How can a legal settlement statement template help my practice? A legal settlement statement template ensures consistency and professionalism in your client communications. It helps prevent omissions of critical information and can be customized to your firm’s specific needs, saving time and reducing the likelihood of errors.

4. Why is it important for the client to sign the settlement statement? The client’s signature signifies that they have reviewed, understood, and agreed to the distribution of the settlement funds as outlined in the statement. It serves as a crucial record of their informed consent and can help prevent future disputes.

5. How does legal practice management software assist with settlement statements? Legal practice management software like RunSensible automates many of the tasks involved in creating a settlement statement. It can track expenses, calculate fees, and populate templates with accurate case data. This streamlines the process, minimizes errors, and ensures compliance with trust accounting rules.