Answer to Question 1
Funds received from clients as retainers, as well as any funds received on behalf of a client (such as a payment to a client to settle a lawsuit), are placed in a special bank account. This account is usually referred to as a client trust account (or escrow account). It is extremely important that the funds held in a trust account be used only for expenses relating to the costs of serving that client's needs.
Paralegals who handle a client's trust account should be especially careful to document their use of the funds to protect themselves and the firm against the serious problems that may arise if there are any problems with the account.
Misuse of client funds constitutes a breach of the firm's duty to its client. An attorney's personal use of the funds, for example, can lead to disciplinary action and possible disbarment, as well as criminal penalties. Commingling (mixing together) a client's funds with the firm's funds also constitutes abuse and is one of the most common ways in which attorneys breach their professional obligations.
Answer to Question 2
C
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