Trust Account Administration: A Thorough Guide for Attorneys
Welcome to Nuvia’s definitive guide on Trust Accounts. As legal practitioners, it’s imperative to manage trust money with the utmost diligence, ensuring compliance with the Legal Practice Council (LPC) and the Legal Practitioners Fidelity Fund. This guide outlines the essential guidelines and incorporates key terms to help you navigate the complexities of trust account administration.
Comprehensive Checklist for Trust Account Management
General Accounting Requirements:
- Record-Keeping: Maintain accounting records in an official language, reflecting both business and trust account transactions, as required by Section 87 of the Act.
- Daily Entries: Record daily entries of all monies received and paid, including trust money and client funds.
Financial Reporting Framework:
- Standards Compliance: Recognize and apply “IFRS” or “IFRS for SMEs” as acceptable financial reporting frameworks, considering the Council’s rulings on specific additional disclosures.
Distinguishing Transactions:
- Account Separation: Clearly distinguish between trust account and business account transactions in the accounting records.
Retention of Records:
- Document Storage: Retain accounting records and related documents for at least seven years, ensuring they are accessible at the main office or electronically.
Updating Accounting Records:
- Monthly Reconciliation: Update and balance accounting records monthly to reflect accurate financial periods.
Handling Trust Money:
- Fiduciary Duty: Keep trust money separate from other funds; promptly transfer any non-trust money found in the trust banking account to the business banking account.
Accounting to Clients:
- Client Communication: Account to clients in writing after the mandate’s performance, detailing all transactions and fees, thus maintaining a positive balance.
Depositing Trust Monies:
- Prompt Deposits: Deposit all trust monies intact into the trust banking account promptly, safeguarding client funds.
Trust Investments:
- Investment Oversight: Ensure withdrawals from trust investment accounts are deposited into the trust banking account promptly.
Trust Balances:
- Financial Vigilance: Ensure trust balances are not less than trust monies and that no trust creditor’s account is in debit.
Non-compliance Reporting:
- Regulatory Reporting: Report any non-compliance regarding trust balances to the Council immediately.
Deposits for Charges:
- Advance Payments: Deposit amounts received in advance for services or disbursements into the trust banking account.
Withdrawals from Trust Banking Account:
- Authorized Withdrawals: Ensure withdrawals are made only to or for a trust creditor or as transfers to the firm’s business banking account.
Payments from Trust Banking Account:
- Secure Transactions: Execute payments via cheque or electronic transfer; avoid cellular or telephone transactions.
Monthly Balances Lists:
- Balance Monitoring: Extract monthly lists of balances for all persons on whose account money is held, ensuring anti-money laundering and counter-terrorist financing measures are in place.
Unknown/Unclaimed Amounts:
- Fidelity Fund Allocation: Pay over unknown or unclaimed money in the trust account to the Fund after a specified period.
Notification of Trust Banking Account:
- Council Notification: Notify the Council of trust banking account details and any changes immediately.
Trust Account Investments:
- Prudent Investments: Invest funds only in trust savings or interest-bearing accounts with a bank and disclose any commissions or fees.
Investment Practice Mandates:
- Client Authorization: Obtain an investment mandate from each client before investing funds.
Investment Practice Reporting:
- Annual Reporting: Report to clients on investments at least once every twelve months.
Investment Practice Accounting Records:
- Audit Trail Maintenance: Keep separate trust account records for each client and maintain an adequate audit trail.
Pooling of Investments:
- Individual Acknowledgment: Do not mix deposits in a pooled account; obtain acknowledgments for each deposit.
Restrictions on Certain Investments:
- Investment Limitations: Do not invest in unlisted shares, debentures, or loans without adequate security unless specifically authorized by the client.
Interest on Trust Banking Account:
- Fund Contributions: Pay over any interest accrued on trust banking accounts to the Fund or its nominee.
Payment to Clients:
- Timely Disbursements: Pay any amount due to a client within a reasonable time and verify bank account details.
Closure of a Firm:
- Council Coordination: Provide the Council with information before ceasing to practice, including steps for winding up the practice.
Opening of Practice:
- Main Office Designation: Designate an office as the main office in a new jurisdiction and ensure separate accounting records are kept.
Additional Accounting Records:
- Comprehensive Documentation: Maintain journals and client files as part of accounting records.
The Importance of Compliance: Adhering to these guidelines is critical ensure the ethical management of third-party funds. Non-compliance can lead to significant consequences, including financial penalties and the potential loss of the right to practice law.
Nuvia is dedicated to supporting attorneys in the meticulous management of trust accounts. Our expertise in the audit of attorney trust accounts and compliance with anti-money laundering and counter-terrorist financing regulations makes us an invaluable partner in your legal practice.
Contact us for a consultation, and let us provide the assurance you need to manage your trust accounts confidently.