With the calendar year drawing to a close and the end of the financial year occurring in many regions, it might be timely to consider the questions that aren't asked often enough, iFAQ-style:
Do I need to keep copies of cancelled trust account checks?
Retaining and storing the original check form is always the most secure method of ensuring it does not fall into the wrong hands. In Florida, Bar Rule 1-1.2(b) Minimum Trust Accounting Records states that “records may be maintained in their original format or stored in digital media as long as the copies include all data contained in the original documents and may be produced when required.” The directive includes a requirement for any endorsements, although it might be unusual for a check to be remitted, endorsed to another party and then returned for cancelation
Can I hold law practice trust money in any bank, building society or credit union?
You may only hold a client’s trust money in an approved Authorised Deposit-taking Institution (ADI). ADIs are defined in the Banking Act 1959, which is a federal Act whereas trust accounting for law practices in Australia are governed by State and Territory Acts and Regulations. The State and Territory Acts further defined those ADIs into an approved list. There are eleven Approved ADIs in Queensland which include banks, building societies and credit unions, while New South Wales maintains a list of fifteen possible institutions.
England and Wales
Can a law firm hold client money if they do not operate an actual client bank account?
Client money (known as trust money elsewhere) is money held by a practitioner or law firm on behalf of their client for an agreed purpose. It is almost always the case that it must be held in a bank account opened within England or Wales and subject to the applicable client fund accounting rules, reported on monthly in a reconciliation and annually to clients. Rule 2.2 however does make an exemption. If the money is only to be held for fees and unpaid disbursements prior to the issue of a bill for same and the client has been advised it will not be banked to a client account, that money may be kept otherwise than in a client account.
Can a lawyer hold funds in the trust account that do not relate to a legal matter?
No, and this answer is typical for most regions around the world with the notable and limited exceptions of Scotland and New Zealand. Trust money must have an association to a legal matter being conducted by a lawyer or firm. Transgressing this rule is known as ‘commingling’ or ‘intermixing’. Note that a firm can accept what are defined as trust monies and hold them for a period of time but still breach the commingling rule. If those funds become properly payable for fees, they must be moved from trust to office within a reasonable period of time. To not do so is to breach the commingling rule – maintaining a lawyer’s own funds in the trust account.
Do you need to print copies of records when using a computerized accounting system?
Yes, however printing in a PDF format is generally allowable. A list of record types that can be stored in PDF in the state of Alberta include bank statements, negotiated checks (NB: front and back), ledger accounts and records of trust journals. There exists a requirement to store a copy of the trust ledger on a client file at time of closing, with a provision that if the client matter file is an electronic record then an electronic PDF record of the ledger may be stored against it.
In Australia in all areas except Queensland it is possible to store a completely electronic record of a matter file with the provision the file is backed up and recoverable from that backup. For the bookkeeper, requirements for annual audits often make it impractical to do so if an auditor prefers to review printed records, however we continue to inch towards the paperless office nonetheless.
What needs to be on a trust receipt or a client fund receipt?
Receipts are a critical document providing evidence to a payor of their transmission of funds. For a lawyer, attorney or law firm the receipt contains critical information feeding into the practice management system or manual cashbook of the pertinent details of why and for whom this money is held.
Canadian provinces require the date, source of the trust money/name of payor, form in which money is received (cash, wire, check), client name and reference. Australian states and territories extend a requirement to note the actual date any funds were received and the actual date the receipt was written.
Can a client of a lawyer earn interest on their trust or client funds?
Almost all money earns some type of return for the holder, even in these times of very low interest rates. It is even possible to argue that a negative interest rate produces a return – that return being the security and guarantee that the money can be repaid to its owner rather then left elsewhere in a risky asset. Until the 1960’s, the millions of dollars and pound of trust money being held by lawyers for their clients in general trust/client fund accounts only earned interest for the banks operating those accounts, with zero return to the rightful owners.
The Interest on Lawyers Trust Account (IOLTA) and Statutory Deposit (SD) schemes sought to redress this issue. Interest earned by banks on holding and operating lawyer’s trust accounts could be redirected to arguably philanthropic committees who could use the income to fund legal aid, pro-bono legal fees for the disadvantaged, education and other worthwhile endeavours. Such schemes operate in every US state and most of Australia and Canada.
However the only way the client of a law practice can earn a return on their provided trust funds is via the opening of a segregated and separate bank account for that client alone, known as a Separate Interest Bearing Deposit, Controlled Money or Investment Money account (depending on the region). In England and Wales, Rule 7 of the Solicitors Regulation Authority states that you may make a written agreement with a client over the payment of interest, which may include you paying a fair some to the client based on their informed consent.