Investment Monies



In Australia, lawyers may from time-to-time be provided with trust monies upon which their client still seeks to derive interest income. They are unable to do so on any funds placed into the pooled ‘general’ trust account as such funds do not earn interest for the benefit on any single client, but do so for the public good via arrangements struck between the banks and state law societies. Where an individual client seeks to retain an investment income stream, the funds must be isolated to either a controlled monies account or an investment account. This article explains the distinction.


Monies received that are not related to a legal matter


Using Section 238 of the QLD Legal Profession Act 2007 as an example ‘Money involved in financial services or investments’, monies received by a practice may either be defined as trust money or non-trust money depending on the conditions under which it is held.

If the practitioner holds an Australian Financial Services Licence or is the associate of an AFSL holder, the money is not trust money.

If the money is held in relation to a legal matter or in relation to the provision of legal services, the money is defined as trust money and then further characterised as either general trust money, transit money, power money, written direction money, controlled or investment money.


Controlled Money


Controlled Money is money that a law practice has received with a written direction to deposit to an account other than a general (pooled) trust account, but where the practice still has exclusive control. The written direction is a critical aspect of the characterisation – the lawyer’s client or another authorised person or entity is directing that a separate controlled money account must be opened and that any interest earned is retained for the beneficiaries. For the lawyer to accept the direction there must be a reasonable hope that the additional administration costs are outweighed by the investment return benefiting their client. The lawyer does not have to accept the direction and may not do so where the investment returns are too marginal.


Controlled Money may be directly deposited to a complying CM bank account provided that the deposit is accompanied by a written direction from the client of the practitioner. As an example, the Bank of Queensland will retain the written direction of the owner of the money (the client). Investment Money must first be deposited to a lawyer’s general trust account and may then be disbursed to the complying IM bank account.


Definition of Investment Money


Investment Monies are monies that have existed within a law practice’s general trust account but subsequently a written direction has been received to invest the monies on behalf of the client of the lawyer. Critical aspects of the definition include the fact that the money has been entrusted to the lawyer or the practice in the ordinary course of providing legal services and that the purpose of the investment is enhancing it’s value.


Definition of Written Direction money


While a written direction is required to accompany Controlled Monies and clarifies the directions of a client to their lawyer, there is a further type of Written Direction money separate and distinct from such an investment. A court, tribunal or regulatory body such as a tax office or a company liquidator may provide a written direction to a lawyer that something else is to occur with certain types of money. For example a court may order that the money is payable to a tax office or another party. Such monies are called Written Direction monies and typically may be credited to a law practice general trust account before being paid out according to that direction as soon as the funds become clear. Cash can never be considered written direction money due to the requirement that any cash received by a lawyer (other than for their own fees) must be deposited to either a general trust account or a controlled monies account.


International equivalents


Similar concepts operate elsewhere. For example, in the United Kingdom solicitors are able to manage Separate Interest Bearing Accounts for their clients, with the similar goal of earning income on the capital investment for the period it is required to be held. In Ireland, lawyers are permitted to open Controlled Trust Accounts where directed by their clients.


Summary


Pooled trust accounts provide a degree of convenience to both lawyer and client – monies are held for a specific purposes and may be drawn upon quickly however at the disadvantage to the owner that the pooled nature robs them of the ability to earn income on the capital. Controlled and Investment money accounts redress that, however at the cost of increased administration.

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