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LSO COVID-19 Response

FAQs: Trust Accounting & Bookkeeping

Trust Cheques

  • Are non-licensees permitted to sign trust cheques?
    It may be possible for a non-licensee to sign a trust cheque, but only in exceptional circumstances and subject to certain requirements. In addition, because of the significant risk of theft associated with having a non-licensee sign trust cheques, lawyers and paralegals should canvass all other available methods of payment from trust, such as electronic funds transfers, bank drafts, and wire transfers, before considering this option.

    If the lawyer or paralegal has reviewed all other options, section 11(b) of By-Law 9 states that a cheque drawn on a trust account must not be signed by a person who is not a licensee except
     
    • in exceptional circumstances, and
    • when the person who has signing authority on the trust account is bonded in an amount at least equal to the maximum balance on deposit during the immediately preceding fiscal year of the lawyer or paralegal in all the trust accounts on which signing authority has been delegated to the person.
     
    Although COVID-19 may qualify as an exceptional situation, having the non-licensee bonded might not be feasible if the insurance provider is unable to provide such services during COVID-19.

    If a non-licensee signs a trust cheque(s) in accordance with section 11(b), the lawyer or paralegal should create a record of why the lawyer or paralegal was unable to sign the trust cheque(s) and required a non-licensee to sign, and maintain the record with the trust cheque(s) signed by the non-licensee.

    Last updated: March 27
  • If a lawyer or paralegal is unable to sign a trust cheque, what other options are available to transfer funds from trust?
    The following options are available:
     
    1. Electronic Funds Transfer
    Please see the related Frequently Asked Practice Management Questions regarding COVID-19 about electronic funds transfers and Form 9A for more information.
     
    1. Bank Draft
    If a lawyer or paralegal is not physically able to sign trust cheques, a lawyer or paralegal may provide written authorization, in the form of a letter, to their financial institution instructing it to prepare a bank draft, with payee and amount, and to debit the trust account.  This letter must be signed by the lawyer or paralegal and can be sent to their financial institution either by fax, scan, or email. During COVID-19, lawyers and paralegals should discuss with their financial institution whether delivery of the bank draft would be an issue. 
     
    1. Wire Transfer
    The process described above for preparation of bank drafts can also be used for wire transfers. In such cases, lawyers and paralegals should be careful to instruct their financial institution that any financial charges for these services must be debited to their general account.

    Last updated: March 27
  • Can lawyers or paralegals use electronic signatures on trust cheques?
    No, lawyers and paralegals must not use electronic signatures on trust cheques. Lawyers and paralegals should maintain control over the access and use of their trust and general cheques.

    Last updated: March 27

Trust Deposits, Transfers and Withdrawals

  • Some bank branches are closed and others have limited hours of operation so it is difficult or may not be possible to comply with the requirements of By-Law 9. Is there any flexibility around having to deposit a trust cheque or cash into trust by the end of the next business day?
    Yes, but, at this time, these circumstances should still be rare. The existing requirement is important as it ensures that client funds are handled properly and that the lawyer or paralegal is responsible for those funds.

    Alternative Deposit Options:
    If lawyers and paralegals are anticipating concerns with depositing funds into trust at the branch of their financial institution by the end of the next business day, they should first consider whether there is an alternative deposit option:
     
    1. Deposit by ABM
    Lawyers and paralegals are permitted to deposit funds into trust by ABM. For more information, consult the Frequently Asked Practice Management Questions regarding COVID-19 about ABMs or the Law Society’s Bookkeeping Guide for Lawyers or Bookkeeping Guide for Paralegals.
     
    1. Remote deposit capture
    Lawyers and paralegals may use remote deposit capture – a technology, typically used via mobile device, which gives users the ability to deposit cheques remotely into an account at their financial institution. The user does not have to deposit or deliver the cheques directly to the financial institution. This should ensure that trust funds are deposited promptly. 

    For more information about what remote deposit capture is, including its benefits and risks, and how to integrate it into practice, lawyers and paralegals should review the Law Society’s Remote Deposite Capture resource.
     
    1. Transfer from general to trust
    If a lawyer or paralegal receives cash or a cheque for deposit into trust and is unable to attend at their financial institution to deposit it, an electronic transfer from general to trust could be made with a notation in the lawyer or paralegal’s bookkeeping records explaining that due to COVID-19 the transfer was made to ensure trust funds were properly deposited in a timely fashion. Although not required by By-law 9, at a later date, the lawyer or paralegal may deposit the cash or cheque into their general account as it belongs to them.
     
    Securing Funds, Best Efforts, and Documentation:
    If a lawyer or paralegal is unable to deposit a cheque or cash into trust at their financial institution or by one of the alternative deposit options described above by the end of the next business day, the lawyer or paralegal should:
    • Secure the trust cheque or cash
    • Create a record of
      • How the funds will be secured for the interim period until deposit
      • Why the lawyer or paralegal was unable to deposit the funds into trust (e.g., branch was closed and ABM out of service)
      • The plan for depositing the funds into trust as soon as possible thereafter
      • When the deposit was ultimately made

    Lawyers and paralegals should ensure that no trust funds are disbursed from a client’s balance until the lawyer or paralegal has ensured that that the money is in trust for the client through one of the above options. 

    As noted above, although in some cases lawyers or paralegals may be unable to meet the requirement, these instances should be rare. Lawyers and paralegals are expected to make and demonstrate best efforts in meeting these obligations and are reminded that they are responsible for the client’s funds once accepted.

    Last updated: March 27
  • Where lawyers and paralegals are engaging in social distancing or are in self-isolation or quarantine, what options for receiving and distributing settlement funds comply with their professional obligations?
    Settlement funds may be deposited and transferred electronically rather than by cheque. Electronic transfer includes wire transfer, individual or corporate Interac or email money transfer, or branch-to-branch electronic transfer. For example, insurance companies often transfer settlement funds electronically to the law firm’s trust account, and the lawyer or paralegal electronically transfers the trust funds to their client using Form 9A.

    Last updated: March 25
  • In the context of COVID-19, are there specific requirements for the transfer of funds between licensees?
    The Law Society’s Rules and by-laws do not prescribe a single method of funds transfer between licensees. However, in keeping with the Law Society’s commitment to physical distancing and remote or virtual practice wherever feasible, the Law Society recommends that where funds are being transferred between licensees, electronic transfer methods, such as electronic trust transfers, email transfers, or wire transfers, should be used wherever possible.

    In addition to the general information about bookkeeping requirements in the context of COVID-19 set out on the Law Society’s website, including information about Form 9A electronic transfer and email transfers, see By-Law 9, s. 12; Form 9A; and the Law Society’s frequently asked questions on Trust Deposits, Transfers, and Withdrawals

    Last updated: April 2
  • During COVID-19, and particularly in the context of real estate transactions, wire transfers have become an increasingly common method of payment. What should a licensee consider before sending or receiving payment by wire transfer?

    Licensees who send or receive wire transfer payments should

    • Inquire with their financial institution about the fees associated with such payments and how the fees will be deducted from their accounts, and
    • Review their account services agreement, which may address such fees.


    Licensees should also consider whether the financial institution’s services and rates allow them to comply with their professional obligations and meet the needs of their practice. 

    To prepare for a discussion with their financial institution, the following information may assist licensees:

    • Charges for Wire Transfer Fees. Financial institutions typically charge wire transfer fees on each wire transfer transaction and may charge a fee for both sending and receiving a payment by wire transfer.

    • Outgoing Wire Transfers. The fee associated with sending a wire transfer is typically deducted from the sending licensee’s account in addition to the payment amount. For more information, see s. 9 of By-Law 9 and "Q: Am I permitted to accept a direct deposit to my trust account by client or a third party? Are deposits by way of electronic or wire transfer permitted?

    • Incoming Wire Transfers. Typically, the fee for receiving a wire transfer is debited by the receiving licensee’s financial institution in transit. That is, the licensee does not receive the full amount transferred by the sending licensee; the wire transfer fee is deducted by the receiving lawyer’s financial institution from the principal amount transferred.

    • Amount of Wire Transfer Service Fee. The amount of the fee that a financial institution charges per wire transfer varies based on factors such as the financial institution, the type of account the account holder has, the geographical location from which the funds are sent, and the amount of funds transferred.

    • Payment of Wire Transfer Fees. Licensees should take steps to have their financial institution deduct such service fees from their general account, not their trust account. Where this is not possible, for example, where a financial institution’s policies require that the service fee be debited from the account from which the funds are transferred or received (i.e., trust account), licensees must transfer the amount of the fee from their general account to their trust account.


    Last updated: December 17
  • When a payment is made by wire transfer, who is responsible for the wire transfer fees associated with sending or receiving the funds?

    Last updated: December 17

    It depends on several factors, including the payment terms and conditions agreed upon by the parties, and what steps a licensee has taken with its financial institution, its client, and the licensee on the other side prior to sending or receiving the wire transfer payment. 

    Generally, however, absent an agreement to the contrary, each licensee is responsible for the wire transfer fees deducted by their own financial institution from their accounts or from payments made to them. Such fees are incurred by the licensee pursuant to the account services agreement between the licensee and their own financial institution. 

    Licensees may consider using the guidance below to assist them in determining who will be responsible for the wire transfer fee in a matter, whether the fee may be charged to their client as a disbursement, and how to comply with their professional obligations in respect of these fees.

    • Assess if there is a required method of payment

      The method of payment may be dictated by the terms of an agreement. Licensees should review the agreement or other relevant documents to determine if the method of payment is stated. If the terms are silent on method of payment, licensees may determine what method of payment meets their client’s needs and should discuss this and the payment of any associated wire transfer fees with their client and the licensee on the other side.

      Particularly during COVID-19 where there may be health and safety concerns and/or restrictions on services offered by financial institutions, where there is flexibility, licensees should consider using methods of payment that allow for timely payment processing and completion of transactions.

    • Advise client of wire transfer issues, if any

      Licensees should ensure that their clients are aware of issues related to wire transfers at the earliest opportunity and consider confirming this information in writing. Depending on the circumstances, this may include:

      • Whether and, if so, how payment of the wire transfer fees was addressed in the agreement
      • If not, the reasons the licensee believes that a wire transfer is appropriate in the matter
      • Any risks associated with wire transfers
      • The amount of the wire transfer fees, if known
      • The way wire transfer fees may be deducted from the amount of the transfer sent or received, and
      • The need to confirm method of payment and responsibility for the wire transfer fees with the licensee on the other side.
       
      If applicable, it would also include disclosing to the client that the wire transfer fee would be charged to them as a disbursement.
    • Consider whether wire transfer fees may be charged to your client as a disbursement
      A licensee may be able to charge a transaction-specific wire transfer fee to a client as a disbursement provided that 
      • it is not in the context of a lawyer advertising an all-inclusive price to act on a residential real estate transaction 
      • the fee charged is no more than the actual cost of the wire transfer fee
      • the fee is fair and reasonable, and 
      • the licensee disclosed the fee to the client in a timely way. 

      Cannot be charged to client if lawyer advertised an all-inclusive price to act on a residential real estate transaction 

      If a lawyer advertised an all-inclusive price to act on a residential real estate transaction, the lawyer cannot charge a client for wire transfer fees in addition to the advertised price as wire transfer fees are not permitted disbursements. Lawyers whose costs are increasing due to their responsibility for payment of wire transfer fees on transactions may consider increasing their advertised fee on future transactions.

      If a licensee otherwise advertises a fee for legal services, the licensee should consult and comply with the applicable rules. If the licensee does so, the licensee may be able to charge the wire transfer fee as a disbursement, provided that the licensee also complies with the requirements below. 

      May be charged if no restrictions, licensee does not profit, fair and reasonable, and disclosed to client in a timely fashion

      If the licensee is not prohibited from charging the wire transfer fee as a disbursement, the licensee may do so in compliance with the applicable rules. The licensee must not charge the client more than the actual cost of the disbursement and the wire transfer fee must be fair and reasonable. The licensee must also disclose the fee to the client in a timely fashion. Disclosure should be provided to the client in writing, before or within a reasonable time after beginning representation and, in any event, in advance of the transaction or payment deadline so that the client has an opportunity to object. Disclosure should contain as much information about the fee as is reasonable and practical in the circumstances. As a best practice, licensees should consider including this disclosure in their engagement letter or retainer agreement or in any written fee estimate provided to the client.

    • Confirm the method of payment and associated service fees with the licensee on the other side

      In order to avoid any misunderstandings or disputes, well in advance of the closing of a transaction or other payment deadline, licensees should confirm method of payment and shared understanding of the responsibility for associated fees with the licensee on the other side. As a best practice, licensees should do so in writing.

    • Protect your client’s rights and interests
      A licensee’s failure to understand or plan for wire transfer fees should not result in the licensee delaying a transaction or payment which could negatively impact the client’s rights and interests in the matter.
  • Are email transfers into and out of a trust account acceptable?

    Email transfers into a trust account have always been acceptable.  Email transfers out of a trust account are also permitted if a Form 9A is prepared. In such cases, because the lawyer or paralegal will not have the recipient’s financial institution, branch number, address, or account number, the lawyer or paralegal should include the recipient’s email address and method of payment on the Form 9A. For ease of reconciliation, the lawyer or paralegal should also note the reference number in the message field of the email transfer.

    When lawyers or paralegals send funds using email transfer, they will receive an email confirmation that the transferred funds have been accepted by the recipient. The lawyer or paralegal should save or print this email, keep it with the Form 9A, and sign, date, and add the client name and file number to the email. The signed Form 9A and confirmation email must be maintained.

    Last updated: March 25

  • During COVID-19, must lawyers or paralegals actually sign the Form 9A in order to electronically transfer funds from trust to general or are scanned copies of Form 9A or electronic signatures permitted?
    There are a number of options for completing Form 9A:
    • Print and sign. The lawyer or paralegal can control the entire electronic trust funds process by either completing the form on-line and printing it out for signature, or printing it out, filling it in and signing it. The rest of the electronic transfer is completed online, including receiving, printing, and completing the bank confirmation of the trust funds electronic transfer.
    • Sign and scan. If there is more than one person involved in the electronic trust funds process and they are not working in the same location, then the lawyer or paralegal can complete the Form 9A, sign it, scan it, and email it to the person doing the entering and the second person doing the transfer.  After the transfer has been done, the persons completing the entering and transferring can in turn scan and send the confirmation back to the licensee to check, sign, date and add the client name and file number. The original signed Form 9A and confirmation should be maintained.
    • Use an electronic signature. If the lawyer or paralegal does not have access to a printer or scanner, and is unable to sign the Form, then the use of an electronic signature to sign the Form 9A is permitted by the lawyer or paralegal. However, use of lawyers or paralegals’ electronic signatures should not be delegated to a non-licensee and lawyers and paralegals should be aware of the risks associated with electronic signatures.
    Lawyers and paralegals should also implement strong access and security controls over the use of their electronic signature, such as using a strong password and two-factor authentication. For more information on passwords and two-factor authentication, review the Law Society’s Technology Practice Tips, specifically:
    • Document instructions. If the lawyer or paralegal is unable to employ the use of an e-signature or the use of scanners, the lawyer or paralegal could  document his or her instructions, include any forms (unsigned but completed online), and confirm that the instructions have been properly fulfilled.

    Whatever method is adopted during COVID-19, lawyers and paralegals should maintain control over the access and use of their trust and general cheques. They should also consider reviewing their firm’s trust account on a daily basis. Under these extenuating circumstances, external or internal bad actors may attempt to take advantage.

    For more information on the maintenance of signed electronic trust transfer requisitions (Form 9A) and signed printed confirmations of electronic trust transfers, review By-Law 9, s. 18(11); for requirements for electronic withdrawal of trust funds see By-law 9, s. 12. 

    Last updated: March 25

  • Can a licensee arrange for a lender to execute an electronic funds transfer (EFT) to withdraw trust funds to pay off mortgages?
    No. A lender is not permitted to execute an EFT to withdraw trust funds for any reason. The only circumstance under which funds can be debited from a licensee's trust account is where a lawyer authorizes money to be debited by Teranet from a special trust account set up under section 16 of By-Law 9. 
     
    A licensee can, however, electronically transfer trust funds to a lender, provided that the licensee complies with the requirements for such transfers set out in section 12 of By-Law 9.

    Last updated: April 24

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