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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 mustnot 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 physical distancing or are in self-isolation or quarant
    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
  • 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

Books and Records

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