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Trust Account Operation

  • 1. What goes into the mixed trust account?
    Generally, all funds received from, or on behalf of, or in trust for, a client must be deposited immediately into a trust account. This includes settlement funds to be held pending completion of conditions, funds received pursuant to an escrow agreement or deposits received from a purchaser under an agreement of purchase and sale, and retainers for future legal services or future disbursements or for legal services not yet billed to the client. Similarly, Legal Aid Ontario payments to reimburse a alicensee for disbursements that have not yet been paid (as distinguished from incurred) go into trust.

    A licensee is prohibited from using his or her trust account for purposes not related to the provision of legal services. In other words, money received in a licensee’s trust account must be directly related to the legal services being provided by the licensee. Money that is not held by you in your capacity as a licensee must not be deposited to your trust account. Examples of this type of money would include: a "float" to cover possible bank errors, funds collected from staff for firm charitable events or for coffee supplies, funds that you hold as treasurer for a club or organization, rent or mortgage payments owed to you personally, or funds that are essentially investments for you or your family.
  • 2. May I deposit my clients’ money retainers into the firm’s general account?
    No. If the client is providing a money retainer for fees for which you have not yet billed the client, or for disbursements which you have not yet incurred, licensees are required to pay the funds into their trust account. A money retainer for fees and/or disbursements is money held for future legal services or disbursements on behalf of a client or for legal services performed but not yet billed. Note that money retainers are distinguished from other types of payments. Client payments of your accounts for services rendered and billed, or reimbursement of disbursements which you have properly expended on behalf of the client, belong to you and must be deposited directly into your general account and not your trust account.
  • 3. May I leave the GST/HST and LawPRO® levies in my trust account after billing the client?
    No. GST/HST collectible and LawPRO® transaction levies are not considered client trust monies. Because these amounts are liabilities of your firm, and not the client, they should be drawn from your trust account when billed to the client. You may transfer these funds to a separate interest-bearing general account until they are payable if you are concerned about having sufficient funds available when the GST/HST and LawPRO® levies are due. However, money for future expenses, such as registration fees, are client funds and must remain in the trust account in the client's name until disbursed.
  • 4. May I open a "miscellaneous" or "sundry" ledger to deal with small amounts I am holding in trust for clients?
    No. All trust funds that you receive from clients must be recorded separately in each client's name in the client trust ledger, regardless of the amount of funds provided. Furthermore, it is not proper to use a single trust ledger account (opened as "miscellaneous", "sundry" or in the name of the firm) to record transactions relating to different clients. To ensure that monies relating to one client are not misused to the benefit of another, licensees are required to maintain a separate client trust ledger account for each client.
  • 5. What do I do if my financial institution informs me that a client's cheque has been returned "NSF"?
    The financial institution will debit your trust account to reflect the amount of the NSF cheque. This is acceptable. However, you should ensure that any service charges that result are not deducted from the trust account. Either instruct your financial institution to debit the service charge from your general account directly or transfer the amount of the service charge from your general account to your trust account. As with all service charges, they should come from your general account. Ensure that you record the reversal of the NSF funds in your books and records and that there is a detailed explanation for the reversal. You need not report the transaction to the Law Society.

    If you have disbursed funds from your trust account based on a client's cheque that you subsequently learn was returned NSF, you will need to discuss the matter with the payee and arrange for a deferral of the payment or, in the event that the cheque has been negotiated, you will need to make up the funds from your own money and recoup the payment from your client. Otherwise, the trust account will be short and you will have, in essence, misused or misapplied funds belonging to your other clients. If you cannot correct an overdrawn client trust ledger account, you should report this fact to the Law Society.

    You should be careful not to draw on a client's funds held in your trust account until you know the client's cheque or credit card payment has cleared. Check with your financial institution before disbursing funds to confirm the appropriate clearance periods that should be applied.
  • 6. When may I transfer funds from the trust account to my general account to reimburse myself for fees or disbursements owed by the client?
    Licensees are prohibited from appropriating any funds of the client held in trust, or otherwise under the licensee’s control, for or on account of fees except as permitted by the by-laws under the Law Society Act.

    The by-law requirements for withdrawing funds from trust to pay fees for legal services or to pay for disbursements are different. Disbursements can be paid directly from trust, upon the client's instruction or consent, as they are expenses incurred on the client's behalf. However, a licensee may pay his or her fees from trust only if
    • he or she has completed the legal services for which the fee is being charged
    • he or she has sent a bill or statement of account to the client, and
    • there are sufficient funds in trust to the credit of the client available for the payment of the fee being charged.

    In addition, licensees should not withdraw funds from trust to pay themselves for fees or reimburse themselves for disbursements if the money is earmarked for some other purpose, such as settlement funds provided by the client in anticipation of payment to a third party or proceeds from the sale of property that the licensee has agreed to hold until certain conditions are met.

    Licensees are also prohibited from keeping money in trust beyond a minimally reasonable amount of time after the legal services have been performed. If all services relating to the file have not yet been completed, an interim bill that reflects services performed and disbursements paid to date can be prepared and delivered to the client (i.e., it is not sufficient to merely place the interim bill in the client's file). If a fee bill is delivered to a client personally, the licensee should consider having the client sign and date the file copy to establish its delivery.
  • 7. When and with whom may I share a trust account?
    Lawyers and paralegals are only permitted to share a trust account with another lawyer or paralegal if they are a partner of the same firm, or they are in an employer-employee relationship.  

    For greater clarity, lawyers and paralegals are not permitted to share a trust account
     
    • with a non-licensee, or
    • with other lawyers or paralegals with whom they share office space or practice law or provide legal services in association.

    When sharing a trust account, lawyers and paralegals must ensure they comply with the trust account requirements set out in  By-Law 9. This includes ensuring that client trust monies are deposited immediately  into a designated trust account in the name of the lawyer or paralegal, or in the name of the law or legal services firm of which the lawyer or paralegal is a partner or by which the lawyer or paralegal is employed.

    Note, however, that lawyers and paralegals are not permitted to hold a trust account in the name of a firm or entity that is not a true partnership. In addition, if the firm is a limited liability partnership (LLP) or a professional corporation, lawyers and paralegals should ensure this information is included in their firm's name on the trust bank statement along with an indication that it is a trust account.
     
  • 8. I am changing financial institutions for my trust account. What are the steps involved?
    Lawyers and paralegals should consider taking the following steps when changing financial institutions for their trust account:
     
    1. Open a new trust account at your chosen financial institution. The financial institution you select must comply with the requirements in section 7 of By-Law 9.
    2. Discuss with your financial institution representative
      • The methods available for you to transfer the full balance from your existing trust account to your new trust account. These may include 
        • writing a trust cheque for the full balance from the original account, made payable to you or your law or legal services firm in trust and deposited to the new account, or
        • an electronic or wire transfer of the full account balance from one financial institution to the other financial institution.
        • The clearance periods that will apply to each type of withdrawal and deposit and the supporting source documents that will be generated by each, both from the originating financial institution and the receiving financial institution.
    3. Prior to transferring funds from the original trust account to the trust account at your new financial institution, you must ensure that any trust cheques drawn on the account have been cashed. If not, you must:
      • wait until the outstanding cheques have cleared before transferring the full balance, or
      • ensure that sufficient funds remain in the original trust account to cover the outstanding cheques while transferring the remaining balance.
        • It may also be possible to arrange with an individual payee for the return of any outstanding cheque so that you may provide a replacement cheque drawn on the new trust account.
    4. Once the original trust account is at a zero balance, you may instruct your financial institution to close the original account and should request written confirmation of the closure. In addition, you will need to inform the Law Society that the new mixed trust account has been opened and that the original trust account has been closed. You can do this by completing the Law Society’s Report on Opening or Closing a Trust Account form and sending it by email to bylawadmin@lso.ca or by fax to 416-947-3408.
    5. Where you are transferring trust funds from one named trust account to a trust account in the same name at the new financial institution, client authorization and direction to transfer the funds is not required. However, where you are transferring the trust account balance from one financial institution to another because of a change in your business name or structure (e.g., your sole proprietorship has become a professional corporation or you have formed a partnership), individual client authorization and direction may be required.
  • 9. I received notice from my financial institution about changes to CDIC’s deposit insurance framework. Do these changes impact licensees?
    Yes. On April 30, 2022, changes to the Canada Deposit Insurance Corporation (CDIC) deposit insurance framework come into effect. These changes impact the current disclosure and reporting requirements for licensees who hold client moneys in trust at a CDIC Member Institution. For information about these changes, see the CDIC’s Changes to CDIC’s Deposit Insurance Framework Professional Trustees and Trust Accounts and the Law Society’s CDIC Requirements resource.
     
Last Updated: May 12, 2022
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