Trust accounting FAQs
Do trust account cheques still have to be pre-printed to pay to order?
Pursuant to s37(2)(a)of the Legal Profession Regulation 2007 (‘the Regulation’) a trust account cheque form must be made payable to or to the order of a stated person or persons and not to bearer or cash.
Therefore law practices should ensure that their trust account cheque forms are pre-printed with a direction to pay to order (of a stated person) and that they should be crossed `not negotiable' [s37(2)(b)].
Do law practices have to apply to QLS for authorisation of trust account cheque signatories' s46?
No — law practices only need to notify the Society within 14 days that they have authorised another legal practitioner or employee as signatories to their general trust account/controlled money accounts.
NB: Employees who are non-legal practitioners must sign jointly with another employee.
Does "relevant account" mean bank account in s58(6) of the Regulation?
Each jurisdiction has agreed that a "relevant account" means the law practice's general office bank account.
External examiners - is there a requirement for professional indemnity insurance - s65 of the Regulation?
There is currently no requirement for external examiners to hold professional indemnity insurance.
A request shall be made to the Government to amend s65. Currently an external examiner needs to be a registered auditor under the Corporations Act, member of CPA, ICAA, NIA or approved by Chief Executive. The Government shall be requested to amend s65 so that an external examiner needs to be a registered auditor under the Corporations Act, member of CPA, ICAA, NIA and meets the requirements of one of those bodies to practise as a public accountant or approved by the Chief Executive.
Who is ‘the Chief Executive’ in the Regulation?
Chief Executive of the Department of Justice and Attorney-General.
Has a summary of the changes to trust accounting requirements has been published to the profession.
An email was sent to the profession on 4 July 2007 that provided 2 links to documents on our website, namely:
- Trust Accounting Guide
- Changes to Trust Account Legislation July 2007
Are moneys received by a legal firm, in payment of a rendered account for professional costs and disbursements, for disbursements invoices (eg barrister fees, agent fees) received but not yet paid by the legal firm going to be considered trust moneys? If so, how?
Trust money is defined in s237 of the Legal Profession Act 2007 ('LPA') as being money entrusted to a law practice in the course of or in connection with the provision of legal services by the practice and includes money received on account of legal costs.
Legal services are more than legal costs and are defined in Schedule 2 (LPA) as work done or business transacted in the ordinary course of legal practice.
Disbursements are defined in s300 as including outlays.
s257 LPA regarding Intermixing Money provides:
A law practice must not mix trust money with other money.
Therefore, as the funds received by the law practice for unexpended outlays, eg barrister fees, is received in connection with the provision of legal services by the practice, the law practice does not have an entitlement to receive those funds to its general account as reimbursement [s58(3)(a)(iii) of the Regulation ] as the law practice has not paid that outlay, eg the general bank account has not been debited [s58(6) of the Regulation].
Do I need to maintain a register of receipt forms?
The new regulations do not require a law practice to maintain a register of trust account receipt forms. However, it is recommended, as a form of internal control that a register of receipt forms be kept to record the serial numbers of all trust account receipt forms supplied to the law practice by the law practice s printer. The serial numbers of trust account receipt forms issued to office staff for normal daily requirements should also be recorded in the register. Trust account receipt forms not issued to office staff should be kept in a secure location. A suggested register of receipt forms follows:
Register of receipt forms
|Date received from printer
||Numbers received from printer
||Numbers issued to office staff
||Balance on hand
Who can be authorised to withdraw funds from the trust account by trust account cheque and/or electronic funds transfer?
Interpretation of s37(3) and s38(2) of the Regulation is as follows:
- An authorised principal of the law practice may solely sign trust account cheques drawn on the law practice general trust account.
- If the principal mentioned in 1 is not available:
- an authorised Australian legal practitioner (employed solicitor), irrespective of whether the employed solicitor holds an unrestricted practising certificate or a restricted practising certificate, can be authorised solely as a signatory to the law practice general trust account.
- an authorised Australian legal practitioner holding an unrestricted practising certificate can be authorised solely as a signatory to the law practice general trust account irrespective of whether he/she is employed by the law practice.
- any two (2) or more authorised associates (including non-solicitors) can be authorised jointly to sign trust account cheques drawn on the law practice general trust account
- the holder of a restricted practising certificate can only be authorised as a signatory to a law practice general trust account if they are employed by the law practice and cannot be appointed jointly with another person as a signatory.
Am I still required to issue general account receipts in respect to funds received to my general account?
There is no requirement to issue general account receipts in respect to funds received to the general account.
Prior to 1 July 2007, law practices were required to issue general account receipts in respect of all money received via proper serially machine numbered receipts pursuant to Rule 91 of Legal Profession (Solicitor) Rules 2006 that were repealed on 30 June 2007.
Do I need the Society's permission to open a new law practice trust account?
No, you are required pursuant to s46 of the Regulation to notify the Society within 14 days of opening a new trust bank account. The notification should include the name of the ADI, branch, account number and account name of the new trust account.
All new trust accounts (pursuant to s33(2) of the Regulation) must:
- be kept with an approved ADI
- be kept within this jurisdiction (Queensland)
- include within the name of the account the name of the law practice or business name under which the law practice engages in legal practice
- include within the name the expression “law practice trust account” or “law practice trust a/c”.
An ADI is defined (Schedule 2 LPA dictionary) as an authorised deposit-taking institution within the meaning of the Banking Act 1959 (Cth).
An approved ADI is an ADI that has entered into an arrangement with the Chief Executive in respect to the payment of interest to the Department of Justice and Attorney-General.
Access a list of approved ADI.
Under the Queensland Law Society Act a client agreement was only needed if costs were to exceed $750 plus GST and outlays. Is this still the case under the Legal Profession Act 2007?
No, the position is rather different under the LPA. The monetary limit now relates to the requirement to give disclosure to the client, rather than to the costs agreement. Section 311(1)(a) states that disclosure under sections 308 or 309(1) is not required to be made if the total legal costs in the matter, excluding disbursements, are not likely to exceed $1,500 (exclusive of GST). Prior to 18 July 2008 this amount was $750.
Also, section 311(2) requires that if you do not give that disclosure in reliance on the exemption, but then become aware that the total legal costs are likely to exceed $1,500 you must give disclosure under sections 308 and 309 as soon as practicable.
Section 12(4) of the Trust Accounts Act 1973 detailed the procedure to be followed in respect to disputed moneys. Is there a similar provision under the Legal Profession Act 2007?
Pursuant to s249 LPA a law practice must disburse the trust money only under a direction given by the person on whose behalf it is held.
Therefore if a dispute as to the ownership of funds held in your trust account arises the suggested approach to be taken is as follows:
- If you believe that one of the parties is entitled to the money held in your trust account, issue a letter to the other party telling them that you propose to pay the money to that person upon the expiry of a stipulated period (eg one month) and if they wish to prevent this, they should make an application to the court seeking an order.
- If you are not sure who is entitled to the money you should advise both of them that you will continue to retain the money in your trust account until they both instruct you how to disburse the money (in writing) or an order is made by the Court directing you how to disburse the money.
- If there is no agreement (in writing) or Court order within two years you can lodge a return with the Public Trustee seeking a direction to pay the money to the Public Trustee pursuant to s713(2) LPA. Both parties should be told of this action and that if you receive a direction from the Public Trustee to pay the money to them they will have to liaise with the Public Trustee to recover the money.
It should be noted that option (iii) above does not result in the possibility of trust funds being paid to an incorrect party. The previous provisions under the Trust Accounts Act 1973 could have resulted in a law practice disbursing funds from the trust account to an incorrect party, which may have resulted in civil proceedings against the law practice.
When can trust money be withdrawn for the payment of legal costs?
There are two options for doing this.
A law practice may withdraw trust money held in the general trust account or controlled money account for the payment of legal costs owing to the law practice, if the money, according to s58(3) of the Regulation is:
- withdrawn in accordance with a costs agreement that complies with the legislation and that authorises the withdrawal, or
- withdrawn in accordance with instructions that have been received by the law practice and that authorise the withdrawal. If written, they must be retained as a permanent record. If not written, they must be put in writing within five days after effecting the withdrawal and retained as a permanent record, or
- is owed to the law practice by way of reimbursement of money already paid by the law practice on behalf of the person, and
if before effecting the withdrawal the law practice gives or sends to the person a request for payment, referring to the proposed withdrawal or a written notice of withdrawal [s58(3)(b) of the Regulation].
The law practice may also withdraw trust money if the law practice has given the person a bill relating to the money [s58(4) of the Regulation] and:
- if the person has not objected to the withdrawal of the money within seven days after being given the bill, or
- the person has objected within seven days after the bill was given but has not applied for a review of the legal costs within 60 days after being given the bill, or
- the money otherwise becomes legally payable.
Withdrawing trust money for legal costs — before effecting the withdrawal a Request for Payment/Notice of Withdrawal must be given/sent to the person [s58(3)(b) of the Regulation].
A law practice must provide to the person (the entitled beneficiary, the client) a written Request for Payment or a Notice of Withdrawal.
The Society's interpretation of s58(3)(b) Legal Profession Regulation 2007 is that the Request/Notice is provided in the normal course, eg hand delivered or posted to the client and is beyond the recall of the law practice. It should be noted that s58(3)(b) only applies when a law practice is withdrawing funds:
- in accordance with a costs agreement
- in accordance with instructions received by the law practice that authorise the withdrawal (eg. trust account authority)
- that is owed to the law practice by way of reimbursement of money already paid by the law practice on behalf of the person.
Before withdrawing trust money for legal costs, what must the law practice do (s58 of the Regulation)?
In relation to s58(3)(a) and (b) Legal Profession Regulation 2007. Every time a law practice wishes to withdraw money from the trust account for legal costs, the law practice must before effecting the withdrawal send to the person, either send a request for payment [s58(3)(b)(i)], referring to the proposed withdrawal, OR provide a written notice of withdrawal [s58(3)(b)(ii)].
This applies to s58(3)(a)(i),(ii) and (iii) as there is an "and" after (iii). The law practice should also refer to subsections s58(5) and s58(6) of the Regulation.
If none of the conditions in s58(3)(a) apply, then s58(4) is appropriate and relies on the forwarding of a Bill of Costs.
Practices may choose either procedure covered by s58(3) or s58(4) of the Regulation. If using s58(4), then a Notice of Withdrawal is not required, but there is a minimum seven day waiting period before costs may be appropriated from trust funds held.
Is it possible to obtain an exemption from making a deposit to the prescribed account?
Law practices are exempt (pursuant to s70(5) of the Regulation) from making a deposit to the prescribed account if the lowest amount of trust money held in the previous calendar year was less than $3,000.
Is a new law practice required to make a deposit to the prescribed account?
Yes, all law practices that held trust money during the previous calendar year are required to make a deposit to the prescribed account unless the exemption pursuant to s70(5) of the Regulation applies.
It should be noted that the nil balances before the first credit entry to the general trust account are ignored for the purpose of determining the lowest balance, as the law practice has not held any trust money. However, if a trust-approved ADI account statement records a nil balance after the initial entry, that nil balance is an effective balance for the purpose of determining the lowest balance. When calculating the initial deposit, the law practice simply ascertains the lowest approved ADI statement balance in the previous calendar year and calculates two-thirds of that balance.
Calculation of prescribed account deposit when there is an existing deposit?
If a law practice has an existing deposit with the prescribed account, it is unlikely that the amount deposited in the previous calendar year would have been the same throughout the entire year.
If we assume that the law practice increased the amount deposited to the prescribed account on 16 January in the previous calendar year, the law practice will need to proceed in the following manner to determine the lowest combined balance held in that year by:
- identifying the lowest approved ADI statement balance during the period 1 January to 15 January and add the amount of the prescribed account deposit during that period to determine the lowest combined balance held in that period of time;
- identifying the lowest approved ADI statement balance during the period 16 January to 31 December and add the amount of the prescribed account deposit during that period to determine the lowest combined balance in that period of time; and
- calculate two-thirds of the lower of the two figures determined in (i) and (ii) above to calculate the required deposit amount.
An example of how to calculate the required deposit amount when there have been a number of changes in the amount deposited to the Prescribed Account during the previous calendar year is set out hereunder:
||Balance as per financial institution statement
||Prescribed account deposit
The lowest combined balance for the year was $9,200.
The required deposit amount is 2/3 × $9,200 = $6,066 = $6,000. The figure is rounded down to an even hundred dollars (Legal Profession Regulation 2007 s70(3) to give $6,000.
Therefore, an additional $1,000 would be lodged to the prescribed account on or before 21 January.
If the law practice has an existing lodgement with the prescribed account, which is less than the calculated figure, the difference will have to be lodged on or before the prescribed date.
If the law practice has an existing lodgement with the prescribed account, which is in excess of the calculated figure, then the law practice can either maintain the existing lodgement or obtain a return of the excess lodgement by withdrawing the surplus amount from the prescribed account.
There are insufficient funds in the trust account to effect the required lodgement to the prescribed account – what now?
Because of substantial distributions of trust funds to the rightful beneficiaries early in January, it could happen that there are not sufficient trust moneys available to effect the required deposit on or before the prescribed date.
The lowest amount of trust moneys held in the previous year, the law practice's first year of practice, was $30,000. The law practice is required to deposit $20,000 into the prescribed account on or before 21 January (there is no money held on deposit in the prescribed account).
An estate is finalised on 10 January and following distribution of estate funds, the trust account balance as at 18 January has reduced to $9,270. In such a case, the law practice would act as follows:
- The law practice cannot lodge the required $20,000 but is required to deposit some of the trust moneys based on January figures.
- The law practice ascertains the lowest amount of trust money held between 1 January this year and 20 January this year (a date on or before 21 January this year). This figure is $9,270. Two-thirds of $9,270 is $6,180. Therefore, the required immediate deposit is $6,100 ($6,180 is rounded down to an even hundred dollars).
The law practice draws a trust account cheque as previously outlined for $6,100 in favour of the Chief Executive, Department of Justice & Attorney-General's prescribed account.
Note: If the lowest balance between 1 January this year and 20 January this year had been less than $3,000, no immediate lodgement would be required.
- The law practice has a requirement to increase the deposit to $20,000 (the amount originally calculated) when the law practice has held $30,000 (the previous year's lowest combined balance), or more, for thirty consecutive days [Legal Profession Regulation 2007 s74(3)].
- As the law practice has a deposit of $6,100 with the prescribed account, a further $23,900 is required in the approved ADI account to make up the combined balance of $30,000. When the law practice is approved, the ADI statement records a balance of $23,900 and maintains this figure, or more, for thirty consecutive days, the law practice is then required to make a further deposit of 13,900 into the prescribed account.
I cannot find a definition of ADI in the material issued by the Society.
Schedule 2 of the LPA defines ADI to mean an authorised deposit-taking institution within the meaning of the Banking Act 1959 (Cwlth).
Does the requirement to maintain a register of trust receipts purchased and on-hand unused still apply at audit balance date 31 March?
Below is an extract from the Trust Account Guide – item 4.03.11 Register of receipt form
The new regulations do not require a law practice to maintain a register of trust account receipt forms. However, it is recommended, as a form of internal control, that a register of receipt forms be kept to record the serial numbers of all trust account receipt forms supplied to the law practice by the law practice's printer. The serial numbers of trust account receipt forms issued to office staff for normal daily requirements should also be recorded in the register. Trust account receipt forms not issued to office staff should be kept in a secure location.
It should be noted that the Law Practice Statutory Declaration & Trust Money Statement (QLS Form 4 LPR) (which is to be completed by law practices and provided to external examiners at the commencement of the final examination does require details of trust accounts receipts used during the period).
Law practices are only authorised to disburse funds from its trust account via EFT with Queensland Law Society approval, should the external examiner sight the letter of approval from the Society?
It should be noted that the Law Practice Statutory Declaration and Trust Money Statement (QLS Form 4 LPR) which is to be completed by law practices and provided to external examiners at the commencement of the final examination requires law practices to state whether funds were disbursed by EFT and whether they have complied with the Society's EFT guidelines.
If an external examiner noted during his examination that trust funds were disbursed by a law practice and the law practice's statement showed that it had not disbursed funds by EFT, then the external examiner would report this at Item 2 of the External Examiner's Report (QLS Form 5 (LPR))
The external examiner will decide whether the Queensland Law Society should sight the letter of approval.