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 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 now 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.

Note Employees who are non-legal practitioners must sign jointly with another employee.

What does "relevant account" means bank account in s58(6) of Legal Profession Regulation 2007?

Each jurisdiction has agreed that the interpretation of "relevant account" to mean the law practice's general office bank account.

External Examiners - Is there now no requirement for professional indemnity insurance - s65 of Legal Profession Regulation 2007?

There currently is 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 Chief Executive.

The various references to "the Chief Executive"- is this referring to?

Chief Executive of the Department of Justice and Attorney-General's department.

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 (e.g. 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 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 is more than legal costs and is defined in Schedule 2 (end of Legal Profession Act 2007) as being work done or business transacted in the ordinary course of legal practice.

I note that legal costs are defined at s346 and specifically exclude disbursements.

Disbursements are defined at s300 as including outlays.

s257 Intermixing Money [Legal Profession Act 2007] provides:

A law practice must not mix trust money with other money.

Therefore, as the funds received by the law practice for an 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 Legal Profession Regulation 2007] as the law practice has not paid that outlay eg general bank account has not been debited [s58(6) of Legal Profession Regulation 2007].

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
1-7-XX 1001-1500 500
1-7-XX 1001-1100 400
1-10-XX 1101-1200 300

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 Legal Profession Regulation 2007 is as follows:

  1. An authorised principal of the law practice may solely sign trust account cheques drawn on the law practice general trust account.
  2. If the principal mentioned in 1 is not available:
    1. 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.
    2. 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.
    3. 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
    4. The holder of a Restricted Practising Certificate can only be authorised as a signatory to a law practice general trust account if he/she is 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?

No, there is no requirement that requires a law practice 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. The Legal Profession (Solicitor) Rules 2006 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 Legal Profession Regulation 2007 to notify the Society within 14 days that you have opened 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 bank accounts opened after 1 July 2007 (pursuant to s33(2) Legal Profession Regulation 2007) must:

  1. be kept with an approved ADI;
  2. be kept within this jurisdiction (Queensland);
  3. 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;
  4. include within the name the expression “law practice trust account” or “law practice trust a/c”.

An ADI is defined (Schedule 2 Dictionary — Legal Profession Act 2007) as an authorised deposit-taking institution within the meaning of the Banking Act 1959(Cwlth).

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 & Attorney General.

A list of Approved ADI can be located on the Society's website on the trust account page.

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 2007. 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 don't give that disclosure in reliance on the exemption, but then become aware that the total legal costs are likely to exceed $1,500 then 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 Legal Profession Act 2007 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:

  1. 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 (say - 1 month) and if they wish to prevent you from doing that they should make an application to the court seeking an Order to prevent you from doing that.
  2. 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.
  3. If there is no agreement (in writing) or Court Order within 2 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) of the Legal Profession Act 2007. If you do that you should tell both parties that is what you are doing and if you get a direction from the Public Trustee to pay the money to the Public Trustee they will have to deal with the Public Trustee to recover the money.

It should be noted that option (c) 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. The first is that 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) Legal Profession Regulation 2007, are:

  • 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) Legal Profession Regulation 2007].

The second option is that the law practice may also withdraw trust money if the law practice has given the person a bill relating to the money and [s58(4) Legal Profession Regulation 2007]:

  • if the person has not objected to the withdrawal of the money within 7 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) Legal Profession Regulation 2007].

A law practice must provided to the person (the entitled beneficiary, the client) a written request for payment or a notice of withdrawal.

The Regulation requires a law practice to give or send the Request/Notice to the person.

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 to client, 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:

  1. in accordance with a costs agrreements;
  2. in accordance with instructions received by the law practice that authorise the withdrawal (eg. Trust account authority); and
  3. that is owed to the law practice by way of reimbursement of money alreadt paid by the law practice on behalf of the person.

Before withdrawing trust money for legal costs, what must the law practice do? (s58 Legal Profession Regulation 2007).

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 a request for payment [s58(3)(b)(i)], referring to the proposed withdrawal, OR 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) Legal Profession Regulation 2007.

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) Legal Profession Regulation 2007. If using s58(4), then a notice of withdrawal is not required, but there is a minimum seven (7) 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 Legal Profession Regulation 2007) from making a deposit to the prescribed account if the lowest amount of trust money held in the previous calendar year was less than $3,000.00.

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 Legal Profession Regulation 2007 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:-

  1. determine the lowest approved ADI statement balance during the period from 1 January to 15 January and add the amount of the prescribed account deposit during that period to determine the lowest combined balance held on any day during that period from 1 January to 15 January;
  2. determine the lowest approved ADI statement balance during the period from 16 January to 31 December and add the amount of the prescribed account deposit during that period to determine the lowest combined balance during the period from 16 January to 31 December; and
  3. 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:

Date Balance as per financial institution statement Prescribed account deposit Combined balance
01/01/XX$160,000.00$40,000.00$200,000.00
12/01/XX$193,000.00$125,000.00$318,000.00
15/02/XX$55,000.00$125,000.00$ 180,000.00
22/03/XX$241,000.00$125,000.00$366,000.00
05/04/XX$1,000.00$125,000.00$126,000.00
09/05/XX$31,500.00$35,000.00$66,500.00
17/06/XX$42,250.00$35,000.00$80,250.00
05/07/XX$4,200.00$5,000.00$9,200.00
25/08/XX$126,254.00$5,000.00$131,254.00
05/09/XX$185,265.00$5,000.00$190,265.00
15/10/XX$16,000.00$5,000.00$21,000.00
22/11/XX$102,000.00$5,000.00$107,000.00
28/12/XX$43,892.00$5,000.00$48,892.00

The lowest combined balance for the year was $9,200.00.

The required deposit amount is 2/3 X $9,200.00 = $6,066.00 = $6,000.00 rounded down to an even hundred of dollars (Legal Profession Regulation 2007 s70(3) allows the required deposit amount to be rounded down to an even hundred dollars).

Therefore, an additional $1,000.00 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, then 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.

When there are insufficient funds in the trust account to effect the required lodgement to the Prescribed Account?

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.

For example:
The lowest amount of trust moneys held in the previous year, the law practice s first year of practice, was $30,000.00. The law practice is required to deposit $20,000.00 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 $9,270.00. In such a case, the law practice would act as follows:-

  1. The law practice cannot lodge the required $20,000.00 but is required to deposit some of the trust moneys based on January figures.
  2. 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 $9,270.00. Two-thirds of $9,270.00 is $6,180.00. Therefore, the required immediate deposit is $6,100.00 ($6,180.00 is rounded down to an even hundred dollars).

  3. The law practice draws a trust account cheque as previously outlined for $6,100.00 in favour of Chief Executive, Department of Justice & Attorney-General Prescribed Account.

    Note: If the lowest balance between 1 January this year and 20 January this year had been less than $3,000.00, then no immediate lodgement would be required.

  4. The law practice has a requirement to increase the deposit to $20,000.00 (the amount originally calculated) when the law practice has held $30,000.00 (the previous year's lowest combined balance), or more, for thirty (30) consecutive days [Legal Profession Regulation 2007 s74(3)].
  5. As the law practice has a deposit of $6,100.00 with the prescribed account, a further $23,900.00 is required in the approved ADI account to make up the combined balance of $30,000.00. When the law practice s approved ADI statement records a balance of $23,900.00 and maintains this figure, or more, for thirty (30) consecutive days, the law practice is then required to make a further deposit of 13,900.00 into the prescribed account.

I cannot find a definition of ADI in the material issued by the Society.

Schedule 2 of the Legal Profession Act 2007 defines ADI to mean an authorised deposit-taking institution within the meaning of the Banking Act 1959(Cwlth)

Below is an extract from the Trust Account Guide (which can be downloaded from the Society's website at www.qls.com.au ) — item 3.01 Establishing a General Trust Account.

An “approved ADI” is an ADI (Authorised deposit-taking institution) approved under section 280 by the Law Society [Legal Profession Act 2007 s.237]. A list of approved ADI's can be found on the Society's website at www.qls.com.au.

Does the requirement to maintain a Register of Trust receipts purchased and on hand unused still applies at audit balance date 31 March.

Below is an extract from the Trust Account Guide (which can be downloaded from the Society's website at www.qls.com.au ) — 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 authorized to disburse funds from its trust account via EFT with QLS approval, should the external examiner sight the letter of approval from QLS?

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 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 stated 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 decision as to whether the External Examiner should sight the letter of approval from QLS is a decision to be made by the External Examiner.