Legal Profession > Trust accounts

Trust accounts

Trust accounts are maintained by law firms to hold trust money, separate from the firm’s operating funds. Trust money means money entrusted to the law practice in the course of, or in connection with, legal services provided by the practice and typically consists of money received for legal costs in advance of providing the services.

In Western Australia, the requirements and obligations for operating Trust Accounts and Controlled Money are detailed in the Legal Profession Uniform Law (WA) and the Legal Profession Uniform General Rules 2015.

If a law practice holds a trust account, they must appoint an External Examiner (EE) to examine the records of that trust account annually. The appointment gives the EE statutory powers to examine their trust records and report those findings to us. An EE is a person who is qualified to be appointed to examine the trust records of a law practice or approved barristers’ clerk. The criteria that a person must meet before they may qualify to be appointed as an EE are specified in sections 155 – 156 of the Legal Profession Uniform Law (WA) and Rule 65 of the Legal Profession Uniform General Rules 2015. An EE must complete the Legal Services Council approved External Examiners trust course conducted by the Legal Practice Board, Law Institute of Victoria or NSW Law Society as part of these qualification requirements, and be a member of an approved accounting body.

Trust Accounts may also be subject to random audit by the Legal Practice Board. 

Trust Account Management

Authorised signatories

Rules 43 and 63 of the Legal Profession Uniform General Rules 2015 provide that if the authorised principal of the law practice is not available to sign a general trust or controlled money cheque or effect an electronic funds transfer, then the law practice may authorise:

1. an authorised legal practitioner associate
2. an  authorised Australian legal practitioner who holds an Australian practising certificate authorising the receipt of trust money
3. two or more authorised associates jointly.¹

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Online payments

Before adopting the approved ADI’s²  online transaction facilities, liability clauses should be clearly understood.

A transaction is authorised by a password. The system is built on the basis of password security. If an approved ADI receives a valid transaction, (one in which the correct password has been entered), the transaction will be processed without question. If there is a lack of control over the use of security passwords, it may be impossible to identify the person who entered the transaction. There is no such thing as a "forged cheque" in an online transaction.

The approved ADI will only pay on an authenticated transaction. Authorised principal/s are expected to control passwords. It is not acceptable to entrust passwords to the bookkeeper/office manager. Authorised principals are the only persons who can authorise an online transfer unless another person is properly authorised by the law practice.

Audit trails should ensure that transaction details in the cash book and approved ADI statement enable a transaction to be traced through the records. Original approved ADI statements and the transaction confirmation document should be retained and the same controls implemented for electronic funds transfers as those adopted when signing trust cheques.

It is also suggested that before online transaction facilities are used the processes are documented and fully understood by any authorised principals and staff.
 

Procedures for authorising and terminating authorised signatories

A law practice is not required to seek permission from the Legal Practice Board to authorise persons as signatories, nor do they need to advise the Board of the appointment and removal of authorised signatories.

There is however, a requirement under Rule 50 of the LPGR to provide written notice of the associates and Australian legal practitioners (including their names and addresses) who are authorised, as at 1 July in that year —

1. to sign cheques drawn on a general trust account of the practice
2. otherwise to effect, direct or give authority for the withdrawal of money from a general trust account of the practice,

except where this information has already been provided (or that the law practice reasonably expects to be included) in an external examiner’s report under section 159 of the Legal Profession Uniform Law (WA). It is recommended that a register of authorised signatories is maintained.
 

Reporting irregularities

Section 154 of the Legal Profession Uniform Law (WA) (‘Uniform Law’) states that:

as soon as practicable after a legal practitioner associate of a law practice; or an ADI; or an external examiner; or another entity of a kind specified in the Uniform Rules for the purpose if this section becomes aware that there is an irregularity in any of the law practice’s trust accounts or trust ledger accounts, the associate, ADI, examiner or entity must give written notice of the irregularity to the designated local regulatory authority.

If an Australian legal practitioner believes on reasonable grounds that there is an irregularity in connection with the receipt, recording or disbursement of any trust money received by a law practice of which the practitioner is not a legal practitioner associate, the practitioner must, as soon as practicable after forming the belief, give written notice of it to the designated local regulatory authority.

Some examples of the most common types of irregularities reported to the Board are:

• trust funds deposited, in error to the general account by either the client or the law practice
• the overpayment of invoices
• overdrawn trust ledgers due to transposition errors, bank errors and drawing against uncleared funds
• non-trust money deposited, in error to the trust account by either the client or the law practice
• clerical, posting and other errors.

Form of notification

Please report by e-mail to TAI@lpbwa.com, without any annexures, in the format:
HEADING: Trust a/c Irregularity [Law Practice Name]
On [insert the date of the irregularity] Amount involved [$] Description [What happened].
Date [date error identified] Date [date error corrected] Description [How corrected].

Should we require further information on the irregularity reported, the Review and Audit Team will contact you directly.

NB: Supporting documentation and hard copy are not required unless the Board specifically requests such documentation.
Notifications are to be lodged by email to enquiries@lpbwa.com -- you will receive an immediate acknowledgment by the Board.
 

Trust account statements

Rule 52 the Legal Profession Uniform General Rules 2015 requires a law practice to furnish a trust account statement to each person for whom or on whose behalf trust money (other than transit money and written direction money) is held or controlled by the law practice.
A separate statement must be sent for each:

1. trust ledger account
2. record of controlled money movements
3. record of dealings with the money that is the subject of a power to which the law practice or an associate of the law practice is a party.

A statement must contain:

1. all the information required to be kept under the Uniform Law or these Rules in relation to the trust money included in the relevant ledger account or record
2. the remaining balance (if any) of the money.

A law practice is exempt from providing a statement where at the end of June each year:

1. no transaction affecting the ledger account or record has taken place within the previous 12 months
2. a statement has been furnished within the previous 12 months and no transaction affecting the ledger account or record has taken place since the last statement was furnished.

The details to be included in a statement are the same as the information required to be kept in a ledger account, and the remaining balance (if any) of the money.

In the case of controlled money, the statement would be similar in layout to the controlled money movement record.

Statements in a semi-narrative or summary form are not acceptable. Law practices must provide statements showing the prescribed detail.

The law practice must send a statement as soon as practicable after:

1. completion of the matter to which the ledger account or record relates
2. the person for whom or on whose behalf the money is held or controlled makes a reasonable request for the statement during the course of the matter
3. except as provided by subrule (5) or (6), as soon as practicable after 30 June in each year.

The Rules require that statements are to be furnished as soon as practicable after 30 June each year.

For guidance of the term “as soon as practicable” – the statement is a reflection of the transactions in the ledger and the validity of the ledger is generally not confirmed until the bank reconciliation and trial balance statements have been completed. These are required to be completed within 15 working days of month end. It is therefore probable that the statements required "as at 30 June" could not reasonably be sent until mid to late July each year.

A law practice’s ability to furnish statements promptly may depend on:

• size of the ledger
• accounting facilities
• staff numbers.

 

Trust Account Withdrawals

Rule 43 of the Legal Profession Uniform General Rules 2015 provides for withdrawals from the general trust account by cheque or electronic funds transfer (EFT).

Section 144 of the Legal Profession Uniform Law (WA) states that a law practice must not withdraw trust money from a general trust account other than by cheque or EFT.
 

Withdrawal by cheque

The Rules require that cheques:

1. must be made payable to, or to the order of, a specified person or persons and must not be made payable to bearer or to cash
2. must be crossed “not negotiable”
3. must include:
   1. the name of the law practice or the business name under which the law practice engages in legal practice
   2. the expression “law practice trust account” or “law practice trust a/c”.

Cheques should be drawn in numeric and date order to ensure that all cheques are accounted for. It is recommended that a written record of payment is kept for both computer and manual withdrawals and the written record is filed in the order that the cheques were issued.
 

Withdrawal by Electronic Funds Transfer

The Rules require that EFT is to be effected by, or under the direction or with the authority of, an authorised principal. In the absence of an authorised principal then EFT can be effected by:

1. an authorised legal practitioner associate
2. an authorised Australian legal practitioner who holds an Australian practising certificate authorising the receipt of trust money
3. two or more authorised associates jointly.

The law practice must ensure that a written record is kept of each payment made by cheque or EFT, unless those particulars are recorded by a computerised accounting system in the trust account payments cash book at the time the cheque is issued or the transfer is effected. These written records must be kept so that the accuracy of the particulars recorded by the computerised accounting system can be verified; and must be kept in the order in which the cheques or transfers were issued or effected.

The written record for cheques and EFTs to disclose:

1. the date and number of the cheque or electronic funds transfer
2. the amount ordered to be paid by the cheque or electronic funds transfer
3. in the case of a cheque, the name of the person to whom the payment is to be made or, if the cheque is made payable to an ADI, the name or BSB number of the ADI and the name of the person receiving the benefit of the payment.³
4. in the case of an EFT the name and number of the account to which the amount was transferred and relevant BSB number
5. details clearly identifying the name of the person on whose behalf the payment was made and the matter reference, or in the case of a payment to an ADI, the name or BSB number of the ADI and the name of the person receiving the benefit of the payment
6. details clearly identifying the ledger account to be debited
7. particulars sufficient to identify the reason for the payment.

 

Trust Accounting Software Systems

Manual Trust Accounting Systems

Manual trust accounting systems may be used by law practices and these include:

• traditional hand written journals records
• records maintained in spreadsheet or table format.

Please note that trust records maintained in Microsoft Excel or Word do not constitute computerised accounting systems and are considered manual accounting systems.
 

Computerised Trust Accounting Systems

If a law practice uses a computerised accounting system, it is recommended they contact their supplier/distributor to formally ascertain whether their software complies with the Legal Profession Uniform General Rules 2015. Existing software may need to be modified or further developed to meet the requirements in the Rules.

The Legal Practice Board does not recommend or routinely examine accounting software packages. However, the Law Society of New South Wales (LSNSW) examines software packages at the request of software suppliers and will issue a Certificate of Examination. The examination is not compulsory and a law practice can purchase a non-examined package if the practice is satisfied that the software complies with the Rules.⁴

The Certificate issued by LSNSW advises of the software's compliance with NSW legislation if it is competently and properly operated. The Certificate may have qualifications and exemptions. It is recommended that the Certificate, held by the supplier, be reviewed for any qualifications and exceptions noted.

The Legal Practice Board will accept a Certificate issued by LSNSW. Refer:
https://www.lawsociety.com.au/ForSolictors

INTENTION OF THE RULES
The intention of the Rules is to provide:

1. file maintenance audit trails
2. exception reports/audit trails for debit balances processed
3. controls over deletion of ledger accounts
4. page numbering and entry processing requirements
5. compulsory input requirements
6. backup facility requirements.

MONTHLY PROCEDURES
It is recommended at the end of each month, to print:

• monthly trust bank reconciliation
• monthly trust trial balance reconciliation
• monthly listing of controlled money accounts statement.

The law practice must have these documents prepared no later than 15 working days after the end of month. Please note that the monthly listing of controlled money accounts must be reviewed by the authorised principal and this review must be evidenced on the statement.⁵

After completing these monthly procedures, the law practice must backup its computer accounting system’s data file into a recording media, to be stored at an off-site location.⁶
 

Forms

Notification of Closure of Trust Account (Law Practice Closing Down) (PDF Form)
 
Notification of Opening/Closing a Trust Account (PDF Form)
 

Trust Account Seminars

The Legal Practice Bard delivers regular annual seminars on Trust Account management. Email enquiries@lpbwa.com  to register your interest. 
NEWS: Legal Practice Board plans more educational seminars (17 May 2023)
 

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¹ A "legal practitioner associate" of a law practice is defined in section 6 of the Legal Profession Uniform Law (WA) as an associate of the law practice who is an Australian legal practitioner. Associate includes an employee of, or consultant to, the law practice.
² ADI: Approved Authorised Deposit Taking Institution.
3 ADI: Approved Authorised Deposit Taking Institution.
4 Legal Profession Uniform General Rules rr 39-40.
5 Rules r 64(9).
6 Ibid r 41.