Frequently Asked Questions on Trust Safety
General
1. When do the new Trust Safety rules come into force?
2. What is the rationale behind the rule changes?
Responsible Lawyer
3. What are the duties and obligations of a Responsible Lawyer?
4. What are the minimum requirements for a lawyer to be a Responsible Lawyer?
5. Can the Law Society opt not to approve a lawyer applying to be a Responsible Lawyer?
6. Is there a right of appeal if my application for Responsible Lawyer is not approved?
7. What happens if the law firm I work with does not have an approved Responsible Lawyer?
Trust Account Approval
8. What is the process for filing an Application to Operate a Trust Account?
9. If a law firm already has a trust bank account, does it still have to complete the Application?
10. Are there any minimum requirements for a law firm to apply for a Trust Bank Account?
11. Can the Law Society deny applicants the right to operate a Trust Bank Account?
12. Is there a right of appeal if the firm is denied the ability to operate a Trust Bank Account?
13. Is there a requirement to obtain Law Society approval to change trust bank accounts?
Accounting Rules including Law Society Filings
14. Did any of the detailed accounting rules change?
15. What is the Law Firm Self Report and when is it due?
16. What happens if I am behind in filing my previous Form S?
17. What is the Accountant’s Report and when is it due?
18. What happens if I am behind in filing my previous Form T?
Electronic Filing of Accounting Information
19. Is electronic filing of accounting information mandatory?
20. What is the electronic filing option in lieu of the Accountant’s Report?
21. If I own PCLaw or Esilaw, do I have to electronically file the accounting information?
22. I own software that is not PCLaw or Esilaw, can I participate in the electronic filing option?
23. What is the time period required for the electronic filing option?
24. What software has been approved by the Law Society to date?
Miscellaneous
25. If I am starting a new law firm, do I need to file a Form U (Form 5-3)?
26. What is the process I follow if I want to practice law but not handle trust money?
27. Will random audits still be conducted by the Law Society?
28. Do the new rules impact Government lawyers?
29. Do the new rules impact Corporate Counsel lawyers?
30. My year end is December 31, 2010 do I file a new Form S and T?
31. I heard the Responsible Lawyer has to pass an on-line LESA course, how do I get information on this course?
32. I heard that estate funds for a client of the law firm cannot be held in a law firm trust bank account, is this true?
1. When do the new Trust Safety rules come into force?
The rules relating to lawyer obligations regarding the receipt, payment and recording of trust funds and related Law Society filing requirements are in effect as of January 1, 2011.
The rules relating to responsible lawyer and trust account approval come into force on the law firm’s designated filing date. As all existing law firms are required to complete the Registering a Law Firm prior to the end of their current filing year, all new law firms that commence operations AFTER January 1, 2011 will be required to complete and submit an Application to Operate a Law Firm.
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2. What is the rationale behind the rule changes?
The Law Society has the mandate to protect the public and provide support to lawyers as they fulfill their duty to their clients. The new rules provide for control procedures to help lawyers and law firms avoid identified risks to trust money. These controls, in conjunction with the high levels of competence and ethics demonstrated by Alberta lawyers will enhance the profession’s ability to safeguard trust money.
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3. What are the duties and obligations of a Responsible Lawyer?
The duties and obligations of the responsible lawyer are provided in rule 119.3.
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4. What are the minimum requirements for a lawyer to be a Responsible Lawyer?
The minimum requirements are provided in rule 119.4. While any lawyer can apply to be the Responsible Lawyer, the expectation in a firm setting is that the applicant would be in a position of authority in the law firm.
As noted on the website, each law firm must have a Responsible Lawyer approved by the Law Society, with this rule effective after each law firm’s year end commencing after January 1, 2011. Therefore, any law firm with January 31, 2011 year end must have a Responsible Lawyer in place by January 31, 2011. A law firm with a February 28, 2011 year end must have a Responsible Lawyer in place by February 28, 2011 and so on.
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5. Can the Law Society opt not to approve a lawyer applying to be a Responsible Lawyer?
Yes but the preferred option is to work with the applicant and approve the application with conditions.
In rare circumstances where the applicant has a history that may call into question the applicant’s ability to safeguard trust money, the application for approval of responsible lawyer may be denied. In such cases, the law firm will be required to present another candidate for approval of responsible lawyer. If the firm is a sole practitioner, arrangements may be made with a law firm that has an approved responsible lawyer and trust account to handle any trust money. Such arrangements must be clearly explained to the clients.
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6. Is there a right of appeal if my application for Responsible Lawyer is not approved?
Yes, there is a right of appeal see Rule 119.13. Specific guidelines exist for the appeal process and will be made available upon request.
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7. What happens if the law firm I work with does not have an approved Responsible Lawyer?
Only a lawyer practising with a law firm approved to operate a trust account is permitted to receive trust money. [Rule 119.2] A law firm that does not have both responsible lawyer approval and trust bank account approval may still practise law provided that no trust funds are handled by the law firm or any lawyer in the law firm.
A law firm that does not have approval of a responsible lawyer or approval to operate a trust account may make arrangements for a law firm that has a responsible lawyer and trust account approvals to process all of their trust transactions for them. Such arrangements must be clearly explained to the clients.
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8. What is the process for filing the Trust Account Qualification?
For all existing law firms, the Law Society will distribute the form based upon their designated filing date. The due dates for the completed forms will be outlined in the letter from the Law Society.
The Law Society should have all 2011 year ends mailed out by the end of August, but we may be unable to immediately process the forms due to volume. The form itself should be on the website shortly.
Any law firm commencing operations after January 1, 2011 (i.e. new law firms) will be required to complete the Application to Operate a Law Firm and will be able to download the application from the Law Society website shortly.
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9. If a law firm already has a trust bank account, does it still have to complete the Registration of a Law Firm?
Yes. The Registration of a Law Firm provides information regarding:
- The law firm’s Responsible Lawyer
- The law firm’s trust bank account
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10. What are minimum requirements for a law firm to apply for a Trust Bank Account?
The minimum requirements are provided in rule 119.8
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11. Can the Law Society deny new applicants the right to operate a Trust Bank Account?
For existing law firms, they will not be denied the use of their trust accounts. However, for new firms who have demonstrated an inability or unwillingness to comply with the current Law Society accounting rules, denial is an option.
Examples include continual inability to reconcile the trust bank account(s) monthly, trust shortages in client ledger accounts and NSF trust cheques.
Denial would be a last resort as the preferred option is to work with the law firm in question through conditions such as monitoring of the trust account on a quarterly or even monthly basis.
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12. Is there a right of appeal if the firm is denied the ability to operate a Trust Bank Account?
Yes, there is a right of appeal see Rule 119.14. Specific guidelines exist for the appeal process and will be made available upon request.
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13. Is there a requirement to obtain Law Society approval to change trust bank accounts?
Once a law firm has obtained approval to operate a trust account, there is no need to request approval from the Law Society to change or open new trust bank accounts. This applies to both the pooled trust accounts and separate interest-bearing accounts.
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14. Did any of the detailed accounting rules change?
Yes, the basic concepts of the Rules remain intact such as monthly reconciliations and trust ledger accounts for each client, etc but some changes were made. Additionally, some of the terminology has changed such as "operating trust account" is now called a "pooled trust account". Some of the more significant accounting rule changes include:
- General bank accounts must be reconciled monthly
- Books of original receipts for trust and general have been replaced with trust journals and general journals
- A separate receipt book to record only cash receipts
- Electronic payments can be made from the trust bank account provided the law firm uses a Law Society Form and can obtain written confirmation from the financial institution of the destination account number and name
- Undisbursable Trust Funds can be remitted using a simplified form, for amounts less than $50
- Trust shortages on client files must be reported to the Law Society if the shortage cannot be corrected within 7 days. In addition, all trust shortages exceeding $2,500 must be reported to the Law Society regardless of how long it took to be corrected
- Trust money received must be deposited into the law firm pooled trust account no later than the next banking day
- The Law Firm Self-Report replaces the Form S and is now due 1 month after the law firm’s designated year end
- The Accountant’s Report replaces the Form T and is now due 4 months after the law firm’s designated year end
- Law firm’s have the option of electronically transmitting accounting information to the Law Society in lieu of retaining an outside accountant for an Accountant’s Report
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15. What is the Law Firm Self-Report and when is it due?
The Law Firm Self-Report is the replacement to the existing Form S (Form 5-1) and must be filed for any year ends AFTER January 1, 2011.
All law firms are required to file this Form even if they do not operate a trust bank account. The Self-Report has four different components, parts 1 and 2 are completed by all law firms, part 3 is completed by all law firms who have a trust bank account and part 4 is completed by law firms who do not remit their trust accounting data to the Law Society.
The Law Firm Self-Report is due 1 month after the law firm designated filing date.
Please note some of the questions on the Law Firm Self-Report may not apply to the entire reporting period as some of the rules were only effective January 1, 2011.
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16. What happens if I am behind in filing my previous Form S?
Law firms must still file any outstanding forms (in the old format).
Any year ends after January 1, 2011 must be filed using the Law Firm Self-Report.
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17. What is the Accountant’s Report and when is it due?
The Accountant’s Report is the replacement to the Form T (Form 5-2) and must be filed for any year ends AFTER January 1, 2011. However, there is the opportunity for a law firm to forego filing the Accountant’s Report and instead electronically remit trust accounting information to the Law Society. See questions 19 to 23 for additional details.
The Accountant’s Report is due four months after the law firm designated filing date. Please note some of the questions on the Accountant’s Report may not apply to the entire reporting period as some of the rules were only effective January 1, 2011.
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18. What happens if I am behind in filing my previous Form T?
Law firms must still file any outstanding forms (in the old format).
Any year ends after January 1, 2011 must be filed using the Accountant’s Report.
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19. Is electronic filing of accounting information mandatory?
No. While electronic filing of accounting information is encouraged and it dispenses with the requirement to file an Accountant’s Report, there is no requirement for law firms to use computerized software or submit their accounting information electronically.
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20. What is the electronic filing option in lieu of the Accountant’s Report?
Currently, two legal software vendors, PCLaw and Esilaw, have added a feature to their current software to enable users to transmit accounting information to the Law Society. If the data is transmitted, no Accountant’s Report is required.
Given the interaction between law firm fee billings and the trust bank account, the electronic filing feature will not be available unless both the trust and general transactions are recorded on the computer software. Typically a law firm general books and records are also maintained on PCLaw or Esilaw and this scenario only applies to the odd situation where the law firm’s trust books are recorded on software and the general books are maintained manually or on different software.
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21. If I own PCLaw or Esilaw, do I have to electronically file the accounting information?
No. Since the electronic filing features were issued by PCLaw and Esilaw in 2010 you may require an upgrade of your software if you choose to electronically file. If the answer is no, uploading data is optional. If you own an older version and want to upgrade your software, contact your service representative.
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22. I own software that is not PCLaw or Esilaw. Can I participate in the electronic filing option?
Currently, only PCLaw and Esilaw have the approved electronic filing option but we are working with approximately 7 other software vendors to produce an electronic filing feature for their products. We anticipate the electronic filing feature available to law firms from the other software vendors in their 2011 upgrades.
Please note we are only working with software vendors that produce software specifically designed for law firms and not generic business software programs that are designed for general use. If your law firm is considering the purchase of accounting software, please contact the Law Society via email or call Lisa Atkins at 403-229-4740.
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23. What is the time period required for the electronic filing option?
The Law Society requires a full 12-month period of computerized data for a law firm to use the electronic filing feature. For example a law firm cannot have manual books and records for 6 months and then switch to computer software for the other 6 months and expect to participate in the electronic filing option.
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24. What software has been approved by the Law Society to date?
To date, the Law Society has worked extensively with PCLaw and Esilaw to comply with the rules and to ensure the download feature is secure.
Presently we are working with a Mac based accounting software vendor and software designed for larger law firms.
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25. If I am starting a new law firm, do I need to file a Form U (Form 5-3)?
The Form U has been replaced by a Start-Up Report which is now due 4 months after the new trust bank account has been opened. This Start-Up Report is completed by an external accountant and includes a review of the first two trust reconciliations completed by the law firm.
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26. What is the process I follow if I want to practice law but not handle any trust money?
Typically most law firms that practice law receive and disburse client funds entrusted to them. However, there are situations where no retainers/trust money will be received such as a criminal lawyer dealing exclusively with Legal Aid. In these cases, a lawyer/law firm must file an Application for Exemption from operating a trust bank account. Once approved, the law firm must then submit annually a Law Firm Self-Report within one month of the designated filing date.
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27. Will random audits still be conducted by the Law Society?
Yes. These audits will be on law firms with trust account as well as law firms that have filed an exemption from holding trust funds.
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28. Do the new rules impact Government lawyers?
Rule 119.2 states that only a lawyer working with a law firm may handle trust money. Lawyers employed with the Government and handling funds in the course of their employment will not be impacted by these rules. However, if a government lawyer does practice law outside the scope of his/her employment then the steps identified in practicing either with or without a trust bank account apply.
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29. Do the new rules impact Corporate Counsel lawyers?
Rule 119.2 states that only a lawyer working with a law firm may handle trust money. Lawyers employed as corporate counsel and handling funds in the course of their employment will not be impacted by these rules. If a lawyer operating principally as corporate counsel does practice law outside the scope of his/her employment or accepts trust funds personally or on behalf of their employer then the steps identified in operating a law practice would apply and all aspects of the rules such as operating a general bank account and reconciling a general account would apply.
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30. My year end is December 31, 2010 do I file a new Form S and Form T?
The new Trust Safety Rules are effective January 1, 2011 so all law firms with December 31, 2010 designated filing dates (Law Society year ends) will still file the Form S and Form T as they have always done.
For their December 31, 2011 year end, the revised filings will be required.
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31. I heard the Responsible Lawyer has to pass an on-line LESA course, how do I get information on this course?
The Law Society in conjunction with the Legal Education Society of Alberta has developed two on-line courses that the Responsible Lawyer must take before or shortly after being approved by the Law Society. The courses are not pass/fail but rather educational in purpose.
The courses can be found on the LESA website under on line courses and then Practice Management. In order to sign on, however, LESA must provide access to each Responsible Lawyer and provide a sign-on and password. Currently this process is being facilitated by the Law Society once the Responsible Lawyer remits the Application.
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32. I heard that estate funds for a client of the law firm cannot be held in a law firm trust bank account, is this true?
There is no requirement to remove estate funds from the law firm trust bank account UNLESS the law firm is not providing any legal services in regard to that matter. One example where this might occur is when the estate has been completed and the beneficiary requests that the law firm hold the funds in trust for either investment purposes or does not need the funds at this time. Another example would be if the lawyer is the personal representative and retains outside counsel to handle all of the legal matters. If a lawyer is not providing any legal services, a separate estate bank account should be opened. This bank account would then be captured under new rule 119.26 – Representative Capacity (old rule 132) provided the $20,000 threshold was reached.
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