The rules require all law firms approved to operate a trust account to complete a Start Up Report in the form and prescribed filing method approved by the Executive Director. The Start Up Report must be filed within four months of the date approved to operate a trust account. This form will be reviewed and analyzed by the Trust Safety department and no longer requires an independent accountant to complete the form. The Startup Report can be found under forms for Financial Records, Accounts & Trusts.

There might also be conditions upon the law firm when the trust account was initially approved by the Law Society.

The Law Firm will also be required to annually file the Law Firm Self Report and the Trust Safety Accounting Upload.

A trust cheque must bear the signature of a lawyer of the law firm unless otherwise authorized in writing by the Executive Director. The rationale for this rule is to ensure that a lawyer who may have been denied the ability to approve trust payments on his or her law firm does not approve trust payments at another law firm.

A responsible lawyer may apply for approval to provide temporary authority to a lawyer of another law firm to approve withdrawals and transfers from the law firm’s trust account, and the approval must be recorded in paper or digital form and maintained with the monthly reconciliation of the law firm’s trust accounts. Where an approval ceases to be in effect, the responsible lawyer will ensure that the lawyer with temporary authority is unable to access the trust account at the approved depository where the trust account is located.

A non-lawyer may not solely approve payments or sign trust cheques.

Yes, the task of maintaining and reconciling the law firm’s trust accounts can be delegated to an accounting firm or separate accounting department, but the responsible lawyer still has to ensure they are properly reconciled and prepared by the end of the month.

Any errors, discrepancies, shortfalls or other exceptions will lie with the responsible lawyer.

Some of the pitfalls that may arise in using an accounting firm include conflicts of interest preventing the law firm from retaining the accounting firm from preparing the Accountant’s Report and the timeliness of posting the transactions and preparing the reconciliations.

On a monthly basis, a law firm must print or digitally capture the financial records for all:

• Trust accounts, with the exception of client trust ledgers provided they can be retrieved upon demand; and,
• General accounts, with the exception of the accounts receivable ledgers, provided they can be retrieved upon demand.

A law firm must maintain all prescribed financial records in a safe and secure location, retrievable on demand, for a minimum of ten full years.

Reconciliations of a law firm’s trust bank account(s) must be prepared within one month of the end of each month.

The trust bank reconciliation package must include:

• Bank account reconciliation
  • Outstanding receipts/disbursements
  • Detailed adjustments
• Trust bank statements
  • Images of the negotiated cheques
• Client trust listing
• Trust bank journal
• Matter-matter transfer journal

Electronic payments can be made out of the trust bank account in accordance with Rules 119.31

A law firm may deposit money into its accounts using an automated teller machine (ATM) subject to the following conditions:

• an ATM card for a trust account must be restricted to deposit only;
• trust money must be deposited directly into a pooled trust account of the law firm by the next banking day; and
• the payor, client name and file number, if applicable, must be recorded on all ATM receipts.

The deposit must be recorded in the applicable account journal and the ATM receipt must be attached to the deposit slip.

A law firm cannot receive $7,500 or more in cash for one client matter or transaction unless it meets one of the exemptions listed in rule 119.57(4). The cash receipts apply on a cumulative basis.

These exemptions include funds received from a financial institution or public body, from a law enforcement agency, , for the payment of fines/penalties or for legal fees, disbursements or bail.

If the law firm breached the $7,500 in cash, the law firm should self-report the matter to the Law Society and discuss with the Practice Advisor the possible return of the cash received. Send the information by email and include:

• Information about the client;
• client trust ledger card;
• cash receipt;
• bank statement; and
• any other applicable documents relating to the cash transaction

If you are returning on a cash receipt of $7,500 or more, the refund has to be returned to the client by way of cash. This puts the client in the same position vis a vis cash holdings as when he or she came to the law firm.

Typically, the law firm would write a cheque payable to the financial institution to obtain the necessary amount of cash to make the refund. The person/client receiving the cash refund must sign a receipt acknowledging that the cash was paid to them by the law firm.

The law firm must immediately replace the funds taken by the bank by either:

• Requesting that the bank reverse the withdrawal and charge the general bank account; transferring firm’s general funds into the trust bank account
• Offsetting the charge against the $500 that the firm is permitted to maintain in each trust bank account.

If the charge is not replaced within 7 days of occurrence, the firm must complete and provide the Trust Account and Client Ledger Shortages Form.

If the firm has held funds for more than two years and has made reasonable efforts to locate and contact the funds’ owners, then submit one of the following forms to the Trust Safety department to obtain approval to remit funds to the Law Society:

• Undisbursable Trust Money – For Client Matters Less Than $50 Value
• Undisbursable Trust Money – For Client Matters Greater Than $50 Value

When a firm submits an undisbursable trust fund request to the Law Society, the Law Society reviews the steps taken by the firm to locate and contact the funds’ owners. The Law Society may request further information about the firm’s efforts in this regard.

Where the Law Society determines that the information in the request is insufficient, or the law firm has not made reasonable efforts to locate the owners and distribute the funds to them, the Law Society will reject the request. If the information in the request is sufficient, the Law Society will approve the request and provide further details on how to submit electronic payment.

View the Disbursing the Undisbursable resource for more information on this process.

Lawyers can now upload and submit the Trust Safety Accounting Upload or the Accountant’s Report through the PwC Connect Tool (Connect Tool).

As all law firms are required to use the Connect Tool for their Annual Filings, the Responsible Lawyers at your law firm will automatically be enrolled in the system and set up with an account. An email will be sent directly to all Responsible Lawyers with their username and temporary password.

For more information, visit the Filing Requirements page.

For information, visit the Penalty Schedule.

Accountants who can issue an Accountant’s Report are chartered professional accountants as defined in the Chartered Professional Accountants Act (Alberta). If a lawyer is retaining an accounting firm to maintain his/her books and records on a monthly basis, he/she must ensure that the Accountant’s Report is performed by another accounting firm.

To close a trust account, the law firm must be sure that all trust funds are distributed to the parties entitled to them or make written arrangements for the transfer of funds to the trust account of another law firm and the assumption by that law firm of the trust obligations applicable to those funds or pay the money to the Law Society. A final Law Firm Self Report and Accountant’s Report (or a data submission in lieu of the Accountants Report) are required to be filed upon the closing of the trust account and prescribed financial records.

When a practice is concluded, the Executive Director of the Law Society must be provided with written notice of the fact, before or immediately after the date on which the firm’s prescribed financial records are closed.

When a lawyer moves to another law firm, any trust balances for client files that are to be transferred to the new law firm should be transferred by issuing a trust cheque. As well, the member should be removed as a signing authority from the previous law firm’s trust accounts.

If the trust reconciliations are not current, both the Law Society and the law firm are unable to ascertain whether the trust assets are sufficient to meet the trust obligations of the law firm. Therefore, without proof of the completeness of the trust assets, the law firm may be prejudicing certain clients by making payments from their trust bank accounts. The Law Society will ask the law firm to sign an undertaking not to use the law firm trust bank accounts until such time as the bank accounts are reconciled and no trust shortages exist within the client trust ledger accounts.

The auditors review these listings for the following reasons:

• Non-current accounts receivable for which money is in trust as trust transfers must be performed expeditiously (within 30 days) to pay accounts
• Credit balances which means that clients have overpaid the balance owing to the law firm for fees and disbursements

A credit balance may indicate the following:

• Trust payment made to general without firstly rendering a statement of account
• An overpayment by a client of an account. Any payment should be returned to the client or deposited to trust immediately
• The statement of account has not been posted

Under both scenarios the lawyer needs to notify the Manager, Trust Safety of the Law Society. The notification must include a brief letter outlining the circumstances surrounding the bankruptcy, a copy of the statement of affairs, and a copy of the bankruptcy or proposal.

The Law Society also requires notification of a writ of enforcement against any lawyers of a law firm.

Yes, it is possible for a lawyer to still sign trust cheques. Upon receipt of the bankruptcy documents, the Manager, Trust Safety will review the information. The Manager may or may not impose conditions including the removal of the lawyer as a signing authority on the law firm trust account.

Retainer letters should meet the requirements outlined in Chapter 2, Rule 2.06 of the Code of Conduct.

No. Normally these charges are considered fees or other charges and should be included under fees, not disbursements on the statement of account. A heading such as “Other Charges” can be used to describe these amounts.

Retainers can be deposited directly into the law firm’s general bank account provided certain conditions are met. General retainers are very rare as it is an acknowledgement by the client that NO legal services have to be performed by the law firm but rather the firm is on stand-by for the client.

General retainers are permitted where the client has signed a written acknowledgement that:

• The money is not refundable and belongs to the law firm immediately upon receipt
• The law firm is not obliged either to account for the money or render services with respect to the money
• Services may never be rendered with respect to that money

In other words, all subsequent work would be considered free. The services performed to date may justify the amount on the statement of account.

The entire funds cannot be transferred from trust until the agreed services have been performed. A partial transfer of the amount held in trust is permissible when the amount equals the proportion of work completed, and only then as a result of a written prearrangement with the client.

In other words, the lawyer renders a statement of account which lists all the services performed and, in addition, lists services to be performed in the future.

The entire funds held in trust cannot be transferred from trust until all the agreed services have been performed. A partial transfer of the amount held in trust is permissible when the amount equals the proportion of work completed, and only then as a result of a written prearrangement with the client.

On contingency fee agreements, refer to Rule 10.7 of the Rules of Court which provides the requirements for a contingency fee agreement. Please contact the Practice Advisors if you have any questions with regard to contingency fee agreements.