The first step is to complete the Application to Designate a Responsible Lawyer and/or Operate a Trust Account which is completed by the lawyer who will be designated as the firm’s Responsible Lawyer. Once the application has been approved, with or without conditions, the law firm can then establish a trust bank account.

A law firm only needs a trust bank account if it is receiving or disbursing client trust funds. A lawyer who provides legal advice to clients but does not request a retainer from the client and instead bills the client at the conclusion of the matter may not need a trust bank account. In these cases, the lawyer would be required to complete an exemption from the requirement of operating a trust bank account.

There are two types of trust bank accounts: pooled trust bank accounts and separate interest-bearing accounts.

A pooled trust account is comprised of funds held for a variety of clients and is sometimes referred to as a mixed trust account or operating trust account. The interest earned on these bank accounts is remitted to the Alberta Law Foundation.

A separate interest-bearing account contains trust money deposited in an interest-bearing form, either for a fixed period in a separate account, or a Treasury Bill (purchased only through an approved depository) on behalf of a specified client. The interest earned on a separate interest-bearing account is the property of the client.

After obtaining Law Society approval and where a law firm opens a pooled trust bank account, the law firm must file the Start-Up Report which must be completed and signed by an accounting firm within four months of the law firm opening their trust bank account. The intent is for the accounting firm to review the first two trust reconciliations to ensure that the law firm is properly accounting for the client trust monies.

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

All trust bank statements and trust cheques must clearly indicate that they are for trust transactions only. This means that all trust cheques and trust bank statements must have the word “trust” clearly printed on their face.

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 non-lawyer can sign trust cheques provided a lawyer from the firm also signs the cheque.

In certain cases a, non-lawyer may solely approve payments against a trust account but only with the approval of the Executive Director. In these exceptional cases a valid argument would have to be made and typically this is only approved in rural settings.

No, the trust bank account can only be used for trust monies received in connection with the law firm’s practice of law. Funds cannot be deposited into trust for matters such as staff social events and/or where no legal services are being provided in relation to the trust money in the trust bank account.

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. Lastly, the accounting firm must attend the law firm or be provided with copies of the necessary records as the books and records cannot leave the law firm offices unless exempted by the Executive Director.

Canadian Deposit Insurance Corporation (CDIC) coverage is financial insurance which provides protection up to a value of $100,000 for each client listed in a pooled trust account, and up to a value of $100,000 for each separate interest-bearing trust account in the event of the financial institution failing.

All financial institutions are not insured by CDIC. Notable exceptions in Alberta are the Alberta Treasury Branch and all credit unions. Deposits with these institutions are 100 per cent guaranteed, either directly or indirectly, by the Province of Alberta.

Separate interest-bearing account deposits with a maturity of greater than five years are not eligible for CDIC coverage, nor are any foreign currency accounts, including US dollar accounts.

Law firms with financial institutions which have CDIC coverage are required to file by May 31 of each year the balance of trust listings as of April 30 to demonstrate that the operating trust account is a pooled account. It should be noted that to protect solicitor-client privilege, only file numbers (not client names) are to be included on these trust listings.

Law firms must file even if their trust account is less than $100,000 as at April 30.

All questions about the Goods and Services Tax (GST) should be referred to the Canada Revenue Agency at:

• http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/gnrl/menu-eng.html
• Toll-free: 1-800-959-1953

Trust and general records include:

• Trust journal showing the receipt and withdrawal of all trust funds showing dates, receipt/cheque numbers, source of funds, payee, client name and/or file number, form of the money received, amount and a running balance
• A trust ledger account for each client matter from whom the law firm has received and disbursed trust money showing name, file number, matter description, dates, source of funds, payee, receipt/cheque number, description of payment or receipt and a running balance
• A trust transfer journal showing all transfers/movements of money between trust ledger accounts
• A monthly trust reconciliation between the trust assets (trust bank accounts) with the trust liabilities (listing how much each client has in each trust bank account)
• General journal showing the receipt and withdrawal of all general funds showing dates, receipt/cheque numbers, source of funds, payee, client name and/or client number, form of the money received, amount and a running balance
• A billing journal that shows all statements of accounts (law firm accounts receivable) issued by the law firm, the dates of the statements of account and the names of the clients
• An accounts receivable system showing the amount billed, amount received and running balance for each client
• All bank statements/passbooks, negotiated cheques images, transfers between bank accounts and detailed duplicate deposit slips
• Duplicate receipt book to record any cash received for a client showing the date, person who paid the cash, amount, client name, file number and signature of the law firm and of the person who brought the cash
• A record of any cash payments made to clients showing the date, amount, client name, file number and signature of the person to whom the cash was paid

When recording a transfer of trust monies between client trust ledger accounts, the transaction must be included on the trust ledger account for both parties. As well, the transfer must be recorded in a trust transfer journal or chronological file of all transfer documents.

This trust transfer journal must record all cheque and non-cheque transfers and must record the date, amount transferred and the clients involved.

Trust and general transactions should be posted as soon as they occur. This is particularly important for trust transactions as when a lawyer is approving a trust payment, he or she is certifying that the trust accounting records are current to the date of the signature.

Although there is no similar requirement for general records, it only makes sense that the law firm knows their financial status prior to making a general payment.

Contact the financial institution and ask for a zero-balance bank statement for that month or a letter confirming that the bank account had no transactions for the month in question. If the financial institution will not issue a statement or letter, a copy of the previous month’s statements should be kept on file for the month in question to show that the balance did not change for that period.

A law firm is required to maintain all negotiated cheques (or cheque images) for all trust and general bank accounts. If the bank will not return the original certified cheque, the law firm must request from the financial institution a copy of the front and back of all certified cheques which passed through its trust and general bank accounts.

Yes. On a monthly basis, the law firm is to print all trust records with the exception of the trust ledger accounts which must be printed upon demand. For the general records, they too must be printed monthly with the exception of the accounts receivable ledger cards.

However, rather than printing hard copies on paper, you also have the option to “print” much of your files to PDF and store them electronically. Here is a list of what the Rules of the Law Society allow to be “printed” to PDF:

• Printouts from the accounting program (e.g., trust/general journals, trust listings, accounts receivable aging report, billing journal)
• Bank statements and negotiated cheque images
• All other financial records, including duplicate cash receipts, credit/debit card merchant slips, and bank deposit slips,
  • Provided the copy stored in this manner is the final, complete version containing all required bank teller deposit stamps, signatures, dates, file numbers, and other pertinent information as required by the Rules of the Law Society.
• Client trust ledger cards:
  • If the firm maintains paper based client files, Rule 119.37(1)(c) requires the client trust ledger card be printed and kept in the client file upon completion of the file. Therefore, the client trust ledger card has to be printed and the paper copy kept in the client file.
  • If the firm maintains client files electronically, the client trust ledger card may be “printed to PDF” and saved electronically, together with all other client file documents.

Financial and accounting records must be maintained at a law firm’s principal place of practice in Alberta for its most recent two years. Additionally, the law firm must maintain at least 11 years (current year plus preceding 10 years). The financial information contained in client files is subject to the same retention period, and is considered part of the law firm’s trust account records.

Reconciliations of a law firm’s trust bank account(s) must be prepared within one month of the end of each month. These monthly trust reconciliations must include trust bank reconciliation(s) and a detailed client trust listing(s) which are in agreement. If there is a difference, the difference must be identified and explained. Although it is not required for a lawyer to manually sign and date the reconciliation signifying that he or she has reviewed the reconciliation and ensured that trust assets equal trust liabilities this would be a good practice to ensure the reconciliation was reviewed. Separate interest-bearing trust accounts must be included on the reconciliation. Trust reconciliations must also be prepared, even when the bank account has a zero balance and/or has not changed from the prior month.

The monthly review should include:

• Ensuring the trust bank reconciliation agrees to the total of the client trust listing
• Ensuring any differences between the two totals are identified, explained and corrected
• Ensuring any deposits listed as outstanding at month end have been deposited in the following month
• Scanning the trust listings for client overdraft positions and if any identified, ensuring the shortage is corrected immediately
• Scanning the bank statements for service charges that were not reversed and if any identified, correcting the shortage immediately
• Reviewing any uncashed cheques from the prior month and determining why they have not been cashed
• Identifying client trust funds where the matter has been closed/completed and if any identified, returning the excess funds to the client

As well, for all separate interest-bearing accounts the client ledger card should be reviewed to ensure interest has been posted for each month.

A withdrawal from a trust account should only be made after the funds have cleared through the bank. If the law firm receives funds which are not either cash, certified cheque or money order, a cheque should not be written on behalf of that client until the funds have cleared the bank account. In the event that client funds received do not clear the trust bank account, the law firm is responsible for the shortage.

Electronic payments can be made out of the trust bank account in accordance with Rules 119.23 and 119.42.

Yes, a law firm can accept payments by means of debit and credit cards. If payments will be received for both trust and general funds, the Law Society requests that two credit card machines be set up, one on each bank account, to receive these funds. All service charges relating to these payments must be paid from the law firm’s general bank account.

If the law firm is not able to set up two separate machines, these payments can be received directly into the law firm’s trust account with all related service charges being paid from the law firm’s general bank account. Then, if funds are received related to the payment of a statement of account, they should be expeditiously transferred from the trust account to the general account.

Any disbursed funds must be replaced immediately from the law firm’s general account, including any bank charges for handling the non-sufficient funds (NSF) cheque. After funds have been replaced into trust, reimbursement from the client should be sought as soon as possible.

If the law firm is unable to immediately replace the trust shortage they must refrain from making additional payments from the trust account as a whole since the account is short and must be borne by all clients of the law firm.

The amount of this shortage must be replaced immediately from the law firm’s general account. To prevent this, ledger cards must be referred to prior to disbursing trust funds. The person reviewing the ledger card should ascertain that sufficient funds are available and that uncertified client cheques have been given sufficient time to clear. Most accounting software designed for law firms contain a feature that prevents a trust cheque from being issued if there are insufficient funds in that trust ledger account.

If the law firm is unable to immediately replace the trust shortage they must refrain from making additional payments from the trust account as a whole since the account is short and must be borne by all clients of the law firm.

A shortfall needs to be reported to the Law Society if the amount exceeds $2,500 or in cases of lesser amounts, if the shortage was not corrected within 7 days of the shortage arising.  In these cases, use the Trust Account and Client Ledger Shortages form.

Trust funds cannot be withdrawn from an automated banking machine as all payments must be made with a cheque with a few certain exceptions. These exceptions require approval of a lawyer of the law firm.

For deposits, law firms should enclose one copy of the detailed duplicate deposit slip in the deposit envelope. This is the same portion of the deposit slip that would normally be retained by the bank when dealing with a human teller. The chit that is generated by the automated banking machine should be attached to the lawyer’s copy of the detailed duplicate deposit slip and retained as part of the firm’s records.

Lawyers should ensure that automated banking machine access cards are strictly controlled. They should also ensure that authorization restrictions are placed on them. If a lawyer allows support staff to make these deposits, the lawyer must ensure that the support staff cannot transfer or withdraw any funds from the account.

Yes, the Cash Rules applies to receipts of cash into both the law firm’s trust and general bank accounts.

Yes, every cash transaction of a law firm must be recorded in a duplicate cash receipt book with a copy provided to the person from whom the cash is received.

Although the Rules state that the receipt is to contain the signature of the person who brought in the cash, in practical terms this might not always be possible. Lawyers are required to make a reasonable effort to get the payor to sign the cash receipt. If the payor refuses to sign, the lawyer can still receive the cash.

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 119.38(5). 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, pursuant to a court order, for the payment of fines/penalties or for legal fees, disbursements or bail.

Self-report the matter to the Law Society and discuss with the Practice Advisor the possible return of the cash received.

If you are returning more than $1,000 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.

A law firm must record in the trust and general journals the form of receipt of each deposit into the law firm’s bank accounts. This means the law firm can readily identify all cash received by the law firm regardless of amount or bank account.

When opening a trust account, the financial institution should be notified that all bank service charges should be paid from the law firm’s general bank account. Bank service charges cannot be paid out of the trust account and if they are, the amount must be replaced immediately.

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; depositing a firm’s general cheque into the trust bank account
• Offsetting the charge against the $500 that the firm is permitted to maintain in each trust bank account.

A trust cheque becomes stale-dated after six months. At this time it should be reversed from the bank reconciliation and replaced onto the client trust ledger account(s), and then re-issued to the appropriate party. If the payee cannot be located, the funds may be remitted to the Law Society by making an application using the form Undisbursable Trust Money.

If trust funds are being held on behalf of a client who cannot be determined, then the form Undisbursable Trust Money with all pertinent details can be sent to the Law Society along with a cheque for the amount at issue and these funds will be held in trust by the Law Society.

The Annual Report includes the following:

• Law Firm Self-Report– prepared by the law firm in accordance with subrule 119.30(3)
•  Accountant’s Report – prepared by the law firm’s accountant in accordance with subrule 119.30(4)
•  Electronic Data Upload – prepared by the law firm in accordance with subrule 119.30(5) or (6)
  • Trust Safety Accounting Upload User Guides are available for reference:
    • Trust Safety Accounting Upload User Guide – PC Law and SFTP Software
    • Trust Safety Accounting Upload User Guide – EsiLaw and SFTP Software
    • Trust Safety Accounting Upload User Guide – EsiLaw 360 and SFTP Software
    • Trust Safety Accounting Upload User Guide – Clio and SFTP Software
    • Trust Safety Accounting Upload User Guide – CosmoLex Software
      • CosmoLex FAQ

Law firms must submit the Law Firm Self-Report and either the Accountant’s Report or the Electronic Data Upload.

The mandatory designated filing date (“year-end”) for all law firms is December 31 and annual report is due three months after the designated filing date. The completed report must be submitted by March 31 (“due date”).

Law firms that do not comply and file by the due date (March 31) will be subject to the following late fees and administrative suspension:

The Responsible Lawyer will be suspended.

No, only the Responsible Lawyer will be suspended. The Responsible Lawyer is responsible not only for the accuracy of the reporting provided but also to ensure that reporting is actually done and that all payments to the Law Society are made.

The Annual Report must be filed and then the Responsible Lawyer can apply for reinstatement through the Membership department. A $225 re-instatement fee will be charged. The Responsible Lawyer will be immediately reinstated upon payment of the late filing fees and the reinstatement fees.

The online Law Firm Self-Report is comprehensive and divided into four sections, outlined below. The sections that need to be completed will depend on whether the law firm operates a trust bank account.

1. 1. Firm Practice Profile
   2. Bank Account Information
   3. Trust Bank Account Reporting
   4. Law Firm Self-Report:
      • Section A General Information
      • Section B General Bank Account
      • Section C Trust Bank Account

Accountants who can issue an Accountant’s Report are defined as a public accounting firm under the Regulated Accounting Profession Act (RAPA)and 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.

If you are a law firm that does not maintain a trust bank account then you need only complete the relevant sections (Parts A and B) of the Law Firm Self-Report and do not need to have an Accountant’s Report prepared. There is also an option available should you have approved accounting software to upload your trust accounting data to the Law Society in lieu of having an Accountant’s Report prepared.

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.

Law firms and their members may participate in transactions and loans with clients as long as they meet the requirements of the Code of Conduct Chapter 2, Rule 2.04(11).