2.2 – Top Ten Things to Know About Trust Accounting
Before we dive in, the following list gives you the bare bones of trust accounting. This is intended to give you a short introduction to the topic. We’ll get into fuller details later in this module.
1. You will need at least two bank accounts:
a) a general account for money belonging to your practice; and
b) a trust account for money belonging to your clients.
2. Trust accounts are either:
a) pooled – for holding funds for more than one client or
b) separate – for holding funds separately for a client on instructions from that client. These separate interest-bearing accounts are referred to as SIBAs.
3. Pooled trust accounts must be held in a financial institution in Saskatchewan. The financial institution must be insured by the Canada Deposit Insurance Corporation (CDIC) or the Credit Union Deposit Guarantee Corporation (CUDGC) (Rule 1505). You must instruct this institution, in writing, to forward all interest earned on the pooled account to the Law Foundation of Saskatchewan.
4. SIBAs are kept in your firm’s name but are marked as a trust account for that specific client in the records of the financial institution, and in your records. The earned interest belongs to your client.
5. The basic statutory provisions relating to trust accounting are:
a) The Legal Profession Act, 1990 section 3.1, Duty of society
– section 3.2, Protection of the public
– Part Vl, Law Foundation
b) Law Society Rules, Part 15, Accounting
– Part 16, Reporting Requirements
– Part 17, Unclaimed Trust Funds)
c) Code of Professional Conduct, Part 3.5, Preservation of Clients’ Property
6. The Rules set out the minimum accounting records you must maintain, but you will probably have many more if you have a busy practice (Rules, Part 15, Division G).
7. The statutory provisions and the Rules about trust accounting do not tell you how to run a basic accounting system, so don’t look there for answers on that topic. (The Accounting System module and some of the Additional Resources will give you a good start.)
8. Double-entry bookkeeping is difficult, but Module 1 – Accounting System module will give you a basic introduction. A good bookkeeper or accountant familiar with lawyers’ trust accounting is well worth hiring from the get-go (unless that is, you rub your hands with excitement when you think about recording source documents in books of original entry and then into subsidiary ledgers and the general ledger).
9. Every year you, or your firm on your behalf, must file an Annual Report with the Law Society for the reporting period from January 1 to December 31 by March 31 the following year (Rule 1604) whether or not you had any trust accounts during the year.
10. If reasonable attempts have been made to locate and return trust funds to a client and are unsuccessful then after 2 years, you may be able to rid yourself of trust obligations for unclaimed trust funds by paying them to the Law Society (Rule 1702). The Law Society holds the funds in case the client resurfaces and wants to claim them. If years pass without the funds being claimed, the Law Society transfers them to the Law Foundation of Saskatchewan where they are used to further legal education, legal research, legal aid, law libraries and law reform.
The Law Society Practice Advisors and staff are friendly and knowledgeable people. You can locate a Practice Advisor for your are here. If you have questions about trust accounts and related issues, you can also reach out to the Law Society directly at 1-833-733-0133.