Private: Copy of Module 2: Trust Accounting and Reporting Essentials

Previous Lesson
Next Lesson

2.7 – Trust Balances and Shortages

You must have enough funds on hand to cover all trust liabilities. You must always maintain enough money on deposit in each pooled trust account or SIBA to meet each individual client’s obligations (Rule 1525). Even if the overall pooled trust account has enough money to cover a cheque, you will create a shortfall if that particular client does not have sufficient funds in the pooled account to cover its obligations.

Make sure that:

  • funds have actually been deposited or wired, and that they have cleared;
  • the withdrawal is coming from the same account where the deposit was made;
  • the funds on deposit are sufficient to cover the withdrawal;
  • the trust funds can be used for the purpose of the withdrawal (i.e. the funds are not impressed with a trust condition for a different purpose, there is no court order, contractual obligation or other charge prohibiting withdrawal); and
  • the withdrawal will not breach an undertaking.

Always review the individual client trust ledger before issuing the trust cheque. The individual client trust ledger must show sufficient funds to cover your cheque. You will have a shortfall if there are not sufficient funds to the credit of that particular client, or if funds deposited to your client’s credit have not cleared.

 

“I Have a Trust Shortfall-Now What?”

If you discover a trust shortfall, look to Rule 1526, but don’t panic. In many cases these situations are easily resolved.

First, if you can’t do anything else to resolve the problem, you must deposit enough money into the trust account to eliminate the shortfall within 3 business days of discovering it. But think logically about it. For example, if at the last minute the bank pulled its mortgage advance, seek an extension of the closing date on your transaction and call back the trust cheque.

Second, whether you have corrected the problem or not, you must within 3 business days make a written report to the Executive Director, including all relevant facts and circumstances, if:

  • the trust shortage is greater than $1000; or
  • you are unable to deliver up, when due, any trust funds.

Service charges, credit card discounts, and bank errors that cause shortfalls are considered to be “trust shortages”. Now you see how the $300 deposit of your own money into a pooled trust account might save you some problems (Rule 1505(4)).

The Rules do not specifically make this provision, but if you have a trust shortage it is a good idea to immediately contact the Law Society. They will be able to assist you on your best course of action.

If the circumstances of the shortfall lead you to believe that it will form the basis of a claim or suit against you (whether or not you believe your client will ultimately suffer damages), you should report the matter to the Saskatchewan Lawyers Insurance Association as soon as practicable. Depending on the nature of the shortfall, SLIA may be able to advise you about how to fulfill your requirements under Chapter 7, rule 7.8 of the Code of Professional Conduct (errors and omissions, and informing the client and complying with the professional liability insurance policy).

Refer to the SLIA website for insurance reporting guidelines and information about contacting SLIA.