Trust Reconciliations

A “reconciliation” is the accounting procedure that proves your trust transactions have been recorded accurately. For as long as any trust account remains open, reconciliation must occur monthly, whether there have been any trust transactions in that month or not (Rule 1524).

There are four stages to proper trust reconciliation for both pooled and separate trust accounts:

1. Reconcile the bank balance for the account with the bank statement and with your records for the account.
2. Reconcile the reconciled bank account balance with the total of the detailed monthly listing of individual clients.
3. Ascertain your total trust liability by adding together each reconciled bank account balance (pooled and separate) and agreeing to the total “gross trust liability,” which is the total trust balance as shown in your general ledger.
4. Correct any unreconciled items.

In the end result, you will have a three-way reconciliation.

Click here to see a sample version of manual Trust Bank Reconciliation, Client Trust Listing, Outstanding Cheque List, Trust Journal, and Ledger Cards. To check that the sample Trust Journal reconciles with the Bank Reconciliation and the Client Trust Listing, add the pooled trust balance and the SIBA balance. This amount is your “gross trust liability”.

The “gross trust liability” of your firm must include the amounts held in clients’ separate trust accounts; it is not just the amount in your pooled trust account. Some lawyers make the mistake of removing the trust liability from the accounting records at the time a client’s funds are transferred from a pooled account to a separate trust account. Your “gross trust liability” is unaffected by a transfer from one trust account to another.

The wrong way to show a transfer from a pooled account to a separate account is:

DEBIT: trust liability account

CREDIT: pooled trust bank account

The right way to show the transfer is:

DEBIT: client’s separate trust account

CREDIT: pooled trust bank account

Rule 1524(2) requires that your reconciliation include:

• a detailed monthly listing showing the unexpended balance of trust funds held for each client; and identifying each client for whom trust funds are held, and the date of the last transaction;
• a detailed monthly bank reconciliation for each pooled trust account;
• a listing of balances of each SIBA identifying the client for whom each account is held;
• a trust journal; and
• a listing of any other valuables held for each client.

In effect Rule 1524(2) calls for a reconciliation of all trust funds and trust property (see Rule 1501 – “trust funds” and “trust property”) held by you no matter how derived. This would include any trust accounts where you acted as a custodian, or in any of the following capacities if the appointment was derived from a solicitor-client relationship:

• an executor or administrator of a will;
• an administrator of an estate;
• a committee;
• a representative authorized under a representation agreement to make financial or legal decisions;
• an attorney under any power of attorney; or
• a trustee.