Trust Accounting and Reporting – Quiz

True or False: For a pooled trust account, the financial institution can store cancelled cheques at a data centre rather than provide them to the lawyer.

Choose the best answer: What is the maximum amount of your own money you can keep in a pooled trust account?

True or False: Your client is entitled to the interest made on money held in a pooled trust account.

Choose the best answer: Which of the following is not a primary reason for why it is critical to review the individual client trust ledger before cutting a trust cheque?

True or False: You can arrange with your bank for a notary to have temporary signing authority for your trust cheques in your absence.

True or False: If I don’t have any activity on my trust account, I don’t have to do any reconciliations.

True or False: The right way to show a transfer from a pooled account to a separate account is:

DEBIT: trust liability account
CREDIT: pooled trust bank account

Background

You are down at your local financial institution about to open your first pooled trust account.

Question

Choose which option below provides the greatest number of necessary features for the financial institution where a pooled trust account is maintained.

Background

Jason has been practising on his own ever since the day he got frustrated by all the bureaucracy he encountered as a real estate lawyer working at a big firm. One thing that has really streamlined things for him is to have the ExBank, where he holds all his accounts, also be a bank that lists him as an approved lawyer for mortgage financings. As a result, Jason can have all the mortgage proceeds that he needs advanced by ExBank to his various borrower/clients credited directly to his pooled trust account by internal credit memo. This saves all the hassle of passing cheques back and forth between the Exbank and himself to put him “in funds” to do the real work of attending to closings. Another smart thing Jason has done is to never act for ExBank itself, as that can just cause unnecessary conflicts and the necessity to get signed acknowledgements of both parties respecting the confidentiality provisions in the Professional Code of Conduct.

Everything worked well with this system until the day Exbank advanced $50,000 on behalf of Jason’s client, Wendy Flake. The advance was made, as usual, by internal credit memo into Jason’s pooled trust account. On the strength of the advance (which Jason confirmed had happened), Jason wrote a trust cheque for the full $50,000 to Wendy Flake.

Wendy planned on travelling to Panama to purchase real estate down there. No way was Jason going to be so foolish as to get mixed up in some crazy Central American real estate transaction, so Wendy was on her own with respect to the purchase. All Jason was retained to do was to get the mortgage advance for her. So on the day of the advance, Wendy came in, picked up the cheque and cashed it all before lunch as she had a noon flight to catch.

That afternoon the ExBank called Jason and told him they had just discovered Wendy was $10,000 overdrawn on her line of credit. They had taken $10,000 out of Jason’s pooled trust account by way of debit memo and put it toward Wendy’s line of credit. The bank manager explained that everything would be okay because he would reduce the mortgage principal amount to $40,000 and calculate the interest on that lower amount.

Question

What should Jason do now?

True or False: If the pooled trust account is accessible online, the bank must restrict online access to read or view only.