Withdrawing and Transferring Funds from Trust Accounts

All aspects of trust accounts are heavily regulated. Rule 5.05 sets out when lawyers may withdraw or transfer funds from trust accounts.

There are only a few circumstances under which a lawyer may withdraw or transfer funds from a trust account. They are set out in rule 5.05(2) and are as follows:

• the money is properly required for payment on behalf of a client,
• the money is required to reimburse the member for money properly expended or for expenses properly incurred on behalf of a client,
• the money is properly required for or toward payment of the member’s fees for which a billing or other written notification has been delivered to the client,
• the money is directly transferred into another trust account and held on behalf of a client, or
• the money has been deposited inadvertently into a trust account in contravention of this Rule.

Lawyers are strictly forbidden from withdrawing or transferring trust funds that exceed the balance of money held in trust for a client. The question is not whether there are sufficient funds in the trust account but whether the client from whom the lawyer is entitled to withdraw trust funds has sufficient funds held in trust to cover the amount. So, before a lawyer withdraws or transfers any funds from a trust account, he or she must first make sure that the client has sufficient funds held in trust.

Once a lawyer becomes entitled to money in a trust account, that money should be withdrawn as soon as it is reasonably possible (rule 5.05(1)).

Where a lawyer does withdraw funds from a trust account or transfers funds from a trust account to the general account, the transfer or withdrawal must be documented in the client files with an explanation as to what the trust funds were held for and why they were transferred or withdrawn. Members must ensure that the funds are only withdrawn or transferred for the purpose for which they were being held.

If the purpose of the funds is fulfilled and there are remaining funds in trust for the client, the funds must be returned to the client. Where the purpose of the funds held on behalf of a client for a particular matter or file is fulfilled and the client wants those funds credited to another open file, the lawyer should ensure that the client provides those instructions in writing before transferring the funds between the two file ledgers. If there are funds in trust and the client can’t be found, consult section 70.1 of the Law Society Act, 1999 for information on paying the money to the Law Society.

Links:

Withdrawals and Transfers from Trust Funds: rule 5.05 (Law Society Rules)

Unclaimed Trust Funds: section 70.1 (Law Society Act, 1999)

Related Topics:

Maintenance of Records: rule 5.02 (Law Society Rules)

Reporting Overdrafts: rule 5.06 (Law Society Rules)

Payment and Appropriation of Funds: section 3.6-10 (Code of Professional Conduct)

Delivery of Bills

Trust Cheques

Receiving Funds Electronically

Reasonable Fees

Managing Money

(Posted: June 12, 2020)