Industries where client funds are required to be held on behalf of the client are required to operate a Trust Account that is registered with the relevant State Authority. Examples of this are:
- Upfront payments on account of future Fees or disbursements to be billed
- Settlement money involved in a property sale where the money has to be distributed to the Mortgagor for the balance of the loan, the Agent for their commission and the balance paid to the seller.
- Estate money- where a deceased estate is in dispute the estate funds may be held in trust until the dispute is resolved.
Real Estate Firms
- Deposits for sale of land or buildings
- Fees received in advance for advertising
Trust Account Regulations
There are strict requirements around the operation of and administration of your Trust Account. Just like railway lines in the 19th century, the regulations are slightly different in each state but some things to watch out for are:
- Trust receipts- these need to be consecutively numbered and issued within a couple of days of receiving the money
- Trust payments to the Firm General Account to cover Fees must be explained in a Cost Agreement and the client must be given 7 days notification before funds are transferred to the General Account
- If the Firm transfers funds to the General Account to cover disbursements then these disbursements need to have actually been paid, not sitting in Trade Creditors
- Each clients individual Trust Ledger Balance must be kept at all times.
- The Trust Account Reconciliation must be performed and signed by the Principal within 15 days after each month end.
Trust Accounting Systems
When you are starting out and only have the occasional trust transaction you may be able to keep a manual Trust Account. The problem is that when you start to grow is usually the worst time to be implementing new systems. We have many new clients coming to us from manual Trust Accounting systems where the only option is to start the system from back when they started because they can't provide us with a clean opening Trust Balance.
Some Trust Accounting systems such as LEAP Legal have rigorous controls and procedures built in to ensure you are complying with Trust Regulations. These include the ability to run Reconciliation, Trial Balance and Overdraw Reports a any stage of the month and tight controls around limiting the ability to change prior period reports. These controls mean that if you are audited by the Law Society or a Trust Account auditor and provided your Trust Account Bookkeeper has kept things up to date, then that process runs a lot smoother as the auditor can rely on your systems that have built in internal controls.
Books Onsite is a registered Law Practice and Estate Agent Trust Account Auditor in QLD, NSW and Victoria. Please feel free to contact us if you have any queries about how your Trust Account Bookkeeping is being managed.