When you retain a lawyer, you will often hear the terms "Trust Account" or "In Trust", but what exactly does that mean? A trust account is a specialized bank account that lawyers use to hold funds received on behalf of a client or a third party in a regulated matter. As stated on the Law Society of Ontario website, the most common type of trust account is a mixed trust account which pools money for multiple clients. Any interest earned is remitted to the Law Foundation of Ontario.
As for the term "In Trust", this specifies that the funds are meant for this account.
Why Does a Lawyer Have a Trust Account?
Lawyers have trust accounts to manage client funds responsibly and safely, as part of their fiduciary duty. These accounts ensure the protection and safekeeping of client funds.
The Security of a Trust Account
Trust accounts are strictly regulated by law societies to ensure the secure and ethical handling of client funds. In Ontario, trust accounts follow stringent rules set by the Law Society of Ontario. These regulations guarantee the security of client funds and ethical management of the account. Law firms are closely monitored to ensure compliance with these rules and regulations.
Why Would my Money be in a Trust Account?
Below are a few examples of when funds would be deposited into Trust:
- Retainers: As specified in a Retainer Agreement, when a client chooses to be represented by a lawyer, a retainer fee is often required to secure the lawyer's services. The retainer funds are held in the firm's trust account and used for future legal billings.
- Court-Ordered Funds/Settlement: Funds awarded by the court can be deposited into a trust account before being distributed to the client or third parties.
- Third Party Disbursements: During the course of a proceeding, various costs may arise, such as payments for court reporters, mediations, and expert opinions. Payments for these expenses can be managed through the trust account.
Lawyers are required to maintain a client trust ledger for each client with funds in the trust account, recording all transactions that come in and out of the account. Clients can ask to view this ledger at any time to see the flow of funds.
For more information you can follow this link to the Law Society of Ontario website: https://lso.ca/lawyers/practice-supports-and-resources/topics/managing-money/trust-accounts
We "trust" that you find this post a helpful tool in understanding the importance and security of trust accounts!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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