The Zen of Work: Trust Accounts
With “Holly” on a mission to take control of her work situation – aiming to instil a feeling of Zen in her workspace – she has come to us seeking answers.
And we are happy to oblige Holly. As always.
After getting her law firm up and running – taking time to learn all about the “buzz words” out there, Holly has started to focus her attention inward. Looking more closely at how her law firm is actually operating. Or at least, how it should be operating.
And there is a lot to take in where the optimal operating of a law firm is concerned.
Take trust accounts as an example.
What is a trust account legal practitioner? What is a trust account?
So, let’s chat a bit about trust accounts and put Holly’s mind at ease.
Trust account legal practitioners
According to the Legal Practice Act 28 of 2014 (LPA) at Section 34(1) – a legal practitioner may render legal services for expectation of a “any fee, commission, gain, or reward as contemplated in this Act or any other applicable law, upon receipt of a request directly from the public for that service”.
Such a legal practitioner will, as required by the LPA, be required to not only obtain a Fidelity Fund Certificate but to also open and operate a trust account (both discussed below).
As such, these legal practitioners are trust account legal practitioners –the normal course of events for all legal practitioners that operate and/or work in law firms.
A trust account is used by legal practitioners when holding money on behalf of a client, in connection with the provision of required legal services. This happens, quite often, with conveyancing attorneys during the purchase of a property.
But it’s not as simple as just that.
The LPA sets out several provisions relating to Trust Accounts that Holly should take note of –
- Sections 84 and 85 of the LPA, state that a legal practitioner operating a trust account practice is obliged to apply for and be in possession of a Fidelity Fund Certificate (FFC). Section 84(2) goes on further to say that no legal practitioner ‘may receive or hold funds or property belonging to any person unless the legal practitioner concerned is in possession of a Fidelity Fund Certificate’. This equally applies to persons employed or supervised by such a legal practitioner, as well as to deposits taken on account of fees or disbursements in respect of legal services.
- Legal practitioners who are going out on their own and aim to practice for their own account must, within the period and after payment of the fee determined by the Legal Practice Council (LPC), complete a legal practice management course, approved by the LPC.
- Sections 86(1) and (2) of the LPA state that every legal practitioner that practices for their own account (either alone or in a partnership), or as a director of a practice (that is a commercial juristic entity) must operate a trust account kept at a bank with which the Legal Practice Fidelity Fund (LPFF) has made an arrangement (in line with Section in 63(1)(g) of the LPA). Legal practitioners are required to deposit, ‘as soon as possible after receipt thereof, money held by such practice on behalf of any person’.
- Section 86(3) of the LPA sets out that a trust account practice may invest, in a separate trust savings account or other interest-bearing account, money which is not immediately required for any particular purpose in terms of any instruction.
- All interest accrued in terms of the accounts listed above must be paid over to the LPFF and therefore vest in the LPFF.
- Lastly, in terms of Section 86(4) of the LPA, a legal practitioner operating a trust account practice may, on the specific instruction of a client, open a separate investment account for the purposes of investing money received in the trust account, on behalf of a client over which the trust account practice exercises exclusive control as a trustee, agent, or stakeholder or in any other fiduciary capacity
- Section 86(5), any interest accrued on any money deposited under this section accrues to the person on behalf of which such money has been invested, provided that 5% of the interest accrued is paid over to the LPFF (De Rebus).
- Section 87 sets out that proper accounting records must be kept by a trust account legal practice for any money received and paid on its own account, money received, held, or paid on account of a client, and money invested in a trust account or other interest-bearing account (De Rebus).
Proper management of a trust account and compliance with the obligations imposed on trust account legal practitioners under the LPA and LPR enforces the professional and ethical conduct expected of legal practitioners and achieves proper management of trust accounts, including the risk of theft or misappropriation of funds by trust account legal practitioners. These are things firms – like Holly’s – must take seriously and ensure strict compliance with.
There are a lot of attorneys who have the software packages in place but are just not sure how to fully use them, what everything does and how they can optimise their practice to ensure that it is performing with accuracy and reliability.
But, with the help of AJS, your practice (regardless of its size) can (and will) succeed.
We will continue going through tips, answering your FAQ’s, and providing you with information that will better equip the everyday user of legal tech, like you and like Holly, to achieve a state of Work Zen.
It’s all easy. If you know how… Just ask us.