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Clients who may be new to legal services may have queries as to the difference between our trust account and office account. What is the difference between these two accounts? When are they used? This article intends to provide an answer to these questions.

A first and foremost point to make is that the ways fees are charged and money handled are under strict regulation by the Legal Profession laws. As legal practitioners, we must handle clients’ funds according to the rules, or we would face severe legal and professional consequences.

Generally, clients have to sign a costs agreement with the law firm prior to the provision of legal services. Solicitors will explain to the client how fees are charged in their case, e.g. by hourly charge or by fixed fee arrangements. When clients sign the costs agreement, it means that the clients have authorised the law firm to use and transfer funds under certain circumstances. According to relevant regulations, solicitors have to provide an estimated fee for the client’s information. If this estimation has been affected by the progress or complexity of the case, the solicitors have to inform the client promptly. Such fees include the professional fees of the solicitors, GST and other disbursements. Disbursements are expenses related to the case, such as court filing fees, fees for engaging experts and courier fees. After signing the costs agreement, the law firm would instruct clients to transfer to the trust account a sum of money as the initial fees for providing legal services.

Why are funds transferred into the trust account and not the office account?

Funds in the trust account are not the firm’s money, but rather money the firm retains on behalf of the client on trust, hence the term ‘trust funds’. Money in the office account would be the firm’s money. All legal fees paid by clients would be transferred to the trust account first, and there would be a record of the amount of funds being deposited in relation to every case. As an example, one may look at the procedures for a property purchase matter. The client would transfer the settlement funds into the trust account in several transfers, then we will transfer the money to the vendor on the day of settlement. We are only acting as the custodian of the money in trust to control its transfer, and that money still belongs to the client.

Using Funds in Trust Account

The initial legal fees paid by clients to the trust account will not enter the pockets of the firm, but are used bit by bit according to the progress of the case. For example, if the case requires a company search which incur fees, the firm will use the money in the trust account to pay for the search, as the fee is a type of disbursement and the client has authorised us in the costs agreement to pay disbursements under such circumstances. If the disbursement amount exceeds the client’s funds in the trust account, we cannot use other funds in the trust account to pay the extra amount, as other funds in the trust account must belong to other clients for other cases. As other clients did not authorise us to pay your costs, we cannot use their money to make up for the difference between the disbursement and your funds in trust. If we do so, we would have misappropriated funds, which is of course illegal.

At the end of a case, the firm would have known all expenses related to the case, including moneys paid out of our office account and trust account, and the fees generated from time spent by lawyers and other staff (legal fees). The accountant of the firm will prepare an invoice, listing all disbursements and legal fees. The balance after deducting the remainder in the trust account would be the money to be paid by the client. You may have realised by now, that this remainder sum to be paid is for services already provided and disbursements already paid, since the case has come to an end. Therefore this remainder sum is to be paid directly to the firm’s office account and no longer need to be held on trust. Unless the client has other directions, all excess funds in the trust account would be refunded to the client’s account.

This form of regulation on funds is primarily to protect clients of legal services. The operation of the legal system is dependent on the trust of clients on their lawyers, hence lawyers must be accountable to their clients and society at large. The professionalism of lawyers is best demonstrated in the stringent regulatory regime imposed by the law.

Please note: The content of our publication is intended for general information purposes only, and should not be construed as legal advice on any matter. Please contact our firm for discussion of your particular circumstances.