Bookkeeping Guide - The Law Society of Upper Canada

Bookkeeping Guide - The Law Society of Upper Canada
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The Bookkeeping
Guide
for lawyers
October 2014
Visit For Lawyers at www.lsuc.on.ca or phone 416-947-3315 or 1-800-668-7380 ext 3315
Table of Contents
PREAMBLE....................................................................................................................... 3
INTRODUCTION: W HY KEEP BOOKS AND RECORDS? .......................................................... 3
TYPES OF ACCOUNTING SYSTEMS .................................................................................... 4
BANK ACCOUNTS IN A LAW PRACTICE ............................................................................... 4
General Retainers .................................................................................................... 5
Cash Receipts .......................................................................................................... 5
1. General Account ................................................................................................. 6
2. Trust Accounts.................................................................................................... 6
a) Mixed Trust Account ............................................................................... 7
b) Separate Interest Bearing Trust Account ................................................. 8
c) Estate and Power of Attorney Accounts .................................................. 9
d) E-reg© Trust Account .............................................................................. 9
FINANCIAL INSTITUTIONS FOR LAWYERS’ TRUST ACCOUNTS ............................................... 10
MAINTAINING FINANCIAL RECORDS ................................................................................... 11
1. Six Years ............................................................................................................ 11
2. Ten Years ........................................................................................................... 11
DISBURSING TRUST FUNDS .............................................................................................. 12
1. Cheques vs Bank Drafts ..................................................................................... 13
2. Internet Trust Disbursements .............................................................................. 14
3. Internet Trust Disbursements for Real Estate Transactions ................................ 15
CLIENT IDENTIFICATION AND VERIFICATION REQUIREMENTS ................................................ 16
CREDIT AND DEBIT CARD PAYMENTS ................................................................................ 16
AUTOMATED BANKING MACHINES ..................................................................................... 16
CONCLUSION ................................................................................................................... 17
SAMPLE BOOKS & RECORDS ............................................................................................ 18
1. Trust Receipts Journal ........................................................................................ 18
2. Trust Disbursements Journal .............................................................................. 19
3. Clients’ Trust Ledger........................................................................................... 20
4. Trust Transfer Record......................................................................................... 22
5. General Receipts Journal ................................................................................... 22
6. General Disbursements Journal.......................................................................... 23
7. Clients’ General Ledger ...................................................................................... 24
8. Fees Book .......................................................................................................... 26
9. Trust Bank Reconciliation, Client Trust Listing and Trust Comparison ................ 27
10. a) Detailed Duplicate Trust Account Deposit Slip .............................................. 30
10. b) Detailed Duplicate General Account Deposit Slip .......................................... 31
11. Duplicate Cash Receipts Book............................................................................ 32
12 a) Client Identification and Verification (individual client) - s 23 By-Law 7.1 ........ 33
12 b) Client Identification and Verification (organization) - s 23 By-Law 7.1 ............. 34
13. Valuable Property Record……………………………………………….…………….36
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APPENDICES
BY-LAW 9 ................................................................................................ 38
FORM 9A ................................................................................................. 58
SAMPLE COMPLETED FORM 9A ................................................................. 59
FORM 9B ................................................................................................. 60
SAMPLE COMPLETED FORM 9B ................................................................. 61
FORM 9C ................................................................................................. 62
SAMPLE COMPLETED FORM 9C ................................................................. 63
FORM 9D ................................................................................................. 64
SAMPLE COMPLETED FORM 9D ................................................................. 67
FORM 9E ................................................................................................. 71
SAMPLE COMPLETED FORM 9E ................................................................. 74
SAMPLE LETTER OF DIRECTION TO THE LAW FOUNDATION OF ONTARIO ............ 77
FORM 2: REPORT ON OPENING A MIXED TRUST ACCOUNT……………………… 78
FORM 2: REPORT ON OPENING A MIXED TRUST ACCOUNT……………………… 79
PAYMENT OF REGISTRATION FEES AND LAND TRANSFER TAX .......................... 80
INTERNAL CONTROL SELF ASSESSMENT GUIDE ............................................... 86
USE OF CREDIT CARDS IN THE LEGAL PRACTICE.............................................. 96
PRIVATE MORTGAGES - RECORD KEEPING ...................................................... 99
ESTATES - FINANCIAL RECORD KEEPING ......................................................... 103
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The Bookkeeping Guide
PREAMBLE
We have written this Guide to help lawyers of the Law Society of Upper Canada and their staff
cope with the more common bookkeeping issues in a law office and also to better understand
the Law Society’s By-Law 9 (See pages 34-53). While written especially with sole practitioners
and small firms in mind, these recommendations can be used in any size law office. The
Guide provides general advice; it does not cover every possible situation that can arise
in a law office and it is not legal advice. If you have questions about the By-Laws, you can
call the Law Society Resource Centre at 416-947-3315 or toll free in Ontario 1-800-668-7380
ext. 3315. You can also check the Law Society’s Web site: www.lsuc.on.ca. If you have
specific bookkeeping, accounting or tax questions, we suggest that you consult an accountant
or lawyer who practices in these areas.
INTRODUCTION: Why Keep Books and Records?
There are several reasons to keep books and records:
The Law Society sets out in By-Law 9, the minimum requirements for books and records to be
maintained in a law practice. The minimum requirements are aimed at protection of the public
and therefore focus on trust records.
General trust law requires trustees, including lawyers holding client funds, to be able to
account to beneficiaries at any time. In order to do this, you have to have recorded the money
you received from each client, what money you disbursed for each client, and what the
unexpended balance is for each client. You also have to keep your bank statements as an
independent record (source document) of your trust transactions.
But the most important reason to keep books and records is because it is in your best interest.
By maintaining complete, accurate and up to date records, you will have current financial
information available so you can make sound financial decisions about your practice. Proper
accounting records also help you to meet your statutory obligations in filing reports on time to
the Canada Revenue Agency for income tax and HST, to the Lawyers Professional Indemnity
Company for transaction levies, and to the Law Society and The Law Foundation of Ontario
for your Annual Report.
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TYPES OF ACCOUNTING SYSTEMS
There are several different kinds of accounting systems: manual double entry, one write,
spreadsheet software, general accounting software, and law firm accounting software. When
choosing an accounting system you should consider what will work best in your practice - the
number of transactions you have, whether you maintain your records yourself or hire someone
to do them for you, what you can afford, and how well you understand bookkeeping and
computer programs. Please note that the Law Society cannot make this decision for you. You
must determine what system is right for you and your practice.
TYPE OF SYSTEM
ADVANTAGES
manual double
entry
– simple
– inexpensive
one write
–
–
–
–
–
spreadsheet
software
DISADVANTAGES
simple
inexpensive
posts to subledgers
inexpensive
automatic calculations
general
accounting
software
– automatic calculations
– posts to subledgers
– produces financial reports
legal accounting
software
–
–
–
–
designed for trust accounting
automatic calculations
posts to subledgers
produces financial reports
– time consuming if large number
of transactions
– does not automatically post to
subledgers
– arithmetic errors more common
– time consuming if large number
of transactions
– arithmetic errors more common
– time consuming if large number
of transactions
– requires training
– errors due to incorrect formulae
are more difficult to detect
– reports not designed for trust
accounting
– requires training
– expensive
– requires training
BANK ACCOUNTS IN A LAW PRACTICE
You may have as many bank accounts as you need to operate your practice, but keep in mind
that each bank account increases your record keeping obligations.
Most law firms will have at least one general account and one mixed trust account. It is
important to understand what money goes into your trust account and what money goes into
your general account.
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Whenever you receive money:
on behalf of a client
for future disbursements
for future or unbilled legal services
an overpayment of your billed services
you are to pay it immediately into a trust account. Once you receive trust funds you should
deposit them by the end of the next banking day. In the case of an overpayment of your billed
services, you must transfer the amount that belongs to you to your general account as soon
as practical. Depending on the client’s instructions, you could either hold the overpayment in
trust for the client for future fees and disbursements or return it to the client.
Whenever you receive money that is entirely:
payment for completed legal services for which you have sent the client a bill
reimbursement for proper expenses you have made on behalf of a client
your or your firm’s money
a general monetary retainer
you are not to pay it into your trust account. This money would normally be deposited into your
general account.
A WORD ABOUT GENERAL MONETARY RETAINERS
Before deciding that a payment is a general retainer, you should be aware that the Law
Society has established the following criteria for general monetary retainers:
1. the onus is on you to establish that the retainer is a bona fide general retainer;
2. a written agreement between you and your client which describes the payment as a
general retainer, will not be accepted as conclusive, and the circumstances surrounding
the payment will be scrutinized carefully;
3. it will be concluded that a retainer is a specific retainer which must be deposited in your
trust account where your client does not understand the nature of the general retainer
agreement and intended the payment to cover specific legal services to be provided, and
where the total amount paid by the client, including the general retainer, is comparable to
your usual fee for the services provided.
General monetary retainers are extremely rare as clients are likely to expect that any payment
to their lawyer is intended to go toward payment of their legal fees.
CASH RECEIPTS
When you receive cash, whether in trust or for your general account, you must prepare a
duplicate cash receipt that identifies:
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the date of receipt
the person from whom the cash is received
the amount of cash received
the client for whom the cash is received and any related file number
and containing:
your signature or the signature of a person authorized by you to accept cash
the signature of the person from whom the cash is received
There is a sample duplicate cash receipt in the Sample Books and Records section of this
Guide: document #11.
Please note that you may not accept cash equivalent to $7,500 Cdn or more, from a person
with respect to any one client file except as permitted by section 6 of By-Law 9.
1. General Account
The general account is your firm’s operating account. This is the account you use to:
deposit payments from clients you have billed for completed legal services
pay your firm’s expenses: rent, office supplies, staff salaries, bank charges, etc.
pay disbursements on behalf of your clients
pay yourself
No money belonging to clients should be in this account.
Try to avoid using a personal account as your firm’s general account. Whatever accounts you
use for your practice must be produced on an audit. Personal accounts may not have the
bank statements, returned cheques and duplicate deposit slips you are required to keep. For
convenience it is usually best to have your general bank account at the same financial
institution as your trust account.
2. Trust Accounts
The trust account is for your clients’ money, so if you do not receive trust funds in your
practice you do not need to open a trust account. Trust accounts are only to be used for the
provision of legal services: Rules of Professional Conduct 5.0.2
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Trust accounts are the accounts you use, for purposes related to the provision of legal
services, to:
deposit money you receive from your clients to be paid to another party
deposit money you receive from other parties on behalf of your clients
deposit money you receive from clients for future legal services and disbursements
disburse money as directed by your clients
reimburse your firm for proper expenses you have made on behalf of your clients
transfer money to your general account for fees after you have sent a bill to your client
for completed legal services
Avoid trust funds languishing in trust accounts. You should review your client trust ledger
accounts monthly. Any amounts that can be billed and transferred to the general account or
refunded to the client should be done promptly. If the trust reconciliation shows cheques that
have been outstanding for more than a few months, follow up with the payees to find out
whether they received the cheques. Once a cheque is stale dated, (i.e. has not been cashed
within six months from the date of the cheque), you should stop payment on the cheque, reestablish the liability in the client trust ledger account for the applicable client, and reissue the
cheque if appropriate. If you are unable to locate the client, despite having made reasonable
efforts to do so throughout a period of two years, you can apply to pay the money to the Law
Society’s Unclaimed Trust Fund. Information on the fund and the Application Form can be
found on the Law Society website.
There are different kinds of trust accounts:
2.
a) Mixed Trust Account
The most common type of trust account in a law office is called a “mixed” or “pooled” trust
account. These trust accounts are any accounts that hold money for more than one client.
When opening a mixed trust account, you must give a written direction to your financial
institution to pay any interest on the account directly to The Law Foundation of Ontario. You
should send a copy of this letter to the LFO. Also, within 30 days of opening a mixed trust
account, you must send Form 2 to the Foundation. Within 30 days of closing a mixed trust
account you must send Form 3. There are a sample letter of direction, Form 2, and Form 3 in
the Appendices.
Make sure that the agreement you sign when opening a mixed trust account directs the
institution to deduct any service charges for your trust account from your general account and
does not allow the financial institution to remove any money from your trust account on its
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own. However, if you deposit a cheque to your trust account and it is returned “not sufficient
funds” or NSF, your financial institution will deduct that amount from your account because
your financial institution never received the money. Be careful not to disburse funds from your
trust account on behalf of a client until the cheques for that client have cleared, that is, your
financial institution has received the money from your client’s financial institution. You should
check with your financial institution to find out how many days it requires to clear a cheque.
Whenever you receive trust funds, you must immediately deposit them into a trust account
that is in your name or in the name of the firm where you are either a partner or an employee.
You should deposit any trust money you receive by the end of the next banking day. If you are
a sole practitioner practising in association with other lawyers, you must have your own
separate trust account and separate books and records for your trust transactions. Your trust
account should be clearly identified as “trust” on your bank statement and cheques.
By May 30 each year, you should contact your bank branch to update the information on the
beneficiaries of any mixed trust accounts as of April 30 of that year, for Canada Deposit
Insurance Corporation (CDIC) purposes; eligible deposits are insured up to a maximum of
$100,000 per beneficiary (i.e. client) of the trust account. Please contact your bank branch or
the CDIC for details or consult the CDIC website for specific information about solicitors’ trust
accounts and The Joint and Trust Disclosure By-Law:
http://www.cdic.ca/e/Joint_and_Trust_Account_Disclosure_By-law.html
2. b) Separate Interest Bearing Trust Account
This type of trust account holds trust funds for only one client. Typical separate interest
bearing accounts are passbook accounts, GICs, and Term Deposits. The interest on these
accounts belongs to the client and should be recorded in your trust receipt records as it is
earned for each client. Similarly, any service charges are charged to the clients and recorded
as disbursements for those clients. You should ensure that the account is set up in your or
your firm’s name in trust for [client name].
Whenever you are going to be holding large sums of money for a client for an extended period
of time, you should discuss with the client whether he or she wants interest on the money.
You should get the client’s instructions in writing, taking care that the client is not looking to
you for investment or financial advice.
8
If the client does instruct you to put his or her money in a separate interest bearing account,
consider whether the money will be required on short notice since some investments have
reduced or no interest on early redemption. Also, decide how interest will be handled and
record the client’s S.I.N. and/or corporate number for allocation of interest income for income
tax.
Be careful when funds are in dispute; for instance, the proceeds of the sale of a matrimonial
home following a separation or divorce. Some lawyers end up holding these funds for years
while the parties negotiate. When you are asked to hold funds in an interest bearing account,
consider getting written instructions from all parties that allow you to charge a monthly fee for
administering the funds if the parties have not agreed on the disposition of the funds within a
reasonable time, for example, three to six months.
2. c) Estate and Power of Attorney Accounts
If you exercise a power of attorney, or have sole signing authority over estate assets as a sole
estate trustee or as a solicitor with control of the estate assets, you must keep proper trust
accounting records. You should consider placing the estate funds in a separate bank account
in the name of the estate, if you are the estate trustee, or in the name of your firm in trust for
the estate, if you are the solicitor controlling the estate funds. If you are a co-estate trustee
and are not maintaining the estate books and records, you should ensure that proper trust
accounting records are kept, that you receive a copy of these records, and that you review
them for accuracy at least monthly, since estate accounts are a responsibility of the estate
trustee. Similarly, if you exercise a power of attorney over a client’s bank account, you should
keep complete trust accounting records of all transactions for which you are responsible and
reconcile these accounts monthly. See the Appendices for more information on estate
financial record keeping.
2. d) E-reg© Trust Account
These are special trust accounts you set up to authorize Teranet to withdraw the registration
fees and land transfer tax for electronic registrations in Ontario’s land registry system.
These accounts are mixed trust accounts, and you must direct your financial institution to pay
the interest on these accounts to The Law Foundation of Ontario.
E-reg© trust accounts also have very specific rules:
direct deposits or transfers from your regular mixed trust account must be the exact
amounts for land transfer tax and registration fees
9
you must transfer the funds deposited to this account for any one transaction back to
your regular mixed trust account if you do not register the documents within five days
you must complete a separate Form 9B before each Teranet withdrawal from this
account (For a sample completed Form 9B see page 57)
you must print the confirmation of the Teranet withdrawal from this account, compare it
to the corresponding Form 9B for accuracy, and sign and date the confirmation.
See sections 15, 16, and 17 of By-Law 9 in the Appendices.
Note: You do not have to use a trust account for your e-reg© account; you may use a general
account. None of the restrictions described in sections 15, 16, and 17 of By-Law 9 apply to a
general e-reg© account, but you must complete the electronic registration before you transfer
the client’s funds from your regular mixed trust account to your general e-reg© account to
reimburse your firm for the registration fees and land transfer tax. It is a good idea to arrange
adequate overdraft protection on this account.
For a more detailed discussion of the use of trust and general accounts as e-reg© accounts,
see Payment of Registration Fees and Land Transfer Tax in the Appendices.
FINANCIAL INSTITUTIONS FOR LAWYERS’ TRUST ACCOUNTS
Your trust accounts must be kept at one of the following institutions:
chartered bank
provincial savings office
credit union or league subject to the Credit Unions and Caisse Populaires Act, 1994
registered trust corporation
When opening a trust account, check with the financial institution to make sure
it has an agreement with The Law Foundation of Ontario for the payment of interest on
mixed trust accounts
it can provide you with the monthly bank statements and returned cheques, including
certified cheques, as required by By-Law 9 (imaged cheques, clearly showing front
and back of cashed cheques, are acceptable)
A client might ask you to hold trust funds in an account that is not at one of the above-noted
institutions. For example, the client could ask you to hold the trust funds in Treasury Bills or a
money market fund. In these situations, section 8 of By-Law 9 requires you to get written
instructions from your client to pay the money into a non guaranteed trust investment. This
money, however, must be recorded in your trust records as it is still your client’s money and
considered trust funds for the purposes of By-Law 9.
10
The same precautions that apply to separate interest bearing trust accounts also apply to
these types of investments. These kinds of investments are generally not guaranteed, so you
will want to be sure your client understands the nature of the investment and whether there
will be sufficient funds available when the client needs them before accepting your client’s
written instructions.
MAINTAINING FINANCIAL RECORDS
You must keep your financial records available for the time periods set out in section 23 of ByLaw 9. This means you must keep the records described in section 18 of By-Law 9 for:
1. The most recent six (6) full years plus the current year:
record of transfers between clients’ trust ledger accounts
General account receipts and disbursements journals
fees book or chronological file of bills to clients
signed authorizations of withdrawals by Teranet (Form 9B)
signed paper copies of confirmations of Teranet withdrawals
book of duplicate cash receipts
2. The most recent ten (10) full years plus the current year:
Trust account receipts and disbursements journals
client trust ledger
monthly trust comparisons for all trust accounts supported by trust account
reconciliations and client trust listings
valuable property record
bank statements, including GIC, term deposit or other bank confirmations; pass books;
cashed cheques, including certified cheques and any imaged cheques if provided by
your financial institutions in place of the actual cheques; detailed duplicate deposit
slips
signed requisitions for electronic transfers of trust funds (Form 9A)
signed printed confirmations of electronic transfers of trust funds
While By-Law 9 obliges you to keep your records current at all times, ensuring your financial
records are accurate, legible, detailed, and up to date will help you to run your law practice
more efficiently. It can be very costly both in time and money and can damage your client
relationships to let your records fall into arrears. See the “Sample Books and Records” in this
booklet for some examples of financial records required by section 18 of By-Law 9.
11
While section 21 of By-Law 9 permits you to keep your financial records electronically, you
must be able to produce paper copies of your records for the Law Society for the time periods
described above. We suggest you print your journals and records monthly to avoid the all too
common problems with computer crashes, data corruption and software update
incompatibility. If you prepare any of your financial records by hand they must be permanent,
i.e. in ink.
Keep in mind that whether you do your own record keeping, assign it to a staff member or
retain a bookkeeper or accountant to maintain it, you, (and your partners if any), are
responsible for ensuring that your firm maintains the required records and follows the money
handling requirements in By-Law 9. You should ensure that whoever is maintaining your
accounting records is familiar with the Law Society’s By-Law 9. Some items you and your staff
should be vigilant about are:
overdrawn or inactive client trust ledger accounts
uncorrected or unexplained reconciling items on the trust bank reconciliations
trust receipts and deposits outstanding beyond the following banking day
review of the trust comparison for accuracy by the 25th of the following month
You should ensure that you have control of your accounting records at all times and that they
are kept secure and confidential.
Consult the sample Internal Control Self Assessment Guide in the Appendices for these and
other internal controls appropriate for your office, especially if your firm handles client trust
funds, to ensure you and your staff are following the correct record keeping and money
handling procedures.
DISBURSING TRUST FUNDS
It is important to have an audit trail, recording each step and preserving original and
supporting documentation (source documents), for all transactions in a business, but
especially if you handle client trust funds. A licensee of the Law Society who is permitted to
handle trust funds must always initiate a trust disbursement and do so in writing, which then
becomes part of the accounting records. Undischarged bankrupt licensees are not permitted
to handle or have trust accounts in their names (section 2 of By-Law 9).
Section 9 of By-law 9 allows you to withdraw trust funds you are holding for a client for the
following reasons only:
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to make a proper payment to or on behalf of the client
to reimburse your firm for proper expenses incurred on behalf of the client
to pay your firm fees for completed legal services for which you have sent a fee bill to
the client
to transfer funds to another trust account for a client
to withdraw funds that according to By-Law 9 should not have been deposited to the
trust account
You may disburse trust funds by cheque, bank draft and wiring funds through your bank. You
may disburse trust funds by internet banking only if you follow the requirements of section 12
of By-Law 9. If you withdraw trust funds to pay your fees and/or disbursements, section 10 of
By-Law 9 limits you to the follow methods: a cheque payable to you or your law firm, transfer
to a non trust account in your or your firm’s name, electronic transfer. Withdrawing trust funds
in cash is risky and should only be done on the client’s written instructions; but note that if you
received fees, disbursements, expenses, or bail in cash, Section 6(e) of By-Law 9 requires
that you make any refund of those payments in cash. You should always get a detailed receipt
signed by the payee for any cash disbursement.
Do not disburse trust funds from an automated teller machine, as you will not have an
adequate audit trail. Always check your clients’ trust ledger to ensure you hold sufficient funds
in trust for a particular client before disbursing funds for that client. You should confirm your
financial institution’s holding periods on funds to be sure cheques you have deposited from
clients have cleared and will not be returned NSF (not sufficient funds).
1. Cheques vs Bank Drafts
You should be aware that cheques leave a better audit trail than bank drafts. Cashed
cheques, including certified cheques, are your records and you must arrange for your financial
institution to return them to you with your bank statements each month. Some financial
institutions provide imaged cheques which are sent to your firm electronically. Bank drafts are
the financial institution’s records. Financial institutions do not usually retain their original
records for the ten year time period that you are required to keep your bank records. Returned
cheques confirm that the funds have cleared and have the endorsement details on the back.
Your copy of a bank draft will not confirm any of this information and you may have to spend
time and money to obtain a copy of the bank draft from your financial institution to prove
payment.
13
If you have any doubts about the validity of a cheque, certified cheque, money order, bank
draft, or other receipt to be deposited to your mixed trust account, you might want to consider
depositing it to a separate trust account; if the instrument does turn out to be fraudulent, your
mixed trust account will not be affected. Be vigilent not disburse any trust funds until your
financial institution can assure you that the funds have cleared. Different institutions have
different clearing periods depending on the source of the funds. For time sensitive
disbursements, consider the Large Value Transactions System: see the FAQs on the
Canadian Payments association web site and LVTS article on the LawPRO website.
You must not issue trust cheques or bank drafts payable to “cash” or “bearer” (section 11 of
By-law 9) and you should withdraw cash from the trust account only when necessary (e.g.
refunds of fees, disbursements, expenses, or bail paid in cash as per section 6(e) of By-Law
9), or on the client’s written direction, and always obtain a detailed receipt for your audit trail.
2. Internet Trust Disbursements
If you disburse any funds by Internet banking, you must follow the procedure set out in section
12 of By-Law 9:
complete a Form 9A for each client transaction (See the Appendices for a sample
completed Form 9A)
(This Form must be signed by a person who has signing authority on your trust
account. Except for exceptional circumstances, this must be a licensee of the Law
Society who is entitled to hold trust funds.)
one person using a password, enters the transfer data as set out in the Form 9A
another person with a separate password, authorizes the transfer
(A sole practitioner without employees may both enter the data and authorize the
transaction.)
print the electronic confirmation of the transaction that must include:
i.
your trust account number
ii.
name, branch, and address of the account to which the funds have been
transferred
iii.
name of the account to which the funds have been transferred
iv.
number of the account to which funds have been transferred
v.
time and date the transaction details and authorization were received by your
financial institution
vi.
time and date the confirmation of the transaction is sent to you from the
financial institution
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(While this confirmation must be obtained by the end of the next banking day,
realistically it may not be available unless it is printed immediately.)
no later than the close of the second banking day after the transaction,
i.
compare the Form 9A with the printed confirmation and verify that the money
was withdrawn as specified in the Form 9A
ii.
write the client name, client matter and any file number on the printed
confirmation
iii.
sign and date the printed confirmation.
Both the Form 9A and printed confirmation should be kept in numerical order by requisition
number with your financial records. You may want to keep a copy in the client’s file as well.
3.
Internet Trust Disbursements for Real Estate Transactions
Section 13 of By-Law 9 has a specific procedure for electronically disbursing “closing funds”,
which are defined as “money necessary to complete or close a transaction in real estate”. The
procedure requires that you:
complete and sign a Form 9C for each client transaction prior to the transfer (see the
Appendices for a sample completed Form 9C) (This Form must be signed by a person
who has signing authority on your trust account.)
use an electronic transfer system that requires a password
use an electronic transfer system that immediately produces a confirmation of the
transfer
print the confirmation which must have the following information:
i.
the name of your account
ii.
the number of your account
iii.
the name of the account to which the closing funds are transferred
iv.
the number of the account to which the closing funds are transferred
v.
the date of the transfer
By 5:00 p.m. on the day after the transfer, you must compare the printed confirmation with the
Form 9C and satisfy yourself that the transfer was completed in accordance with your
directions in the Form 9C. You must then write the name of the client, the subject matter, and
number of the file on the confirmation; then sign and date the confirmation. The Form 9C and
confirmations should be kept in numerical order by requisition number with your accounting
records. You may also want to keep copies in the client file. As noted above in the section on
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Cheques vs Bank Drafts, you might want to consider the LVTS system and/or the Teranet
Closure service for time sensitive money transfers.
CLIENT IDENTIFICATION AND VERIFICATION REQUIREMENTS - BY-LAW 7.1 PART III
As of December 31, 2008, subsection 22(1) of By-Law 7.1 requires that you obtain specific
details identifying your clients for all new client matters; and if you receive, pay or transfer
funds, or if you give instructions to receive, pay or transfer funds, then you are also required to
obtain verification of the client’s identification. You should review section 23 of By-Law 7.1 for
the specific identification and verification requirements and subsections 22(2), (3) and (4) for
exemptions for certain licensees, types of funds, and certain clients. You should familiarize
yourself with the definitions in section 20 and also for how long you must keep the client
identification and verification information as set out in subsection 23(14) of the By-Law. There
are sample completed identification forms for individuals and organizations in the Sample
Books and Records and you can find more Law Society resources and further information on
the Society web site at: http://rc.lsuc.on.ca/pdf/kt/clientIDLawyers.pdf
CREDIT AND DEBIT CARD PAYMENTS
If you accept credit or debit card payments from clients, you must make arrangements with
your financial institution to have retainers for future fees and disbursements paid directly into
your trust account and payments for your fee bills to clients paid directly into your general
account. You will likely need two merchant accounts to accomplish this. You cannot deposit
both retainers and payments into one account then immediately transfer the funds that do not
belong in that account to your other account. If you accept both types of payment by debit
card, you will have to use two machines, one for your trust account and one for your general
account. See the Appendices for “Use of Credit Cards in The Legal Practice”.
AUTOMATED BANKING MACHINES
If your financial institution offers ABM access to your trust account, you may use it for deposits
only. Ensure that your bank card is encoded for deposit only. Read the agreement carefully
and make sure you understand the risks involved in using this method of deposit. In some
agreements the depositor is responsible for the funds until they are received by a bank
representative. You should always print a receipt of an ABM deposit and write the source of
the funds and the client reference on the receipt, and keep the receipts in date order with your
deposit slips.
16
CONCLUSION
We hope you find the information provided in this Guide assists you in maintaining the books
and records of your practice. Remember it is your responsibility as a Licensee of the Law
Society to ensure your law firm is in compliance with the Rules of Professional Conduct and
the Law Society’s By-Laws. Keeping clear, complete, and current financial records not only
helps you to stay in compliance with the Law Society’s Rules and By-Laws, it will also make
your practice operate more efficiently and allow you to provide better service to your clients. If
you have any questions or comments on this Guide, please contact the Resource Centre at
416-947-3315, toll free in Ontario 1-800-668-7380 ext. 3315, or visit the Law Society’s website
at www.lsuc.on.ca.
17
SAMPLE BOOKS & RECORDS
The following are examples of financial records described in By-law 9, showing how you can
manually record the typical kinds of trust transactions that occur in a law office.
1. Trust Receipts Journal - ss 18(1)
For each amount you receive in trust for a client, you must record:
date you received the money
method by which you received the money, for example: cheque, certified cheque, bank
draft, money order, wire transfer, LVTS, cash, etc
person from whom you received the money
amount you received
purpose for which you received the money (By-Law amendment 28Apr11)
name of the client for whom you received the money
Leslie Lawyer
Barrister & Solicitor
TRUST RECEIPTS JOURNAL
Date
2010
Received from:
(Source of funds)
Jul 5
Peter Piper
Jul 7
Susan Silver
Jul 16
Peter Piper
Jul 30
Peter Piper
Aug 6
Peter Piper
Aug 30
Kim Kirby
Aug 31
Peter Piper
Client
Purpose of funds
Piper re Corporate
Retainer re: fees
Silver re Adoption
Retainer re: fees
Piper re Matrimonial
Retainer re: fees
Piper re Matrimonial
Retainer re: fees
Piper re Matrimonial
Retainer re: fees
Kirby re Loan to Taylor
Re: mortgage advance
Piper re Matrimonial
Retainer re: fees
18
Amount
Method
565.00
Chq
750.00
Chq
1,500.00
Chq
250.00
Cash
250.00
Cash
40,000.00
250.00
Cert chq
Cash
2. Trust Disbursements Journal – ss 18(2)
For every payment you make from the trust account, you must record:
date you made the payment
method you used to make the payment, for example: cheque, certified cheque, bank
draft, electronic trust transfer, etc
number of the document you used to make the payment, for example: cheque number,
bank draft number, electronic trust transfer requisition number
person to whom you made the payment
amount of the payment
purpose for which you disbursed the money (By-Law amendment 28Apr11)
name of the client on whose behalf you made the payment
Leslie Lawyer
Barrister & Solicitor
TRUST DISBURSEMENTS JOURNAL
Date
2010
Method / #
Paid To:
(Person money paid to)
Jul 14
Chq #001
Leslie Lawyer
Aug 12
Chq #002
Leslie Lawyer
Aug 12
Chq #003
Leslie Lawyer
Aug 31
Chq #004
Treasurer of Anytown
Aug 31
Chq #005
Metro Mortgage Co.
Aug 31
Chq #006
Terry Taylor
Sep 7
Chq #007
Client &
Purpose of payment
Piper re Corporate
Re: legal fees - Inv #002
Piper re Matrimonial
Re: legal fees - Inv #004
Silver re Adoption
Re: fees - Inv #005
Taylor re Mortgage
Re: Realty tax arrears
Taylor re Mortgage
Re: Payout existing mtg
Taylor re Mortgage
Re: balance of mtg advance to
mtgor
Taylor re Mortgage:
523.30
Re: fees & disb - Inv #006
Piper re Matrimonial: 1,120.00
Re : fees - Inv #007
Leslie Lawyer
Amount
565.00
1,130.00
678.00
5,500.00
33,742.83
233.87
1,643.30
Note: The trust receipts journal and trust disbursement journal can be combined into one
journal, often called the “Trust Bank Journal”.
19
3. Clients’ Trust Ledger – ss 18(3)
Every time you record a trust receipt or payment in the trust receipts journal or trust
disbursements journal, you must also record the receipt or payment for the specific client in
the clients’ trust ledger, and calculate the unexpended balance for that client. This way you
always know exactly how much you have in trust for each client.
Record every deposit to your trust account in the name of the client on whose behalf you
received it. The mixed trust account is for your clients’ money. Do not put any of your, or your
firm’s money, such as a float to cover bank charges, in your trust account. There should be no
trust ledger accounts in your name, your firm name, or any other name such as
“miscellaneous”, “suspense”, or “unknown”, that is not a client’s name. Each client’s receipts,
disbursements and balance are listed separately so you know how much you have in trust for
each client. For convenience, most firms set up separate client trust ledger accounts for each
separate matter for the same client so there will be a separate card or account for each client
matter. Together, these accounts make the clients’ trust ledger. You may keep copies of
individual client trust ledger accounts for each client in the client files, but you must keep the
entire ledger as part of your accounting records.
Leslie Lawyer
Barrister & Solicitor
CLIENTS’ TRUST LEDGER
Account: KIRBY, Kim re Loan to Taylor
Date
2010
Aug 30
Aug 31
Particulars
Mortgage advance
Transfer to Taylor
Account: PIPER, Peter re Corporate
Date
Particulars
2010
Jul 5
Retainer re corporate
Jul 14
Transfer to general
Invoice #002
Receipts
40,000.00
Receipts
565.00
20
Disbursements
40,000.00
Balance
40,000.00
40,000.00
0
Disbursements
Balance
565.00
565.00
0
Account: PIPER, Peter re Matrimonial
Date
Particulars
Receipts
2010
Jul 16
Retainer re matrimonial
1,500.00
Jul 30
Retainer re matrimonial
250.00
Aug 6
Aug 12
Aug 31
Sep 7
Retainer re matrimonial
Transfer to general
Invoice #004
Retainer re matrimonial
250.00
Disbursements
1,500.00
1,750.00
1,130.00
2,000.00
870.00
1,120.00
250.00
Transfer to general
Invoice #007
Balance
1,120.00
0
Account: SILVER, Susan re Adoption
Date
2010
Jul 7
Aug 11
Particulars
Retainer
Receipts
Disbursements
750.00
750.00
Transfer to general
Invoice #005
Balance
678.00
72.00
Account: TAYLOR, Terry re mortgage
Date
2010
Aug 31
Aug 31
Aug 31
Aug 31
Sep 7
Particulars
Transfer from Kirby
Pay tax arrears
Pay out existing mortgage
Balance of mortgage loan
Receipts
40,000.00
Transfer to general
Invoice #006
Disbursements
5,500.00
33,742.83
233.87
523.30
21
Balance
40,000.00
40,000.00
34,500.00
757.17
523.30
0
4. Trust Transfer Record – ss 18(4)
Whenever trust funds are moved from one client’s trust ledger account to another client’s trust
ledger account you must record the transfer and explain the purpose of the transfer.
Leslie Lawyer
Barrister & Solicitor
TRUST TRANSFER RECORD
Date
2010
From client
Jul 31
Kirby, Kim
To client
Amount
Reason
Taylor, Terry
40,000.00
Mortgage Loan
5. General Receipts Journal – ss 18(5)
For each amount you receive in your practice that is not trust money, record:
date you received the money
method by which you received the money, for example: cheque, certified cheque, bank
draft, money order, wire transfer, LVTS, cash, etc
person from whom you received the money
amount you received
Leslie Lawyer
Barrister and Solicitor
GENERAL RECEIPTS JOURNAL
Date
2010
Jun 30
Jul 14
Jul 22
Received from:
(Source of funds)
Leslie Lawyer
Transfer from trust re Piper Invoice #002
Jackie Jones re Invoice #001
Amount
Method
1,000.00
565.00
113.00
Bank Draft
Trust Chq #001
Chq
Aug 11
Transfer from trust re Piper Invoice #004
1,130.00
Trust Chq #002
Aug12
Aug13
Transfer from trust re Silver Invoice #005
Ricky Ricardo re Invoice #003
678.00
339.00
Trust Chq #003
Cash
Sep 7
Transfer from trust re Taylor Invoice #006 - 523.30
Transfer from trust re Piper Invoice #007 - 1,120.00
1,643.30
Trust Chq #007
22
6. General Disbursements Journal – ss 18(6)
For every payment you make in your practice that is not a trust payment, record:
date you made the payment
method you used to make the payment, for example: cheque, certified cheque, bank
draft, electronic trust transfer, etc
number of the document you used to make the payment, for example: cheque number,
bank draft number
amount of the payment
person to whom you made the payment
Leslie Lawyer
Barrister and Solicitor
GENERAL DISBURSEMENTS JOURNAL
Date
2010
Method /
number
Jul 1
Jul 9
Chq #001
Chq #002
Paid To:
(Person to whom
money is paid)
Larry Landlord
Acme Office Supplies
Aug 1
Aug 31
Chq #003
PAD
Sep1
Oct1
Particulars
Amount
2
HST paid
Total paid
Rent
Stationery
500.00
200.00
65.00
26.00
565.00
226.00
Larry Landlord
Teraview
Rent
Client Disb:
Taylor, Terry
500.00
70.00
65.00
1.30
565.00
71.30
Chq #004
Larry Landlord
Rent
500.00
65.00
565.00
Chq #005
Larry Landlord
Rent
565.00
65.00
565.00
#AB123456
23
7. Clients’ General Ledger
By-Law 9 does not require this record, but it is good business practice to do so, since it is
useful for keeping track of all the expenses, invoices and payments for each client in one
convenient record so you know how much each client owes you. As with the client trust
ledger, the details of each separate client matter are usually posted to a separate card or
account. We also recommend that you reconcile your general account(s) monthly.
Leslie Lawyer
Barrister & Solicitor
CLIENTS’ GENERAL LEDGER
Account: JONES Jackie re Legal Advice
Date
2010
Jul 2
Jul 22
Particulars
Fees - Inv #001
Client re Inv #001
Expenses
(on behalf
of client)
Fees
(billed to
client)
100.00
HST
(billed to
client)
13.00
Payments
on Account
113.00
Balance
owed
113.00
0
Account: PIPER, Peter re Corporate
Date
2010
Jul 12
Jul 14
Particulars
Fees - Inv #002
Trust transfer re
Inv #002
Expenses
(on behalf
of client)
Fees
(billed to
client)
500.00
HST
(billed to
client)
65.00
Payments
on Account
565.00
Balance
owed
565.00
0
Account: PIPER, Peter re Matrimonial
Date
2010
Aug 9
Aug 12
Sep 7
Sep 7
Particulars
Fees - Inv #004
Trust transfer re
Inv #004
Fees - Inv #007
Trust transfer re
Inv #007
Expenses
(on behalf
of client)
Fees
(billed to
client)
1,000.00
1,000.00
HST
(billed to
client)
130.00
130.00
Payments
on Account
Balance
owed
1,130.00
1,130.00
0
1,120.00
1,300.00
10.00
Payments
on Account
Balance
owed
Account: RICARDO, Ricky re Contract
Date
2010
Jul 30
Jul 13
Particulars
Fees - Inv #003
Client re Inv #003
Expense
(on behalf
of client)
Fees
(billed to
client)
300.00
24
HST
(billed to
client)
39.00
339.00
339.00
0
Account: SILVER, Susan re Adoption
Date
2010
Aug 10
Aug 12
Particulars
Fees - Inv #005
Trust transfer re
Inv #005
Expenses
(on behalf
of client)
Fees
(billed to
client)
600.00
HST
(billed to
client)
78.00
Payments
from client
678.00
Balance
owed
678.00
0
Account: TAYLOR, Terry re Mortgage
Date
2010
Aug 31
Sep 7
Sep 7
Particulars
Registration
Fees - Inv #006
Trust transfer re
Inv #006
Expenses
(on behalf
of client)
70.00
Fees
(billed to
client)
400.00
25
HST
(billed to
client)
1.30
52.00
Payments
from client
523.30
Balance
owed
71.30
523.30
0
8. Fees Book – ss 18(7)
When you invoice your clients, you can either record the information in a Fees Book or keep a
copy of each invoice in chronological (date) order in a billings file. Many law firms keep both
records as well as a third copy in the client file. A ringed binder with tab dividers for each
month works well for the billings file. If you keep a Fees Book, record the following
information:
fees charged to the client
other billings charged to the client
date of billing
client who is billed
Leslie Lawyer
Barrister & Solicitor
FEES BOOK
Date
2010
Jul 2
Jul 12
Jul 30
001
002
003
Jackie Jones
Peter Piper
Ricky Ricardo
Aug 9
004
Peter Piper
Aug 10
005
Sep 7
Sep 7
006
007
Inv #
Client
Fees
Billed
100.00
500.00
300.00
Disbursements
Billed
HST
Billed
13.00
65.00
39.00
Total Billed
113.00
565.00
339.00
1,000.00
130.00
1,130.00
Susan Silver
600.00
78.00
678.00
Terry Taylor
Peter Piper
400.00
1,000.00
53.30
130.00
523.30
1,130.00
70.00
26
9. Trust Bank Reconciliation, Client Trust Listing, and Trust Comparison – ss 18(8)
Each month, for your trust comparison, you must compare:
a) your reconciled trust bank balance and
b) your client trust listing total
These two amounts must be the same. This is one of the most important trust records and you
must complete it by the 25th of each month for all trust funds you held at the previous month’s
end. You should correct any trust shortages immediately and correct any bank or posting
errors before the next month end.
For the trust reconciliation:
check off all of the returned (or imaged) cheques on the trust bank statement for the
previous month, noting any discrepancies in the amounts
from your trust disbursement journal, identify any cheques you have issued that have
not yet cleared the bank
list the outstanding cheques by cheque number, date of issue and amount and total
the amount
from your deposit book, check off all deposits on the bank statement noting any
discrepancies in the amounts
list any deposits for the previous month, by date and amount, that are not recorded on
the bank statement; these are your outstanding deposits
list any bank errors and/or posting errors individually by date of occurrence and
provide a brief explanation; a copy of any supporting documentation, such as a bank
memo, should be attached to your reconciliation
from the balance on the trust bank statement, subtract the amount of the outstanding
cheques, add any outstanding deposits and adjust for any bank and posting errors to
calculate your reconciled trust bank balance
For the client trust listing:
from the clients’ trust ledger, identify any client for whom you held trust funds at the
previous month end
list the client names in a logical order, with the unexpended trust balance for each
client as at the previous month end
include the last activity date for each client’s trust balance on the client trust listing to
help you to monitor inactive or dormant amounts
total the client trust listing
Compare your reconciled trust bank balance with the client trust listing total. If these two
amounts are not the same, you must find and correct the discrepancy.
27
Leslie Lawyer
Barrister and Solicitor
TRUST BANK RECONCILIATION
AS AT AUGUST 31, 2010
Mixed Trust Account:
Balance Per Bank Statement
Less:
Outstanding Cheques
(See list below)
Plus:
Outstanding Deposits – Aug 31/10
(Deposited Sep 1/10)
Plus bank error - Aug 12/10:
Chq #003 cleared as $687.00 s/b $678.00
(Corrected Sep 17/10 by bank credit memo)
Reconciled Mixed Trust Bank balance at Aug 31, 2010
$40,933.00
39,476.70
250.00
9.00
$1,715.30
Outstanding Cheques:
Cheque Number
Date
004
Aug 31/10
005
Aug 31/10
006
Aug 31/10
Total Outstanding Cheques
Amount
5,500.00
33,742.83
233.87
$39,476.70
CLIENT TRUST LISTING
(from clients’ trust ledger balances)
AS AT AUGUST 31, 2010
File Name
Piper, Peter
Silver, Susan
Taylor, Terry
Total:
Last Activity Date
Aug 31/10
Aug 11/10
Aug 31/07
Amount
$1,120.00
72.00
523.30
$1,715.30
Total trust liabilities to clients at August 31, 2010
$1,715.30
TRUST COMPARISON
AS AT AUGUST 31, 2010
Total Reconciled Trust Bank Balance
(See Trust reconciliation above)
$1,715.30
Total of unexpended balances per Clients’ Trust Ledger
(See Client Trust Listing above)
$1,715.30
28
Regardless of who prepares the trust comparison, you should make it a habit to review it and
all supporting documentation by the 25th of each month to make sure:
the comparison has been completed on time
all client trust funds are included: mixed, pass book, GICs, term deposits, e-reg©,
estate, power of attorney, etc.
bank statement, passbook, estate account, GIC, term deposit etc. balances are correct
the arithmetic is correct
reconciling items, e.g. bank errors, posting errors, are cleared each month and are
explained and supported by documentation
stale dated cheques, i.e. cheques that have been outstanding for more than 6 months,
are reversed, the client liability reinstated in the clients’ trust ledger and the cheque
reissued if appropriate (Note that clearing rules state that a cheque more than six
months old may be cashed so check your financial institution’s policy to determine
whether you should put a stop payment on a trust cheque before reissuing it.)
there are no overdrawn client trust ledger accounts
the amounts in trust for each client are correct
any client trust ledger accounts that have not had any activity in the previous 12
months are followed up
29
10. a) Detailed Duplicate Trust Account Deposit Slip – ss 18(10)
By-Law 9 requires you to deposit any trust money you receive immediately into your trust
account. You should record the following information on all your copies of trust deposit slips:
date you deposit the funds
your firm’s name if it is not preprinted
your bank account number if it is not preprinted
source of each receipt
related client
amount
You should also ensure that the teller stamps each deposit slip. If you use an automated teller
machine, attach the ATM receipt to the corresponding deposit slip, or add the source and
client reference to the ATM receipt and keep it with your deposit slips.
DEPOSIT SLIP
Current Account
CREDIT ACCOUNT OF:
Leslie Lawyer
Barrister and Solicitor
Trust Account
BANK OF ONTARIO
Date:
2 0 1 0 0 8 3 0
Transit
5 4 3
2
LL
Teller’s
ABC
7
8
9
Cheques and Credit Card
Vouchers
Kim Kirby
re loan to Taylor
40,000 00
Total ►
Initials
Teller Stamp
1
Account Number
1 2 3 4 5 6
Depositor’s
40,000 00
Initials
0
Details
Cash
x $5
x $10
x $20
x $50
x $100
x
x
coin
Cdn Cash Total
Credit Card Vouchers and
Cheques Forwarded ►
30
nil
40,000
00
10. b) Detailed Duplicate General Account Deposit Slip – ss 18(10)
You should record the following information on all your copies of general deposit slips:
date you deposit the funds
your firm’s name if it is not preprinted
your bank account number if it is not preprinted
source of each receipt
related client, if applicable
amount
You should also ensure that the teller stamps each deposit slip. If you use an automated teller
machine, attach the ATM receipt to the corresponding deposit slip, or add the source and
client reference to the ATM receipt and keep it with your deposit slips.
DEPOSIT SLIP
Current Account
CREDIT ACCOUNT OF:
Leslie Lawyer
Barrister and Solicitor
General Account
BANK OF ONTARIO
Date:
2 0 1 0 0 9 0 7
Transit
5 4 3
2
LL
Teller’s
ABC
8
9
0
Cheques and Credit Card
Vouchers
From Trust
Account, chq #007
re Piper $1,120.00
re Taylor $523.30
1,643 30
Total ►
Initials
Teller Stamp
1
Account Number
2 3 4 5 6 7
Depositor’s
1,643 30
1
Initials
Details
Cash
x
$5
x $10
x $20
x $50
x $100
x
x
coin
Cdn Cash Total
Credit Card Vouchers and
Cheques Forwarded ►
31
nil
1,643
30
11.
Duplicate Cash Receipts Book – s 19
For each cash receipt you receive in your practice, in addition to recording it in either the trust
or general receipts journal and either the client trust or general ledger, prepare a duplicate
cash receipt with:
the date you received the cash
the name of the person who gave you the cash
the amount of cash received
the name of the client for whom you received the cash
the file number if any
your signature or that of your authorized designate
the signature of the person who gave you the cash
It is always advisable to sequentially number any accounting documents, so your cash
receipts should be numbered.
Give one copy of the receipt to the person who gave you the cash, and keep one copy with
your accounting records. You may also want to prepare the receipt in triplicate and keep the
third copy in the client file.
By-Law 9 requires you to use reasonable efforts to obtain the signature of the person who
gives you the cash. You should be wary of accepting cash from someone who does not want
to sign a receipt.
Keep in mind that your staff may be reluctant to accept responsibility for receipt of cash
payments. If you decide to make it a policy of your firm not to accept cash or cash over a
certain amount, be sure to notify potential clients in writing before accepting their retainers.
Sample:
Date_________________
DUPLICATE CASH RECEIPT
#0001
Received from___________________________ the amount of $__________________
On behalf of__________________________________________ for file #___________
________________________________
Signature of payor [person paying cash]
___________________________________
Authorized signature on behalf of [name of
law firm]
32
12a) Client Identification and Verification (individual client) - s 23 By-Law 7.1
Leslie Lawyer
Barrister & Solicitor
VERIFICATION OF IDENTITY
(For use where the client or the third party is an individual)
Name:
Kim Kirby _____________________________________
Address:
456 Avenue Rd Anytown ON Z9Y 4V3 ______________
Phone No:
(789) 456-0123_________________________________
Business Address:
N/A (retired____________________________________
Business Phone No:
N/A (retired) ___________________________________
Occupation(s)
Retired real estate agent_________________________
Original Document Reviewed – Copy Attached
Birth Certificate
Passport
Other (specify type) _____________________________________________
Meeting Date Identity Verified:
Aug 30, 2010____________________
Identity Verified By (Name of Person):
Sandy Secretary_________________
Date File Reviewed by Lawyer:
Aug 30, 2010____________________
Name of Lawyer:
Leslie Lawyer___________________
33
12b) Client Identification and Verification (organization) - s 23 By-Law 7.1
Leslie Lawyer
Barrister & Solicitor
VERIFICATION OF IDENTITY
(For use where the client or the third party is an organization)
Name:
Peter Piper Pickles ________________________
Business Address:
456 Avenue Rd Anytown ON Z9Y 4V3 ________
Business Phone No: (321) 654-0987___________________________
Incorporation or Business Identification No.: 12131415 Ontario Inc____
Place of Issue of No:
Type of business or Activity:
Ontario_______________________
Produce wholesaler and retailer___
Person Authorized to Instruct
Name:
Peter Piper_______________________________
Position:
President________________________________
Phone No.:
(321) 654-0987 ext 1_______________________
Original Document Reviewed – Copy Attached
 Driver’s Licence
Birth Certificate
Passport
Other (specify type) ______________________________________
Names and Occupation(s) of Directors
Peter Piper, farmer_________________________________________
Jackie Jones, electrician_____________________________________
Ricky Ricardo, musician_____________________________________
________________________________________________________
34
Names, Addresses and Occupation(s) of Owners or Shareholders owning a 25%
interest or more of the organization or shares in the organization
Peter Piper, 456 County Rd Anytown ON Z9Y 4V3, farmer, 51%______________
Peter Piper Jr, 456 County Rd Anytown ON Z9Y 4V3, farmer, 49%____________
_________________________________________________________________
_________________________________________________________________
Original Document Reviewed – Copy Attached
 Partnership Agreement
f Association
 Other (specify type) __Business Names Registration____________________
Meeting Date Identity Verified:
Aug 30, 2010_____________________
Identity Verified By (Name of Person):
Sandy Secretary__________________
Date File Reviewed by Lawyer:
Aug 30, 2010_____________________
Name of Lawyer:
Leslie Lawyer_____________________
35
VALUABLE PROPERTY RECORD
This record is required by section 18(9) of By-Law 9 to record trust assets other than money. The record should show, as a minimum,
the following details:
the name of the beneficial owner or owners;
a description of the property;
the date the property came into the Licensee’s possession or trust control;
the name of the person who had control of the property immediately before the Licensee took possession;
the value of the property;
the date that the trust was terminated by delivery or transfer of the property to, or on the direction of, the beneficial owner or
owners;
the person to whom possession of property given.
Properties to be included:
Mortgages, transfers or other instruments registered in the Licensee’s name in trust.
This includes mortgages, or other investment securities, held in trust by a Corporation or other business entity controlled by a
Licensee, Licensees of a firm and/or the spouse(s) of the Licensee(s).
Stocks, bonds or other securities in bearer form.
Jewellery, paintings, furs, collector’s items or any variety of saleable valuables.
Any property that a Licensee can convert, on his/her own authority to cash.
Properties not to be included:
Term deposits, deposit receipts, savings accounts or similar deposit accounts maintained for individual clients at chartered
banks or registered trust companies. These are trust monies and must be recorded in the financial accounting records.
Wills, securities registered in the name of the client, corporate records, corporate seals, etc. These properties have value to
the clients and Licensees must exercise care in keeping the properties, but they are not properties that can be sold or
negotiated by Licensees. Licensees may maintain lists of these properties but this list must be separate from the record
required by subsection 18(9) of By-Law 9.
36
VALUABLE PROPERTY RECORD
Section 18(9) By-Law 9 made pursuant to the Law Society Act, 1990 as amended:
A record showing all property, other than money, held in trust for clients, and describing each property and identifying the date on
which the licensee took possession of each property, the person who had possession of each property immediately before the
licensee took possession of the property, the value of each property, the client for whom each property is held in trust, the date on
which possession of each property is given away and the person to whom possession of each property is given.
Client
Description of Property
37
Date
Received
Received From
Value of
Property
Given To
Date Given
Away
BY-LAW 9
Made: May 1, 2007
Amended: June 28, 2007
January 24, 2008
February 21, 2008
March 20, 2009 (editorial changes)
September 29, 2009 (editorial changes)
April 28, 2011
May 3, 2011 (editorial changes)
FINANCIAL TRANSACTIONS AND RECORDS
PART I
INTERPRETATION
Interpretation
1.
(1)
In this By-Law,
“arm’s length” has the same meaning given it in the Income Tax Act (Canada);
“cash” means current coin within the meaning of the Currency Act (Canada), notes
intended for circulation in Canada issued by the Bank of Canada pursuant to the Bank of
Canada Act and current coin or banks notes of countries other than Canada;
“charge” has the same meaning given it in the Land Registration Reform Act;
“client” means a person or group of persons from whom or on whose behalf a licensee
receives money or other property;
“firm of licensees” means,
(a)
a partnership of licensees and all licensees employed by the partnership,
(b)
a professional corporation established for the purpose of practising law in
Ontario and all licensees employed by the professional corporation,
(c)
a professional corporation established for the purpose of providing legal
services in Ontario and all licensees employed by the professional
corporation, or
(d)
a professional corporation established for the purpose of practising law
and providing legal services in Ontario and all licensees employed by the
professional corporation;
“holiday” means,
(a)
any Saturday or Sunday;
(b)
New Year’s Day, and where New Year’s Day falls on a Saturday or
Sunday, the following Monday;
(c)
Family Day;
(d)
Good Friday;
(e)
Easter Monday;
38
(f)
Victoria Day;
(g)
Canada Day, and where Canada Day falls on a Saturday or Sunday, the
following Monday;
(h)
Civic Holiday;
(i)
Labour Day;
(j)
Thanksgiving Day;
(k)
Remembrance Day, and where Remembrance Day falls on a Saturday or
Sunday, the following Monday;
(l)
Christmas Day, and where Christmas Day falls on a Saturday or Sunday,
the following Monday and Tuesday, and where Christmas Day falls on a
Friday, the following Monday;
(m)
Boxing Day; and
(n)
any special holiday proclaimed by the Governor General or the Lieutenant
Governor;
“lender” means a person who is making a loan that is secured or to be secured by a
charge, including a charge to be held in trust directly or indirectly through a related
person or corporation;
“licensee” includes a firm of licensees;
“money” includes cash, cheques, drafts, credit card sales slips, post office orders and
express and bank money orders;
“related” has the same meaning given it in the Income Tax Act (Canada);
“Teranet” means Teranet Inc., a corporation incorporated under the Business
Corporations Act, acting as agent for the Ministry of Consumer and Business Services.
Time for doing an act expires on a holiday
(2)
Except where a contrary intention appears, if the time for doing an act
expires on a holiday, the act may be done on the next day that is not a holiday.
When deemed in trust
(3)
For the purposes of subsections 9 (1), (2) and (3) and section 14, cash,
cheques negotiable by the licensee, cheques drawn by the licensee on the licensee’s
trust account and credit card sales slips in the possession and control of the licensee
shall be deemed from the time the licensee receives such possession and control to be
money held in a trust account if the cash, cheques or credit card sales slips, as the case
may be, are deposited in the trust account not later than the following banking day.
PART II
HANDLING OF MONEY BY BANKRUPT LICENSEE
Handling of money by bankrupt licensee
2.
(1)
Subject to subsections (2) and (3), a licensee who is bankrupt within the
meaning of the Bankruptcy and Insolvency Act (Canada) shall not receive from or on
behalf of a person or group of persons any money or other property and shall not
39
otherwise handle money or other property that is held in trust for a person or group of
persons.
Exception
(2)
A licensee who is bankrupt within the meaning of the Bankruptcy and
Insolvency Act (Canada) may receive from or on behalf of a person or group of persons
money,
(a)
in payment of fees for services performed by the licensee for the person
or group; or
(b)
in reimbursement for money properly expended, or for expenses properly
incurred, on behalf of the person or group.
Same
(3)
A licensee who is bankrupt within the meaning of the Bankruptcy and
Insolvency Act (Canada) may apply in writing to the Society for permission to receive
from or on behalf of a person or group of persons any money or other property, other
than as permitted under subsection (2), or for permission to handle money or other
property that is held in trust for a person or group of persons, and the Society may
permit the licensee to do so, subject to such terms and conditions as the Society may
impose.
PART II.1
HANDLING OF MONEY BY LICENSEE WHOSE LICENCE IS SUSPENDED
Interpretation
2.1
In this Part,
“suspended licensee” means a licensee who is the subject of a suspension order;
“suspension order” means an order made under the Act suspending a licensee’s licence
to practise law in Ontario as a barrister and solicitor or to provide legal services in
Ontario, regardless of whether the suspension begins when the order is made or
thereafter.
Handling of money by suspended licensee
2.2
(1)
Subject to subsection (2) and section 2.3, a suspended licensee shall not,
during the suspension receive from or on behalf of a person or group of persons any
money or other property and shall not otherwise handle money or other property that is
held in trust for a person or group of persons.
Exception
(2)
A suspended licensee may receive from or on behalf of a person or group
of persons money,
(a)
in payment of fees for services performed by the suspended licensee for
the person or group; or
(b)
in reimbursement for money properly expended, or for expenses properly
incurred, on behalf of the person or group.
40
Trust account
2.3
(1)
suspension,
(a)
(b)
(c)
A suspended licensee shall, within 30 days of the beginning of the
withdraw from every trust account kept in the name of the suspended
licensee, or in the name of the firm of licensees of which the suspended
licensee is a partner or by which the suspended licensee is employed,
and, as required, pay to the appropriate person,
(i)
money properly required for payment to a person on behalf of a
client,
(ii)
money required to reimburse the suspended licensee for money
properly expended, or for expenses properly incurred, on behalf of
a client,
(iii)
money required for or toward payment of fees for services
performed by the suspended licensee, and
(iv)
all other money that belongs to the suspended licensee or to a
person other than a client;
after complying with clause (a), withdraw from every trust account kept in
the name of the suspended licensee, or in the name of the firm of
licensees of which the suspended licensee is a partner or by which the
suspended licensee is employed, all money belonging to a client and pay
the money to,
(i)
the client,
(ii)
another licensee to whom the client has directed the suspended
licensee to make payment, or
(iii)
another licensee who has agreed with the suspended licensee to
accept payment in the event that the suspended licensee is
unable to comply with subclause (i) or (ii); and
after complying with clauses (a) and (b),
(i)
close every trust account that was kept in the name of the
suspended licensee, and
(ii)
cancel or cause to be cancelled the suspended licensee’s signing
authority on every trust account that was kept in the name of the
firm of licensees of which the suspended licensee is a partner or
by which the suspended licensee is employed.
Compliance with clause (1) (b) not required
(2)
A suspended licensee is not required to comply with clause (1) (b) if the
client’s file is transferred, in accordance with Part IV of By-Law 7.1, to another licensee
in the firm of licensees of which the suspended licensee is a partner or by which the
suspended licensee is employed.
Application of sections of Part IV
(3)
Subsection 9 (3) and sections 10, 11 and 12 apply to the withdrawal of
money from a trust account under this section.
41
Report to Society on compliance
(4)
A suspended licensee shall, not later than thirty days after the suspension
begins, complete and file with the Society, in a form provided by the Society, a report
confirming and providing details of the suspended licensee’s compliance with this
section.
Permission to be exempt from requirement
2.4
A suspended licensee may apply in writing to the Society for an exemption from
or a modification of a requirement mentioned in this Part, and the Society may exempt
the suspended licensee from or modify the requirement, subject to such terms and
conditions as the Society may impose.
PART III
CASH TRANSACTIONS
Definition
3.
In this Part,
“funds” means cash, currency, securities and negotiable instruments or other financial
instruments that indicate the person’s title or interest in them;
“public body” means,
(a)
a department or agent of Her Majesty in right of Canada or of a province;
(b)
an incorporated city, metropolitan authority, town, township, village,
county, district, rural municipality or other incorporated municipal body or
an agent of any of them; and
(c)
an organization that operates a public hospital and that is designated by
the Minister of National Revenue as a hospital under the Excise Tax Act
(Canada) or agent of the organization.
Cash received
4.
(1)
A licensee shall not receive or accept from a person, in respect of any
one client file, cash in an aggregate amount of 7,500 or more Canadian dollars.
Foreign currency
(2)
For the purposes of this section, when a licensee receives or accepts
from a person cash in a foreign currency the licensee shall be deemed to have received
or accepted the cash converted into Canadian dollars at,
(a)
the official conversion rate of the Bank of Canada for the foreign currency
as published in the Bank of Canada’s Daily Noon Rates that is in effect at
the time the licensee receives or accepts the cash; or
(b)
if the day on which the licensee receives or accepts cash is a holiday, the
official conversion rate of the Bank of Canada in effect on the most recent
business day preceding the day on which the licensee receives or
accepts the cash.
42
Application
5.
Section 4 applies when, in respect of a client file, a licensee engages in or gives
instructions in respect of the following activities:
1.
The licensee receives or pays funds.
2.
The licensee purchases or sells securities, real properties or business
assets or entities.
3.
The licensee transfers funds by any means.
Exceptions
6.
Despite section 5, section 4 does not apply when the licensee,
(a)
receives cash from a public body, an authorized foreign bank within the
meaning of section 2 of the Bank Act (Canada) in respect of its business
in Canada or a bank to which the Bank Act (Canada) applies, a
cooperative credit society, savings and credit union or caisse populaire
that is regulated by a provincial Act, an association that is regulated by
the Cooperative Credit Associations Act (Canada), a company to which
the Trust and Loan Companies Act (Canada) applies, a trust company or
loan company regulated by a provincial Act or a department or agent of
Her Majesty in right of Canada or of a province where the department or
agent accepts deposit liabilities in the course of providing financial
services to the public;
(b)
receives cash from a peace officer, law enforcement agency or other
agent of the Crown acting in an official capacity;
(c)
receives cash pursuant to an order of a tribunal;
(d)
receives cash to pay a fine or penalty; or
(e)
receives cash for fees, disbursements, expenses or bail provided that any
refund out of such receipts is also made in cash.
PART IV
TRUST ACCOUNT
TRUST ACCOUNT TRANSACTIONS
Money received in trust for client
7.
(1)
Subject to section 8, every licensee who receives money in trust for a
client shall immediately pay the money into an account at a chartered bank, provincial
savings office, credit union or a league to which the Credit Unions and Caisses
Populaires Act, 1994 applies or registered trust corporation, to be kept in the name of
the licensee, or in the name of the firm of licensees of which the licensee is a partner,
through which the licensee practises law or provides legal services or by which the
licensee is employed, and designated as a trust account.
43
Interpretation
(2)
For the purposes of subsection (1), a licensee receives money in trust for
a client if the licensee receives from a person,
(a)
money that belongs in whole or in part to a client;
(b)
money that is to be held on behalf of a client;
(c)
money that is to be held on a client’s direction or order;
(d)
money that is advanced to the licensee on account of fees for services
not yet rendered; or
(e)
money that is advanced to the licensee on account of disbursements not
yet made.
Money to be paid into trust account
(3)
In addition to the money required under subsection (1) to be paid into a
trust account, a licensee shall pay the following money into a trust account:
1.
Money that may by inadvertence have been drawn from a trust account in
contravention of section 9.
2.
Money paid to a licensee that belongs in part to a client and in part to the
licensee where it is not practical to split the payment of the money.
Money to be paid into trust account: money received before licence issued
(3.1) If a licensee who holds a Class P1 licence receives from a person, prior
to being issued the licence, money for services yet to be rendered to a client and the
licensee does not perform the services for the client by May 2, 2010, the licensee shall
on May 3, 2010 pay the money into a trust account.
Withdrawal of money from trust account
(4)
A licensee who pays into a trust account money described in paragraph 2
of subsection (3) shall as soon as practical withdraw from the trust account the amount
of the money that belongs to him or her.
One or more trust accounts
(5)
A licensee may keep one or more trust accounts.
Money not to be paid into trust account
8.
(1)
A licensee is not required to pay into a trust account money which he or
she receives in trust for a client if,
(a)
the client requests the licensee in writing not to pay the money into a trust
account;
(b)
the licensee pays the money into an account to be kept in the name of the
client, a person named by the client or an agent of the client; or
(c)
the licensee pays the money immediately upon receiving it to the client or
to a person on behalf of the client in accordance with ordinary business
practices.
(2)
A licensee shall not pay into a trust account the following money:
Same
44
1.
Money that belongs entirely to the licensee or to another licensee of the
firm of licensees of which the licensee is a partner, through which the
licensee practices law or provides legal services or by which the licensee
is employed, including an amount received as a general retainer for which
the licensee is not required either to account or to provide services.
2.
Money that is received by the licensee as payment of fees for services for
which a billing has been delivered, as payment of fees for services
already performed for which a billing will be delivered immediately after
the money is received or as reimbursement for disbursements made or
expenses incurred by the licensee on behalf of a client.
Record keeping requirements
(3)
A licensee who, in accordance with subsection (1), does not pay into a
trust account money which he or she receives in trust for a client shall include all
handling of such money in the records required to be maintained under Part V.
Withdrawal of money from trust account
9.
(1)
A licensee may withdraw from a trust account only the following money:
1.
Money properly required for payment to a client or to a person on behalf
of a client.
2.
Money required to reimburse the licensee for money properly expended
on behalf of a client or for expenses properly incurred on behalf of a
client.
3.
Money properly required for or toward payment of fees for services
performed by the licensee for which a billing has been delivered.
4.
Money that is directly transferred into another trust account and held on
behalf of a client.
5.
Money that under this Part should not have been paid into a trust account
but was through inadvertence paid into a trust account.
Permission to withdraw other money
(2)
A licensee may withdraw from a trust account money other than the
money mentioned in subsection (1) if he or she has been authorized to do so by the
Society.
Limit on amount withdrawn from trust account
(3)
A licensee shall not at any time with respect to a client withdraw from a
trust account under this section more money than is held on behalf of that client in that
trust account at that time.
Manner in which certain money may be withdrawn from trust account
10.
A licensee shall withdraw money from a trust account under paragraph 2 or 3 of
subsection 9 (1) only,
(a)
by a cheque drawn in favour of the licensee;
(b)
by a transfer to a bank account that is kept in the name of the licensee
and is not a trust account; or
(c)
by electronic transfer.
45
Withdrawal by cheque
11.
A cheque drawn on a trust account shall not be,
(a)
made payable either to cash or to bearer; or
(b)
signed by a person who is not a licensee except in exceptional
circumstances and except when the person has signing authority on the
trust account on which a cheque will be drawn and is bonded in an
amount at least equal to the maximum balance on deposit during the
immediately preceding fiscal year of the licensee in all the trust accounts
on which signing authority has been delegated to the person.
Withdrawal by electronic transfer
12.
(1)
Money withdrawn from a trust account by electronic transfer shall be
withdrawn only in accordance with this section.
When money may be withdrawn
(2)
Money shall not be withdrawn from a trust account by electronic transfer
unless the following conditions are met:
1.
The electronic transfer system used by the licensee must be one that
does not permit an electronic transfer of funds unless,
i.
one person, using a password or access code, enters into the
system the data describing the details of the transfer, and
ii.
another person, using another password or access code, enters
into the system the data authorizing the financial institution to
carry out the transfer.
2.
The electronic transfer system used by the licensee must be one that will
produce, not later than the close of the banking day immediately after the
day on which the electronic transfer of funds is authorized, a confirmation
from the financial institution confirming that the data describing the details
of the transfer and authorizing the financial institution to carry out the
transfer were received.
3.
The confirmation required by paragraph 2 must contain,
4.
i.
the number of the trust account from which money is drawn,
ii.
the name, branch name and address of the financial institution
where the account to which money is transferred is kept,
iii.
the name of the person or entity in whose name the account to
which money is transferred is kept,
iv.
the number of the account to which money is transferred,
v.
the time and date that the data describing the details of the
transfer and authorizing the financial institution to carry out the
transfer are received by the financial institution, and
vi.
the time and date that the confirmation from the financial
institution is sent to the licensee.
Before any data describing the details of the transfer or authorizing the
financial institution to carry out the transfer is entered into the electronic
46
trust transfer system, an electronic trust transfer requisition must be
signed by,
5.
i.
a licensee, or
ii.
in exceptional circumstances, a person who is not a licensee if the
person has signing authority on the trust account from which the
money will be drawn and is bonded in an amount at least equal to
the maximum balance on deposit during the immediately
preceding fiscal year of the licensee in all trust accounts on which
signing authority has been delegated to the person.
The data entered into the electronic trust transfer system describing the
details of the transfer and authorizing the financial institution to carry out
the transfer must be as specified in the electronic trust transfer
requisition.
Application of para. 1 of subs. (2) to sole practitioner
(3)
Paragraph 1 of subsection (2) does not apply to a licensee who practises
law or provides legal services without another licensee as a partner, if the licensee
practices law or provides legal services through a professional corporation, without
another licensee practicing law or providing legal services through the professional
corporation and without another licensee or person as an employee, if the licensee
himself or herself enters into the electronic trust transfer system both the data describing
the details of the transfer and the data authorizing the financial institution to carry out the
transfer.
Same
(4)
In exceptional circumstances, the data referred to in subsection (3) may
be entered by a person other than the licensee, if the person has signing authority on the
trust account from which the money will be drawn and is bonded in an amount at least
equal to the maximum balance on deposit during the immediately preceding fiscal year
of the licensee in all trust accounts on which signing authority has been delegated to the
person.
Additional requirements relating to confirmation
(5)
Not later than the close of the banking day immediately after the day on
which the confirmation required by paragraph 2 of subsection (2) is sent to a licensee,
the licensee shall,
(a)
produce a printed copy of the confirmation;
(b)
compare the printed copy of the confirmation and the signed electronic
trust transfer requisition relating to the transfer to verify whether the
money was drawn from the trust account as specified in the signed
requisition;
(c)
indicate on the printed copy of the confirmation the name of the client, the
subject matter of the file and any file number in respect of which money
was drawn from the trust account; and
(d)
after complying with clauses (a) to (c), sign and date the printed copy of
the confirmation.
47
Same
(6)
In exceptional circumstances, the tasks required by subsection (5) may
be performed by a person other than the licensee, if the person has signing authority on
the trust account from which the money will be drawn and is bonded in an amount at
least equal to the maximum balance on deposit during the immediately preceding fiscal
year of the licensee in all trust accounts on which signing authority has been delegated
to the person.
Electronic trust transfer requisition
(7)
The electronic trust transfer requisition required under paragraph 4 of
subsection (2) shall be in Form 9A.
Definitions
13.
(1)
In this section,
“closing funds” means the money necessary to complete or close a transaction in real
estate;
“transaction in real estate” means,
(a)
a charge on land given for the purpose of securing the payment of a debt
or the performance of an obligation, including a charge under the Land
Titles Act and a mortgage, but excluding a rent charge, or
(b)
a conveyance of freehold or leasehold land, including a deed and a
transfer under the Land Titles Act, but excluding a lease.
Withdrawal by electronic transfer: closing funds
(2)
Despite section 12, closing funds may be withdrawn from a trust account
by electronic transfer in accordance with this section.
When closing funds may be withdrawn
(3)
Closing funds shall not be withdrawn from a trust account by electronic
transfer unless the following conditions are met:
1.
The electronic transfer system used by the licensee must be one to which
access is restricted by the use of at least one password or access code.
2.
The electronic transfer system used by the licensee must be one that will
produce immediately after the electronic transfer of funds a confirmation
of the transfer.
3.
The confirmation required by paragraph 2 must contain,
i.
the name of the person or entity in whose name the account from
which money is drawn is kept,
ii.
the number of the trust account from which money is drawn,
iii.
the name of the person or entity in whose name the account to
which money is transferred is kept,
iv.
the number of the account to which money is transferred, and
v.
the date the transfer is carried out.
48
4.
5.
Before the electronic transfer system used by the licensee is accessed to
carry out an electronic transfer of funds, an electronic trust transfer
requisition must be signed by,
i.
the licensee, or
ii.
in exceptional circumstances, a person who is not the licensee if
the person has signing authority on the trust account from which
the money will be drawn and is bonded in an amount at least
equal to the maximum balance on deposit during the immediately
preceding fiscal year of the licensee in all trust accounts on which
signing authority has been delegated to the person.
The data entered into the electronic transfer system describing the details
of the electronic transfer of funds must be as specified in the electronic
trust transfer requisition.
Additional requirements relating to confirmation
(4)
Not later than 5 p.m. on the day immediately after the day on which the
electronic transfer of funds is carried out, the licensee shall,
(a)
produce a printed copy of the confirmation required by paragraph 2 of
subsection (3);
(b)
compare the printed copy of the confirmation and the signed electronic
trust transfer requisition relating to the transfer to verify whether the
money was drawn from the trust account as specified in the signed
requisition;
(c)
indicate on the printed copy of the confirmation the name of the client, the
subject matter of the file and any file number in respect of which money
was drawn from the trust account; and
(d)
after complying with clauses (a) to (c), sign and date the printed copy of
the confirmation.
Same
(5)
In exceptional circumstances, the tasks required by subsection (4) may
be performed by a person other than the licensee, if the person has signing authority on
the trust account from which the money will be drawn and is bonded in an amount at
least equal to the maximum balance on deposit during the immediately preceding fiscal
year of the licensee in all trust accounts on which signing authority has been delegated
to the person.
Electronic trust transfer requisition: closing funds
(6)
The electronic trust transfer requisition required under paragraph 4 of
subsection (3) shall be in Form 9C.
Requirement to maintain sufficient balance in trust account
14.
Despite any other provision in this Part, a licensee shall at all times maintain
sufficient balances on deposit in his or her trust accounts to meet all his or her
obligations with respect to money held in trust for clients.
49
AUTOMATIC WITHDRAWALS FROM TRUST ACCOUNTS
Authorizing Teranet to withdraw money from trust account
15.
(1)
Subject to subsection (2), a licensee may authorize Teranet to withdraw
from a trust account described in subsection 16 (1) money required to pay the document
registration fees and the land transfer tax, if any, related to a client’s real estate
transaction.
Conditions
(2)
A licensee shall not authorize Teranet to withdraw from a trust account
described in subsection 16 (1) money required to pay the document registration fees and
the land transfer tax, if any, related to a client’s real estate transaction unless Teranet
agrees to provide to the licensee in accordance with subsection (3) a confirmation of the
withdrawal that contains the information mentioned in subsection (4).
Time of receipt of confirmation
(3)
The confirmation required under subsection (2) must be received by the
licensee not later than 5 p.m. on the day immediately after the day on which the
withdrawal is authorized by the licensee.
Contents of confirmation
(4)
The confirmation required under subsection (2) must contain,
(a)
the amount of money withdrawn from the trust account;
(b)
the time and date that the authorization to withdraw money is received by
Teranet; and
(c)
the time and date that the confirmation from Teranet is sent to the
licensee.
Written record of authorization
(5)
A licensee who authorizes Teranet to withdraw from a trust account
described in subsection 16 (1) money required to pay the document registration fees and
the land transfer tax, if any, related to a client’s real estate transaction shall record the
authorization in writing.
Same
(6)
The written record of the authorization required under subsection (5) shall
be in Form 9B and shall be completed by the licensee before he or she authorizes
Teranet to withdraw from a trust account described in subsection 16 (1) money required
to pay the document registration fees and the land transfer tax, if any, related to a
client’s real estate transaction.
Additional requirements relating to confirmation
(7)
Not later than 5 p.m. on the day immediately after the day on which the
confirmation required under subsection (2) is sent to a licensee, the licensee shall,
(a)
produce a paper copy of the confirmation, if the confirmation is sent to the
licensee by electronic means;
(b)
compare the paper copy of the confirmation and the written record of the
authorization relating to the withdrawal to verify whether money was
50
withdrawn from the trust account by Teranet as authorized by the
licensee;
(c)
indicate on the paper copy of the confirmation the name of the client and
any file number in respect of which money was withdrawn from the trust
account, if the confirmation does not already contain such information;
and
(d)
after complying with clauses (a) to (c), sign and date the paper copy of
the confirmation.
Special trust account
16
(1)
The trust account from which Teranet may be authorized by a licensee to
withdraw money shall be,
(a)
an account at a chartered bank, provincial savings office, credit union or
league to which the Credit Unions and Caisses Populaires Act, 1994
applies or a registered trust corporation kept in the name of the licensee
or in the name of the firm of licensees of which the licensee is a partner,
through which the licensee practices law or by which the licensee is
employed, and designated as a trust account; and
(b)
an account into which a licensee shall pay only,
(i)
money received in trust for a client for the purposes of paying the
document registration fees and the land transfer tax, if any, related
to the client’s real estate transaction; and
(ii)
money properly withdrawn from another trust account for the
purposes of paying the document registration fees and the land
transfer tax, if any, related to the client’s real estate transaction.
One or more special trust accounts
(2)
A licensee may keep one or more trust accounts of the kind described in
subsection (1).
Payment of money into special trust account
(3)
A licensee shall not pay into a trust account described in subsection (1)
more money than is required to pay the document registration fees and the land transfer
tax, if any, related to a client’s real estate transaction, and if more money is, through
inadvertence, paid into the trust account, the licensee shall transfer from the trust
account described in subsection (1) into another trust account that is not a trust account
described in subsection (1) the excess money.
Time limit on holding money in special trust account
(4)
A licensee who pays money into a trust account described in
subsection (1) shall not keep the money in that account for more than five days, and if
the money is not properly withdrawn from that account by Teranet within five days after
the day on which it is paid into that account, the licensee shall transfer the money from
that account into another trust account that is not a trust account described in
subsection (1).
51
Interpretation: counting days
(5)
In subsection 16 (4), holidays shall not be counted in determining if
money has been kept in a trust account described in subsection 16 (1) for more than five
days.
Application of ss. 9, 11, 12 and 14
17.
Sections 9, 11, 12 and 14 apply, with necessary modifications, to a trust account
described in subsection 16 (1).
PART V
RECORD KEEPING REQUIREMENTS
REQUIREMENTS
Requirement to maintain financial records
18.
Every licensee shall maintain financial records to record all money and other
property received and disbursed in connection with the licensee’s professional business,
and, as a minimum requirement, every licensee shall maintain, in accordance with
sections 21, 22 and 23, the following records:
1.
A book of original entry identifying each date on which money is received
in trust for a client, the method by which money is received, the person
from whom money is received, the amount of money received, the
purpose for which money is received and the client for whom money is
received in trust.
2.
A book of original entry showing all disbursements out of money held in
trust for a client and identifying each date on which money is disbursed,
the method by which money is disbursed, including the number or a
similar identifier of any document used to disburse money, the person to
whom money is disbursed, the amount of money which is disbursed, the
purpose for which money is disbursed and the client on whose behalf
money is disbursed.
3.
A clients’ trust ledger showing separately for each client for whom money
is received in trust all money received and disbursed and any
unexpended balance.
4.
A record showing all transfers of money between clients’ trust ledger
accounts and explaining the purpose for which each transfer is made.
5.
A book of original entry showing all money received, other than money
received in trust for a client, and identifying each date on which money is
received, the method by which money is received, the amount of money
which is received and the person from whom money is received.
6.
A book of original entry showing all disbursements of money, other than
money held in trust for a client, and identifying each date on which money
is disbursed, the method by which money is disbursed, including the
number or a similar identifier of any document used to disburse money,
52
the amount of money which is disbursed and the person to whom money
is disbursed.
7.
A fees book or a chronological file of copies of billings, showing all fees
charged and other billings made to clients and the dates on which fees
are charged and other billings are made to clients and identifying the
clients charged and billed.
8.
A record showing a comparison made monthly of the total of balances
held in the trust account or accounts and the total of all unexpended
balances of funds held in trust for clients as they appear from the financial
records together with the reasons for any differences between the totals,
and the following records to support the monthly comparisons:
i.
A detailed listing made monthly showing the amount of money
held in trust for each client and identifying each client for whom
money is held in trust.
ii.
A detailed reconciliation made monthly of each trust bank account.
9.
A record showing all property, other than money, held in trust for clients,
and describing each property and identifying the date on which the
licensee took possession of each property, the person who had
possession of each property immediately before the licensee took
possession of the property, the value of each property, the client for
whom each property is held in trust, the date on which possession of
each property is given away and the person to whom possession of each
property is given.
10.
Bank statements or pass books, cashed cheques and detailed duplicate
deposit slips for all trust and general accounts.
11.
Signed electronic trust transfer requisitions and signed printed
confirmations of electronic transfers of trust funds.
12.
Signed authorizations of withdrawals by Teranet and signed paper copies
of confirmations of withdrawals by Teranet.
Record keeping requirements if cash received
19.
(1)
Every licensee who receives cash shall maintain financial records in
addition to those required under section 18 and, as a minimum additional requirement,
shall maintain, in accordance with sections 21, 22 and 23, a book of duplicate receipts,
with each receipt identifying the date on which cash is received, the person from whom
cash is received, the amount of cash received, the client for whom cash is received and
any file number in respect of which cash is received and containing the signature of the
licensee or the person authorized by the licensee to receive cash and of the person from
whom cash is received.
No breach
(2)
A licensee does not breach subsection (1) if a receipt does not contain
the signature of the person from whom cash is received provided that the licensee has
made reasonable efforts to obtain the signature of the person from whom cash is
received.
53
Record keeping requirements if mortgages and other charges held in trust for
clients
20.
Every licensee who holds in trust mortgages or other charges on real property,
either directly or indirectly through a related person or corporation, shall maintain
financial records in addition to those required under section 18 and, as a minimum
additional requirement, shall maintain, in accordance with sections 21, 22 and 23, the
following records:
1.
2.
3.
A mortgage asset ledger showing separately for each mortgage or
charge,
i.
all funds received and disbursed on account of the mortgage or
charge,
ii.
the balance of the principal amount outstanding for each mortgage
or charge,
iii.
an abbreviated legal description or the municipal address of the
real property, and
iv.
the particulars of registration of the mortgage or charge.
A mortgage liability ledger showing separately for each person on whose
behalf a mortgage or charge is held in trust,
i.
all funds received and disbursed on account of each mortgage or
charge held in trust for the person,
ii.
the balance of the principal amount invested in each mortgage or
charge,
iii.
an abbreviated legal description or the municipal address for each
mortgaged or charged real property, and
iv.
the particulars of registration of each mortgage or charge.
A record showing a comparison made monthly of the total of the principal
balances outstanding on the mortgages or charges held in trust and the
total of all principal balances held on behalf of the investors as they
appear from the financial records together with the reasons for any
differences between the totals, and the following records to support the
monthly comparison:
i.
A detailed listing made monthly identifying each mortgage or
charge and showing for each the balance of the principal amount
outstanding.
ii.
A detailed listing made monthly identifying each investor and
showing the balance of the principal invested in each mortgage or
charge.
Financial records to be permanent
21.
(1)
The financial records required to be maintained under sections 18, 19 and
20 may be entered and posted by hand or by mechanical or electronic means, but if the
records are entered and posted by hand, they shall be entered and posted in ink.
54
Paper copies of financial records
(2)
If a financial record is entered and posted by mechanical or electronic
means, a licensee shall ensure that a paper copy of the record may be produced
promptly on the Society’s request.
Financial records to be current
22.
(1)
Subject to subsection (2), the financial records required to be maintained
under sections 18, 19 and 20 shall be entered and posted so as to be current at all
times.
Exceptions
(2)
The record required under paragraph 8 of section 18 and the record
required under paragraph 3 of section 20 shall be created within twenty-five days after
the last day of the month in respect of which the record is being created.
Preservation of financial records required under ss. 18 and 19
23.
(1)
Subject to subsection (2), a licensee shall keep the financial records
required to be maintained under sections 18 and 19 for at least the six year period
immediately preceding the licensee’s most recent fiscal year end.
Same
(2)
A licensee shall keep the financial records required to be maintained
under paragraphs 1, 2, 3, 8, 9, 10 and 11 of section 18 for at least the ten year period
immediately preceding the licensee’s most recent fiscal year end.
Preservation of financial records required under s. 20
(3)
A licensee shall keep the financial records required to be maintained
under section 20 for at least the ten year period immediately preceding the licensee’s
most recent fiscal year end.
Record keeping requirements when acting for lender
24.
(1)
Every licensee who acts for or receives money from a lender shall, in
addition to maintaining the financial records required under sections 18 and 20, maintain
a file for each charge, containing,
(a)
a completed investment authority, signed by each lender before the first
advance of money to or on behalf of the borrower;
(b)
a copy of a completed report on the investment;
(c)
if the charge is not held in the name of all the lenders, an original
declaration of trust;
(d)
a copy of the registered charge; and
(e)
any supporting documents supplied by the lender.
Exceptions
(2)
Clauses (1) (a) and (b) do not apply with respect to a lender if,
(a)
the lender,
(i)
is a bank listed in Schedule I or II to the Bank Act (Canada), a
licensed insurer, a registered loan or trust corporation, a
55
subsidiary of any of them, a pension fund, or any other entity that
lends money in the ordinary course of its business,
(ii)
has entered a loan agreement with the borrower and has signed a
written commitment setting out the terms of the prospective
charge, and
(iii)
has given the licensee a copy of the written commitment before
the advance of money to or on behalf of the borrower;
(b)
the lender and borrower are not at arm’s length;
(c)
the borrower is an employee of the lender or of a corporate entity related
to the lender;
(d)
the lender has executed the Investor/Lender Disclosure Statement for
Brokered Transactions, approved by the Superintendent under
subsection 54(1) of the Mortgage Brokerages, Lenders and
Administrators Act, 2006, and has given the licensee written instructions,
relating to the particular transaction, to accept the executed disclosure
statement as proof of the loan agreement;
(e)
the total amount advanced by the lender does not exceed $6,000; or
(f)
the lender is selling real property to the borrower and the charge
represents part of the purchase price.
Requirement to provide documents to lender
(3)
Forthwith after the first advance of money to or on behalf of the borrower,
the licensee shall deliver to each lender,
(a)
if clause (1) (b) applies, an original of the report referred to therein; and
(b)
if clause (1) (c) applies, a copy of the declaration of trust.
Requirement to add to file maintained under subs. (1)
(4)
Each time the licensee or any licensee of the same firm of licensees does
an act described in subsection (5), the licensee shall add to the file maintained for the
charge the investment authority referred to in clause (1) (a), completed anew and signed
by each lender before the act is done, and a copy of the report on the investment
referred to in clause (1) (b), also completed anew.
Application of subs. (4)
(5)
Subsection (4) applies in respect of the following acts:
1.
Making a change in the priority of the charge that results in a reduction of
the amount of security available to it.
2.
Making a change to another charge of higher priority that results in a
reduction of the amount of security available to the lender’s charge.
3.
Releasing collateral or other security held for the loan.
4.
Releasing a person who is liable under a covenant with respect to an
obligation in connection with the loan.
56
New requirement to provide documents to lender
(6)
Forthwith after completing anew the report on the investment under
subsection (4), the licensee shall deliver an original of it to each lender.
Requirement to add to file maintained under subs. (1): substitution
(7)
Each time the licensee or any other licensee of the same firm of licensees
substitutes for the charge another security or a financial instrument that is an
acknowledgment of indebtedness, the licensee shall add to the file maintained for the
charge the lender’s written consent to the substitution, obtained before the substitution is
made.
Exceptions
(8)
The licensee need not comply with subsection (4) or (7) with respect to a
lender if clause (2) (a), (b), (c), (e) or (f) applied to the lender in the original loan
transaction.
Investment authority: Form 9D
(9)
Form 9D.
The investment authority required under clause (1) (a) shall be in
Report on investment: Form 9E
(10) Subject to subsection (11), the report on the investment required under
clause (1) (b) shall be in Form 9E.
Report on investment: alternative to Form 9E
(11) The report on the investment required under clause (1) (b) may be
contained in a reporting letter addressed to the lender or lenders which answers every
question on Form 9E.
57
Form 9A
ELECTRONIC TRUST TRANSFER REQUISITION
Requisition (number)
Amount of funds to be transferred: (Specify amount.)
Re:
(Specify name of client.)
(Specify file reference number.)
Reason for payment: (Give reason for payment.)
Trust account to be debited:
Name of financial institution: (Specify name.)
Account number: (Specify number.)
Name of recipient: (Specify name.)
Account to be credited:
Name of financial institution: (Specify name.)
Branch name and address: (Specify name and address.)
Account number: (Specify number.)
Person requisitioning electronic trust transfer: (Print the person’s name.)
(Date)
(Signature of person requisitioning electronic trust transfer)
Additional transaction particulars:
(This section should be completed by the person entering the details of the transfer, after
he or she has entered the details of the transfer, and by the person authorizing the
transfer at the computer terminal, after he or she has authorized the transfer.)
Person entering details of transfer:
Name: (Print person’s name.)
(Signature of person entering details of transfer.)
Person authorizing transfer at computer terminal:
Name: (Print person’s name.)
Signature of person authorizing transfer at computer terminal.)
58
[SAMPLE]
FORM 9A
ELECTRONIC TRUST TRANSFER REQUISITION
Requisition #ET001
Amount of funds to be transferred: $626.30
Re:
Noir purchase from Blanc, 123 Main St., Anytown
Client: Nicky Noir
File No.: 10-43
Reason for payment: Fees ($500) disbursements ($54.25) and HST ($72.05) billed to
client
Trust account to be debited:
Name of financial institution: Bank of Ontario
Account number: 123456789
Name of recipient: Leslie Lawyer, General Account
Account to be credited:
Name of financial institution: Bank of Ontario
Branch name and address: 20 Downtown St., Anytown, ON Z9Y 2T2
Account number: 987654321
Person requisitioning electronic trust transfer: Leslie Lawyer
August 31, 2010
Leslie Lawyer
Additional transaction particulars:
Person entering details of transfer:
Name: Sandy Secretary
Sandy Secretary
Person authorizing transfer at computer terminal:
Name: Bobby Bookkeeper
Bobby Bookkeeper
59
FORM 9B
AUTHORIZATION OF WITHDRAWAL BY TERANET
Authorization (number)
Amount of funds to be withdrawn: (Specify amount.)
Re:
(Specify name of client.)
(Specify file reference number.)
Reason for withdrawal: (Give reason for withdrawal, e.g., payment of land transfer tax,
document registration fees.)
Trust account to be debited:
Name of financial institution: (Specify name.)
Account number: (Specify number.)
Person authorizing withdrawal: (Print the person’s name.)
(Date)
(Signature of person authorizing withdrawal)
60
[SAMPLE]
FORM 9B
AUTHORIZATION OF WITHDRAWAL BY TERANET
Authorization TW001
Amount of funds to be withdrawn: $2,367.60
Re:
Noir purchase from Blanc, 456 Route St., Anytown
Client: Nicky Noir
File No. 10-43
Reason for withdrawal: LTT ($2,225.00), Reg’n fees - Transfer/Charge ($71.30 x 2)
Trust account to be debited:
Name of financial institution: Bank of Ontario
Account number: 456789123
Person authorizing withdrawal: Leslie Lawyer
August 30, 2010
Leslie Lawyer
61
FORM 9C
ELECTRONIC TRUST TRANSFER REQUISITION: CLOSING FUNDS
Requisition (number)
Amount of funds to be transferred: (Specify amount.)
Re:
(Specify name of client.)
(Specify file reference number.)
Reason for payment: (Give reason for payment.)
Trust account to be debited:
Name of financial institution: (Specify name.)
Account number: (Specify number.)
Name of recipient: (Specify name.)
Account to be credited:
Name of financial institution: (Specify name.)
Branch name and address: (Specify name and address.)
Account number: (Specify number.)
Person requisitioning electronic trust transfer: (Print the person’s name.)
(Date) (Signature of person requisitioning electronic trust transfer)
Person carrying out electronic trust transfer:
Name: (Print person’s name.)
(Signature of person carrying out electronic trust transfer.)
62
[SAMPLE]
FORM 9C
ELECTRONIC TRUST TRANSFER REQUISITION: CLOSING FUNDS
Requisition #ETCR001
Amount of funds to be transferred: $134,716.83
Re:
Noir purchase from Blanc, 456 Route St., Anytown
Client: Nicky Noir
File No.: 10-43
Reason for payment: Balance due on closing payable to solicitor for vendor
Trust account to be debited:
Name of financial institution: Bank of Ontario
Account number: 123456789
Name of recipient: Sydney Solicitor, Barrister & Solicitor
Account to be credited:
Name of financial institution: Bank of Ontario
Branch name and address: Pine & Cedar, 32 Pine St., Anytown
Account number: 987654321
Person requisitioning electronic trust transfer: Leslie Lawyer
August 30, 2010
Leslie Lawyer
Person carrying out electronic trust transfer:
Name: Sandy Secretary
Sandy Secretary
63
FORM 9D
INVESTMENT AUTHORITY
(Note to lawyer: This form is required in a private mortgage transaction whether or not
the mortgage was arranged by you. Please have your client complete every point on
this form, with “n/a” being noted if the point is not applicable. This form may be entered
on a word processor. For the definition of mortgage broker and other terms found in the
clause of the Lawyers' Professional Indemnity Company Policy found at the bottom of
this form, please refer to the policy.)
To: (Specify name of lawyer or law firm)
I (or we) instruct you to act on my (or our) behalf, on my (or our) mortgage investment
(or investments) of (specify amount), the details, conditions and disclosures of which are
set out below.
A.
DETAILS ABOUT THE INVESTMENT:
1.
Name and address of borrower (or borrowers): (specify)
2.
Name and address of guarantor (or guarantors) (if any): (specify)
3.
Legal description and municipal address of real property: (specify)
4.
Type of property: (specify, e.g., residence, vacant land, etc.)
5.
(a)
Principal amount of mortgage or charge: (specify)
(b)
Amount of loan to be advanced by me (or us): (specify)
6.
Rank of mortgage or charge is first (or specify other rank).
7.
My (or our) investment of (specify amount) represents (specify percentage) of the total
loan to the borrower (or borrowers).
8.
(a)
I am (or we are) satisfied that the approximate value of the property is (specify
amount).
(b)
I (or we) used the following means to determine the approximate value of the
property: (specify).
(c)
Including my (or our) mortgage amount, the percentage of the value of the
property that is mortgaged (or /encumbered) is (specify percentage).
(a)
The term of loan is (specify term of loan in months, years, etc.).
(b)
The due date of loan is (specify date).
(c)
The loan is amortized over (specify number of years).
9.
64
10. The interest rate is (specify interest rate) calculated semi annually, not in advance (or
specify how interest rate is calculated).
11. Particulars of amounts and due dates (monthly, quarterly, etc.) of payments of
principal and interest: (specify)
12. Particulars and amounts of any bonus or holdback or any other special terms:
(specify)
13. (a)
The mortgage is to be registered in the name (or names) of (specify name or
names).
(b)
After completion of the mortgage transaction, a collection or administration
fee of (specify amount) per instalment is payable by the investor (or
investors) (or borrower) (or borrowers) to (specify recipient of fee).
(c)
If the mortgage is held in trust, the dates on which payments are to be made
by the trustee (if applicable) to me (or us) are: (specify dates)
14. Particulars of disbursements made for legal, brokerage or other fees or
commissions in connection with the placement of the loan, including the names of
recipients and amounts paid, are: (specify)
B.
CONDITIONS:
1.
(Instructions: Clauses (a) and (b) below refer to information which each investor
may require from the lawyer. If you require the information referred to in a clause,
initial the clause.)
The information which I (or we) require from you as my (or our) lawyer before you
complete the transaction and make the advance is as follows:
2.
(a)
If my (or our) investment will be in a position other than a first mortgage or
charge, details, including amounts, of all existing encumbrances outstanding.
(b)
If the mortgage or charge is a syndicated mortgage, and a prospectus is
necessary, a copy of the prospectus. We acknowledge and accept that you
as my (or our) lawyer express no opinion as to the necessity for or validity of
a prospectus.
(Instructions: Each investor to complete and initial clause (a) and, if clause (a) is
answered in the affirmative, to complete (if necessary) and initial clause (b) and to
initial clause (c).)
(a)
I (or we) instruct you to obtain a current and independent appraisal of the
subject property and provide it to me (or us) before you complete this
mortgage transaction. (Specify yes or no.)
(b)
The appraisal is to be paid by me (or us) or (specify name of person who is to
pay for appraisal).
(c)
I (or we) have been advised and accept that you as my (or our) lawyer do not
express an opinion as to the validity of the appraisal.
65
C.
DISCLOSURE:
1.
I (or we) acknowledge being advised by you as my (or our) lawyer that you do not
have any direct or indirect interest in the borrower (or borrowers). (Specify yes or no
and indicate the date on which the lawyer advised you that he or she has no direct or
indirect interest in the borrower or borrowers.)
(If the lawyer has an interest in the borrower or borrowers, he or she is unable to
act for you on this loan (Rule 7, Rules of Professional Conduct).)
(Warning:
1.
You are cautioned that the responsibility for assessing the financial merits of the
mortgage investment rests with the investor or investors at all times. The lawyer's
responsibility is limited to ensuring the mortgage is legally registered on title in
accordance with the investor's or investors’ instructions. The lawyer is not
permitted to personally guarantee the obligations of the borrower or borrowers nor
the suitability of the property as security for the mortgage investment.
2.
Any loss you may suffer on this mortgage investment will not be insured under the
lawyer’s professional liability policy if the lawyer has acted as a mortgage broker or
has helped to arrange it.*)
I (or we) hereby acknowledge receipt of a copy of this form prior to the advance of funds
to or on behalf of the borrower (or borrowers). I (or we) further acknowledge having read
and understood the above warnings.
Investor (or Investors):
(Specify full name of the investor (or full names of the investors) and specify the investor’s (or
each investor’s) address.)
(Signature of the investor (or of each investor))
(Date of signature)
*(Pursuant to clause (g) of Part III of the Professional Liability Insurance Policy for
Lawyers, the policy does not apply “to any CLAIM directly or indirectly arising as a result
of the INSURED acting as a MORTGAGE BROKER or as an intermediary arranging any
financial transaction usual to mortgage lending; or to any CLAIM arising from
circumstances where the INSURED has provided PROFESSIONAL SERVICES in
conjunction with the above.”)
66
[SAMPLE]
FORM 9D
INVESTMENT AUTHORITY
(Note to lawyer: This form is required in a private mortgage transaction whether or not
the mortgage was arranged by you. Please have your client complete every point on
this form, with “n/a” being noted if the point is not applicable. This form may be entered
on a word processor. For the definition of mortgage broker and other terms found in the
clause of the Lawyers' Professional Indemnity Company Policy found at the bottom of
this form, please refer to the policy.)
To: (Specify name of lawyer or law firm) Leslie Lawyer
I (or we) instruct you to act on my (or our) behalf, on my (or our) mortgage investment
(or investments) of (specify amount) $40,000.00, the details, conditions and disclosures of
which are set out below.
A.
DETAILS ABOUT THE INVESTMENT:
1.
Name and address of borrower (or borrowers): (specify)
Terry Taylor, 123 Main St., Anytown, ON Z9Y 8X7
2.
Name and address of guarantor (or guarantors) (if any): (specify)
Kerry Taylor, 987 Townline Rd., Anytown, ON Z9Y 6W5
3.
Legal description and municipal address of real property: (specify)
Lot 10, Plan 20, Town of Anytown, County of Plenty
123 Main St., Anytown, ON, Z9Y 8X7
4.
Type of property: (specify, e.g., residence, vacant land, etc.) Residence
5.
(a) Principal amount of mortgage or charge: (specify) $40,000.00
(b) Amount of loan to be advanced by me (or us): (specify) $40,000.00
6.
Rank of mortgage or charge is first (or specify other rank) 2nd (after payout and
discharge of existing second mortgage)
7.
My (or our) investment of (specify amount) $40,000.00 represents (specify percentage)
100% of the total loan to the borrower (or borrowers).
8.
(a) I am (or we are) satisfied that the approximate value of the property is (specify
amount) $250,000.00
(b) I (or we) used the following means to determine the approximate value of the
property: (specify) Arm’s length sale of property for $250,000 in February
2010
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(c) Including my (or our) mortgage amount, the percentage of the value of the
property that is mortgaged (or /encumbered) is (specify percentage) 66% (after
payout of existing second mortgage)
9.
(a) The term of loan is (specify term of loan in months, years, etc.) 1 Year.
(b) The due date of loan is (specify date) September 1, 2011.
(c) The loan is amortized over (specify number of years) 15 Years.
10. The interest rate is (specify interest rate) 5.5% calculated semi annually, not in
advance (or specify how interest rate is calculated).
11. Particulars of amounts and due dates (monthly, quarterly, etc.) of payments of
principal and interest: (specify) $370.80 on the first day of each month
12. Particulars and amounts of any bonus or holdback or any other special terms:
(specify) N/A
13. (a) The mortgage is to be registered in the name (or names) of (specify name or
names).
Kim Kirby
(b) After completion of the mortgage transaction, a collection or administration fee
of (specify amount) N/A per instalment is payable by the investor (or investors)
(or borrower) (or borrowers) to (specify recipient of fee) N/A.
(c) If the mortgage is held in trust, the dates on which payments are to be made
by the trustee (if applicable) to me (or us) are: (specify dates) N/A
14. Particulars of disbursements made for legal, brokerage or other fees or
commissions in connection with the placement of the loan, including the names of
recipients and amounts paid, are: (specify) Legal fees $400.00, Disbursements
$70.00, HST $53.30, payable to Leslie Lawyer
B.
CONDITIONS:
1.
(Instructions: Clauses (a) and (b) below refer to information which each investor
may require from the lawyer. If you require the information referred to in a clause,
initial the clause.)
The information which I (or we) require from you as my (or our) lawyer before you
complete the transaction and make the advance is as follows:
(a) If my (or our) investment will be in a position other than a first mortgage or
charge, details, including amounts, of all existing encumbrances outstanding.
“KK”
(b) If the mortgage or charge is a syndicated mortgage, and a prospectus is
necessary, a copy of the prospectus. We acknowledge and accept that you as
my (or our) lawyer express no opinion as to the necessity for or validity of a
prospectus.
68
2.
(Instructions: Each investor to complete and initial clause (a) and, if clause (a) is
answered in the affirmative, to complete (if necessary) and initial clause (b) and to
initial clause (c).)
(a) I (or we) instruct you to obtain a current and independent appraisal of the
subject property and provide it to me (or us) before you complete this mortgage
transaction. (Specify yes or no.) No “KK”
(b) The appraisal is to be paid by me (or us) or (specify name of person who is to pay
for appraisal). N/A
(c) I (or we) have been advised and accept that you as my (or our) lawyer do not
express an opinion as to the validity of the appraisal. N/A
C.
DISCLOSURE:
1.
I (or we) acknowledge being advised by you as my (or our) lawyer that you do not
have any direct or indirect interest in the borrower (or borrowers). (Specify yes or no
and indicate the date on which the lawyer advised you that he or she has no direct or
indirect interest in the borrower or borrowers.) Yes, Aug 8, 2010
(If the lawyer has an interest in the borrower or borrowers, he or she is unable to
act for you on this loan (Rule 7, Rules of Professional Conduct).)
(Warning:
1.
You are cautioned that the responsibility for assessing the financial merits of the
mortgage investment rests with the investor or investors at all times. The lawyer's
responsibility is limited to ensuring the mortgage is legally registered on title in
accordance with the investor's or investors’ instructions. The lawyer is not
permitted to personally guarantee the obligations of the borrower or borrowers nor
the suitability of the property as security for the mortgage investment.
2.
Any loss you may suffer on this mortgage investment will not be insured under the
lawyer’s professional liability policy if the lawyer has acted as a mortgage broker or
has helped to arrange it.*)
I (or we) hereby acknowledge receipt of a copy of this form prior to the advance of funds
to or on behalf of the borrower (or borrowers). I (or we) further acknowledge having read
and understood the above warnings.
Investor (or Investors): Kim Kirby
456 Avenue Rd., Anytown, ON Z9Y 4V3
(Specify full name of the investor (or full names of the investors) and specify the investor’s (or
each investor’s) address.)
(Signature of the investor (or of each investor))
(Date of signature) August 30, 2010
69
Kim Kirby
*(Pursuant to clause (g) of Part III of the Professional Liability Insurance Policy for
Lawyers, the policy does not apply “to any CLAIM directly or indirectly arising as a result
of the INSURED acting as a MORTGAGE BROKER or as an intermediary arranging any
financial transaction usual to mortgage lending; or to any CLAIM arising from
circumstances where the INSURED has provided PROFESSIONAL SERVICES in
conjunction with the above.”)
70
FORM 9E
REPORT ON THE INVESTMENT
(Note to lawyer: In all private mortgage transactions, whether or not the mortgage was
arranged by you, you must complete this form, or, alternatively, you must complete a
reporting letter which includes responses to all numbered items in this form. If you
complete this form, you must complete every numbered item on this form, with “n/a”
being entered if the numbered item is not applicable. If you complete a reporting letter,
you must respond to all numbered items in this form in your reporting letter. If a
numbered item is not applicable, you must include it in your reporting letter and indicate
that it is not applicable. After completion, an original of this form, or the reporting letter,
must be delivered forthwith to each lender. This form may be entered on a word
processor. For the definition of mortgage broker and other terms found in the clause of
the Lawyers' Professional Indemnity Company Policy found at the bottom of this form,
please refer to the policy.)
To: (Specify name and address of investor.)
A.
Details about the investment:
1.
Name and address of borrower (or borrowers): (specify)
2.
Name and address of guarantor (or guarantors) (if any): (specify)
3.
Legal description and municipal address of real property: (specify)
4.
Type of property: (specify, e.g., residence, vacant land, etc.)
5.
(a) Principal amount of mortgage or charge: (specify)
(b) Amount of loan advanced by you: (specify)
6.
Rank of mortgage or charge is first (or specify other rank).
7.
Your investment of (specify amount) represents (specify percentage) of the total of this
loan to the borrower (or borrowers).
8.
Date principal advanced: (specify)
9.
(a) The term of loan is (specify term of loan in months, years, etc.).
(b) The due date of the loan is (specify date).
(c) The loan is amortized over (specify number of years).
10. The interest rate is (specify interest rate) calculated semi annually, not in advance (or
specify how interest rate is calculated).
11. Particulars of amounts and due dates (monthly, quarterly, etc.) of payments of
principal and interest: (specify)
71
12. Particulars and amounts of any bonus or holdback or any other special terms:
(specify)
13. Details of any existing encumbrances, including rank on title, balances outstanding,
mortgagee name and maturity dates: (specify)
14. In those instances in which the mortgage or charge is a collateral security, or if the
mortgage or charge is collaterally secured, the details of other security are:
(specify)
15. (a) Particulars of disbursements made for legal, brokerage or other fees or
commissions in connection with the placement of the loan, including the names
of recipients and amounts paid, are: (specify)
(b) Alternatively, I have advised I cannot confirm what independent commissions
or fees are being charged to the borrower.
16. Registration number, date of registration and land registry office location: (specify)
17. Insurance particulars (where relevant): (specify)
B.
CONDITIONS AND DISCLOSURE:
In accordance with your Form 18A [Investment Authority] request for information and
disclosures prior to the advance of your money, I advise that I have previously provided
you with the requested information and disclosures as follows:
1.
Particulars of existing encumbrances outstanding: (Specify yes or no, and if yes,
2.
In the case of a syndicated mortgage where a prospectus was required, a copy of
the prospectus: (Specify yes or no, and if yes, specify date on which prospectus was
specify date on which particulars were provided.)
provided.)
I advised and you acknowledged that I gave no opinion as to the necessity or
validity of a prospectus.
3.
Independent appraisal: (Specify yes or no, and if yes, specify date on which independent
appraisal was provided.)
I advised and you acknowledged that I gave no opinion as to the necessity or
validity of an appraisal.
4.
Any loss you may suffer on this mortgage investment will not be insured under the
lawyers' professional liability policy if the lawyer has acted as a mortgage broker or
has helped to arrange it.*
I advised and you acknowledged having read and understood this warning.
72
(Warning: You are cautioned that the responsibility for assessing the financial merits of
the mortgage investment rests with the investor at all times. The lawyer's responsibility
is limited to ensuring the mortgage is legally registered on title in accordance with the
investor's instructions. The lawyer is not permitted to personally guarantee the
obligations of the borrower or borrowers nor the suitability of the property as security for
the mortgage investment.
(Name of lawyer or law firm)
(Address of lawyer or law firm)
(Signature of lawyer)
(Date of signature)
*(Pursuant to clause (g) of Part III of the Professional Liability Insurance Policy for
Lawyers, the policy does not apply “to any CLAIM directly or indirectly arising as a result
of the INSURED acting as a MORTGAGE BROKER or as an intermediary arranging any
financial transaction usual to mortgage lending; or to any CLAIM arising from
circumstances where the INSURED has provided PROFESSIONAL SERVICES in
conjunction with the above”.)
73
[SAMPLE]
FORM 9E
REPORT ON THE INVESTMENT
(Note to lawyer: In all private mortgage transactions, whether or not the mortgage was
arranged by you, you must complete this form, or, alternatively, you must complete a
reporting letter which includes responses to all numbered items in this form. If you
complete this form, you must complete every numbered item on this form, with “n/a”
being entered if the numbered item is not applicable. If you complete a reporting letter,
you must respond to all numbered items in this form in your reporting letter. If a
numbered item is not applicable, you must include it in your reporting letter and indicate
that it is not applicable. After completion, an original of this form, or the reporting letter,
must be delivered forthwith to each lender. This form may be entered on a word
processor. For the definition of mortgage broker and other terms found in the clause of
the Lawyers' Professional Indemnity Company Policy found at the bottom of this form,
please refer to the policy.)
To: (Specify name and address of investor.)
Kim Kirby
456 Avenue Rd., Anytown, ON Z9Y 4V3
A.
DETAILS ABOUT THE INVESTMENT:
1.
Name and address of borrower (or borrowers): (specify)
Terry Taylor, 123 Main St., Anytown, ON Z9Y 8X7
2.
Name and address of guarantor (or guarantors) (if any): (specify)
Kerry Taylor, 987 Townline Rd., Anytown, ON Z9Y 6W5
3.
Legal description and municipal address of real property: (specify)
Lot 10, Plan 20, Town of Anytown, County of Plenty
123 Main St., Anytown, ON, Z9Y 8X7
4.
Type of property: (specify, e.g., residence, vacant land, etc.) Residence
5.
(a) Principal amount of mortgage or charge: (specify) $40,000.00
(b) Amount of loan advanced by you: (specify) $40,000.00
6.
Rank of mortgage or charge is first (or specify other rank). 2nd (after payout and
discharge of existing second mortgage)
7.
Your investment of (specify amount) $40,000.00 represents (specify percentage) of the
total of this loan to the borrower (or borrowers). 100%
8.
Date principal advanced: (specify) September 1, 2010
74
9.
(a) The term of loan is (specify term of loan in months, years, etc.). 1 Year
(b) The due date of the loan is (specify date). September 1, 2011
(c) The loan is amortized over (specify number of years). 15 Years
10. The interest rate is (specify interest rate) calculated semi annually, not in advance (or
specify how interest rate is calculated). 5.5%
11. Particulars of amounts and due dates (monthly, quarterly, etc.) of payments of
principal and interest: (specify) $370.80 on the first day of each month.
12. Particulars and amounts of any bonus or holdback or any other special terms:
(specify) N/A
13. Details of any existing encumbrances, including rank on title, balances outstanding,
mortgagee name and maturity dates: (specify) Existing first mortgage, balance
of $121,945.74 at August 1, 2010, payable to Ontario Bank, Maturing February
1, 2011. Existing second mortgage to be paid out from mortgage advance,
balance owing at September 1, 2010 is $33,742.83.
14. In those instances in which the mortgage or charge is a collateral security, or if the
mortgage or charge is collaterally secured, the details of other security are:
(specify) N/A
15. (a) Particulars of disbursements made for legal, brokerage or other fees or
commissions in connection with the placement of the loan, including the names
of recipients and amounts paid, are: (specify) Legal fees $400.00,
disbursements $70.00, HST $53.30, payable to Leslie Lawyer.
(b) Alternatively, I have advised I cannot confirm what independent commissions
or fees are being charged to the borrower. N/A
16. Registration number, date of registration and land registry office location: (specify)
Registration No. 987321, September 1, 2010, LRO for County of Plenty,
Anytown
17. Insurance particulars (where relevant): (specify) Ontario Insurance Company,
Homeowners Policy No. 789123
B.
CONDITIONS AND DISCLOSURE:
In accordance with your Form 18A [Investment Authority] request for information and
disclosures prior to the advance of your money, I advise that I have previously provided
you with the requested information and disclosures as follows:
1.
Particulars of existing encumbrances outstanding: (Specify yes or no, and if yes,
specify date on which particulars were provided.) Yes, August 9, 2010
75
2.
In the case of a syndicated mortgage where a prospectus was required, a copy of
the prospectus: (Specify yes or no, and if yes, specify date on which prospectus was
provided.) No, N/A
I advised and you acknowledged that I gave no opinion as to the necessity or
validity of a prospectus.
3.
Independent appraisal: (Specify yes or no, and if yes, specify date on which independent
appraisal was provided.) No, N/A
I advised and you acknowledged that I gave no opinion as to the necessity or
validity of an appraisal.
4.
Any loss you may suffer on this mortgage investment will not be insured under the
lawyers' professional liability policy if the lawyer has acted as a mortgage broker or
has helped to arrange it.*
I advised and you acknowledged having read and understood this warning.
(Warning: You are cautioned that the responsibility for assessing the financial merits of
the mortgage investment rests with the investor at all times. The lawyer's responsibility
is limited to ensuring the mortgage is legally registered on title in accordance with the
investor's instructions. The lawyer is not permitted to personally guarantee the
obligations of the borrower or borrowers nor the suitability of the property as security for
the mortgage investment.)
(Name of lawyer or law firm)
Leslie Lawyer
(Address of lawyer or law firm)
10 Downtown St.
Anytown, ON Z9Y 2T1
(Signature of lawyer)
Leslie Lawyer
(Date of signature)
September 3, 2010
*(Pursuant to clause (g) of Part III of the Professional Liability Insurance Policy for
Lawyers, the policy does not apply “to any CLAIM directly or indirectly arising as a result
of the INSURED acting as a MORTGAGE BROKER or as an intermediary arranging any
financial transaction usual to mortgage lending; or to any CLAIM arising from
circumstances where the INSURED has provided PROFESSIONAL SERVICES in
conjunction with the above”.)
76
LETTER OF DIRECTION
To: The Manager,
Name of Bank:
(Name of chartered bank, provincial savings office, registered trust company, credit union or
caisse populaire)
Branch: ______________________________________________________________________
Address: ______________________________________________________________________
Re:
The Law Foundation of Ontario and Account No.
The above account is ___ in my name
___ in the name of the firm with which I am associated
In accordance with Section 57 of the Law Society Act, I direct you, until further notice, to
compute the amount earned by applying to the balance in the above account the rate of interest
approved from time to time by the Trustees of The Law Foundation of Ontario. Please pay into an
account held in your main office in Ontario in the name of The Law Foundation of Ontario
amounts so calculated and give written notice to me at the address shown on the above account
and to The Law Foundation of Ontario, 20 Queen Street West, Suite 3002, Box #19, Toronto,
Ontario, M5H 3R3, when each such payment is made. This notice should show, as applicable as
per the terms of the interest agreement between the LFO and your financial institution, the
amount of the payment, the amounts of the daily/monthly balances, and the rates of interest used
in computing the payment.
Dated: the day of _____ , _______________ , 20
(Signed)
Firm Name:
Address:
77
Form 2: Report on Opening a Mixed Trust Account
Version date: February 1, 2008 (effective January 1, 2009)
To be completed by all licensees (lawyers and paralegals) responsible for client trust monies in a
mixed trust account.
I advise that I have directed my bank to pay to The Law Foundation of Ontario, in accordance with section
57 of the Law Society Act, interest on the following account:
Name of Financial Institution where mixed
trust account was opened:
Branch Address of Financial Institution:
Transit number:
Account number:
Name in which account is held:
Name and address of Firm:
Date on which the account was opened:
Signature
Date
Licensee’s Name (in print)
Law Society licensee number
Notes:
1. This Form must be submitted to the LFO within 30 days of opening a mixed trust account.
This completed Form may be submitted by mail, email (filings@lawfoundation.on.ca) or
by fax (416-598-1526).
2. Submission of this Form does not substitute for submission of the Form 1: Annual Report to
The Law Foundation of Ontario.
Form 3: Report on Closing a Mixed Trust Account
Version date: February 1, 2008 (effective January 1, 2009)
To be completed by all licensees (lawyers and paralegals) responsible for client trust monies
in a mixed trust account.
Name of Financial Institution where mixed
trust account was held:
Branch Address of Financial Institution:
Transit number:
Account number:
Name in which account was held:
Name and address of Firm:
Date on which the account was closed:
Signature
Date
Licensee’s Name (in print)
Law Society licensee number
Notes:
1. This Form must be submitted to the LFO within 30 days of closing a mixed trust account.
This completed Form may be submitted by mail, email (filings@lawfoundation.on.ca) or
by fax (416-598-1526).
2. Submission of this Form does not substitute for submission of the Form 1: Annual Report to
The Law Foundation of Ontario for the final year.
3. If the balance of the closed account has been transferred to a newly opened mixed trust
account, you must file a Form 2: Report on Opening a Mixed Trust Account.
PAYMENT OF REGISTRATION FEES AND LAND TRANSFER TAX
Background
The Teraview Electronic Registration Systems Agreement (“the Teraview agreement”)
requires an account holder to designate an account from which Teranet is authorized to
withdraw registration fees and land transfer tax which are incurred when the account
holder uses Teraview to submit documents for registration. The Teraview agreement
refers to this account as “the electronic registration bank account” or “ERBA”.
The Teraview agreement provides that the submission of instructions for registration of
documents on-line in electronic format is deemed to be an authorization to Teranet to
debit predetermined sums representing registration fees and land transfer tax from the
electronic registration bank account.
With the roll-out of the Teraview Electronic Registration System (“Teraview”), the Law
Society had to consider payment methods which adhered to our regulatory and statutory
scheme for the payment of land transfer tax and registration fees.
Designation of a trust account as the Electronic Registration Bank Account
The Law Society By-laws have always permitted the payment of registration fees and
land transfer tax from a lawyer's general account. With the roll-out of e-reg., the Law
Society was asked to consider how these payments could be made from a lawyer’s trust
account.
Designation of Mixed Trust Account
The designation of the lawyer’s existing mixed trust account as the electronic registration
bank account was determined not to be a viable alternative for two reasons:
(1)
The Law Society By-laws (except in exceptional circumstances) do not permit nonlawyers to transact trust funds. In electronic registration, non-lawyers would be
registering documents and thereby would be transacting trust funds; and
(2)
The Law Society By-laws prohibit a third party from having unilateral access to a
lawyer’s trust account. In electronic registration, Teranet would have the
authorization to debit the electronic registration bank account.
The Law Society was faced with the task of determining a method that would both
preserve a comparable degree of protection and integrity over client funds in the trust
account and provide flexibility for lawyers.
In 1999, Convocation approved amendments to the By-Laws to permit the use of a
special trust account for the payment of registration fees and land transfer taxes.
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Special Trust Account
What is a special trust account?
The special trust account acts as a clearing account. From a banking perspective, this
account resembles the mixed trust account commonly operated by lawyers. All the
requirements and restrictions applicable to lawyers’ trust accounts apply to this account.
This account, however, has some special features. These features are contained in
sections 15 and 16 of By-Law 9.
Requirements and Restrictions of the Special Trust Account
The following are some of the requirements and restrictions of the special trust account:
Deposit of Monies
(1)
A lawyer shall only deposit into the special trust account money received in trust for
a client for the purposes of paying the document registration fees and land transfer
tax - section 16 (1)(b)(i) of By-Law 9;
(2)
A lawyer shall only deposit into the special trust account exact sums of money
required to pay the document registration fees and land transfer tax related to the
client’s real estate transaction - section 16 (3), By-Law 9;
(3)
The money deposited into the special trust account must relate to a particular
client(s) and his, her or their real estate transaction - section 16 (1)(b)(i), By-Law 9;
Length of Time that Monies may Remain on Deposit
(1)
Money that is deposited into the special trust account shall not be kept in the
account for more than five days - section 16 (4), By-Law 9;
(2)
If the money is not properly withdrawn from the account by Teranet within five days
after the day on which it is paid into the account, the lawyer shall transfer the
money from that account into another trust account that is not a special trust
account (e.g., mixed trust account) - section 16 (4), By-Law 19;
Errors relating to Deposits
(1)
If more money than required to pay the document registration fees and land
transfer tax, through inadvertence , is paid into the special trust account, the lawyer
shall transfer the excess money from the special trust account into another trust
account that is not a special trust account- section 16 (3), By-Law 9;
Authorization of Withdrawal by Teranet - Form 9B
(1)
A lawyer prior to authorizing Teranet to withdraw the document registration fees
and land transfer tax from the special trust account, must prepare and sign an
authorization form as evidence that the lawyer has authorized the transfer of funds.
The authorization form must be in Form 9B - sections 15 (5) and (6), By-Law 9;
Confirmation from Teranet
(1)
A lawyer shall not authorize Teranet to withdraw document registration fees and
land transfer tax from the special trust account unless Teranet agrees to provide
81
the lawyer with a confirmation of the withdrawal. The confirmation must be
received by the lawyer not later than 5 p.m. on the day immediately after the day
on which the withdrawal is authorized by the lawyer - sections 15 (2) and (3), ByLaw 9 .
(2)
The confirmation shall contain the amount of money withdrawn from the special
trust account, the time and date that the authorization to withdraw is received by
Teranet and the time and date that the confirmation is sent to the lawyer - section
15 (4), By-Law 9.
Comparison of Authorization and Confirmation
(1) The lawyer must reconcile the information contained in the written authorization
(Form 9B) to that contained in the confirmation no later than 5 p.m. on the day
immediately after the day on which the confirmation is sent to the lawyer by:
producing a paper copy of the confirmation;
comparing the paper copy of the confirmation and the written authorization relating
to the withdrawal (Form 9B) to verify that money was withdrawn from the special
trust account by Teranet as authorized by the lawyer;
indicating on the paper copy of the confirmation the name of the client and the file
number if the paper copy does not contain this information; and
signing and dating the paper copy of the confirmation if the amounts reconcile. If
the amounts do not reconcile, Teranet must be contacted immediately and the
error must be corrected - section 15 (7), By-Law 9.
Payment of Registration Fees and Land Transfer Tax from the Special Trust Account
Registration fees and land transfer tax may be paid from the special trust account as
follows:
(1) Receipt of Funds From Client
When a lawyer receives one cheque payable to the lawyer or law firm in trust from the
client which comprises closing funds and money required for the payment of registration
fees and land transfer tax, the cheque must be deposited into the lawyer mixed trust
account. The lawyer then prepares a trust cheque drawn on his or her mixed trust
account in the amount of the registration fees and land transfer tax and deposits this
cheque into his or her special trust account.
If the lawyer receives a separate cheque in the amount of the registration fees and land
transfer tax from the client, then the lawyer may deposit this cheque directly into the
special trust account.
Monies deposited into the special trust account, however, may not be kept in this
account for more than five days. If money is received more than five days prior to
closing, the money must be deposited into the lawyer’s mixed trust account and then
transferred into the special trust account when required.
(2) Completion of Form 9B and Registration
The lawyer completes and signs Form 9B and submits instructions to Teranet for
registration.
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(3) Comparison of Form 9B to Confirmation
The lawyer prints the confirmation of registration and ensures that the amounts
contained in Form 9B match those contained in the confirmation. The time requirement,
contained in By-Law 9, for completion of this step must be complied with.
(4) Report to Client
The lawyer reports to the client and provides the client with a bill and full explanation of
the transaction of trust funds.
(Please refer to Appendix 1 - Diagram - Option 1 - Payment From New Mixed Trust
Account)
General Account
Land transfer tax and registration fees may also be paid from a lawyer’s general
account. A lawyer may use either his or her existing general account or may set up a
separate general account for this purpose. These expenses are treated like any other
general client disbursements. Where a lawyer has sufficient monies in his or her trust
account to the credit of the client in a particular matter and where the lawyer has
properly incurred an expense on behalf of that client, the lawyer may reimburse himself
or herself by withdrawing from his or her mixed trust account the amount of the expense
incurred and by depositing it into his or her general account.
Procedure when paying registration fees and land transfer tax from the general account
Registration fees and land transfer tax may be paid from the general account as follows:
(1) Receipt of Funds from Client
A lawyer receives the client’s money and deposits the money into the lawyer’s mixed
trust account.
(2) Registration
The lawyer submits instructions to Teranet to electronically register the documents and
by so doing authorizes Teranet to debit the general account.
(3) Transfer from the Mixed Trust Account to the General Account
A trust cheque is prepared to the law firm in the amount of the land transfer tax and
registration fees and is deposited into the lawyer’s general account. Please note that this
transfer from the mixed trust account to the general account can only be done after
Teranet has been authorized to withdraw funds from the general account.
(4) Report to the Client
The lawyer provides the client with a report and an account. Although it would be
preferable for the lawyer to send the client a disbursement account prior to reimbursing
himself or herself for the expense incurred on behalf of the client, it is not a requirement.
Please note, it is permissible to prepare and deposit a single cheque payable to the
lawyer or law firm for disbursements incurred by the lawyer relating to multiple
transactions and multiple clients provided that the amount of the disbursement relating to
each individual client is properly posted to that client ledger.
83
(Please refer to Appendix 1 - Diagram - Option 2 - Payment From Lawyer’s General
Account)
Which Option To Select - Trust Account or General Account
Both methods of payment are acceptable to the Law Society. A lawyer should select the
method that best suits his or her practice. A lawyer may wish to consider the following in
making a decision:
1.
The firm’s existing accounting procedures and systems;
2.
The size of the firm (number of lawyers);
3.
Whether the lawyer will be using support staff ;
4.
The manner in which the lawyer conducts his or her practice;
5.
The type of real estate practice that the lawyer operates - volume, types of
transactions handled by the lawyer’s office.
6.
How easy will it be to do the banking - the distance and hours of operation of the
bank.
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APPENDIX 1 – PAYMENT OF LTT AND REGISTRATION FEES
Option 1: Payment from New Mixed Trust Account
Receive
client funds
Deposit to
mixed trust
Move LTT and regional
monies to new client
trust account
Complete form
9B
If 2 cheques provided
only deposit LTT and
reg’n fees
Register Compare 9B to
e-reg summary
This form is for internal
purposes and is to be
kept in the lawyer’s file
Meet with client
Report to client
Ensure amounts match
and one form completed
for each folder of
documents
Send out reports
Option 2: Payment from Lawyer’s General Account
Receive client
funds
Deposit to mixed
trust
Prepare trust cheque to law firm
for LTT and registration fees
Register
Deposit trust cheque to
general account
Note: you can deposit
before sending account to
client as per By-Law 9
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Report to client
INTERNAL CONTROL SELF-ASSESSMENT GUIDE
Internal Controls are processes you put in place to help you run your practice more
efficiently by reducing the risk of errors and fraud.
This guide is designed primarily for sole practitioners and lawyers in small law firms who
may not have the resources to implement a formal control structure. However, many of
these suggestions can be used in any size law firm. Even with limited resources, you
can reduce the risks by:
 knowing how your law firm’s accounting system works
 being familiar with the Law Society’s record keeping requirements in By-Law 9
 knowing how to set up and maintain proper books and records
 being aware of the Law Society’s money handling requirements in By-Law 9
 being actively involved in the financial activities of your firm
 supervising the accounting and finance functions of your firm
You can easily implement many of the following recommendations in your firm. Please
note that while many of these recommendations are offered as suggestions, some are
Law Society requirements and must be implemented. You should be familiar with the
Law Society’s By-Laws and the Rules of Professional Conduct to ensure your firm’s
record keeping and money handling procedures are in compliance with them. You can
view the Law Society’s By-Laws and the Rules of Professional Conduct at
www.lsuc.on.ca.
TRUST RECORDS
Goal:
To ensure clients’ money is promptly and accurately recorded in your firm’s financial
records in accordance with By-Law 9.
Risks:
 you are unable to meet your client trust obligations
 trust transactions are allocated to the incorrect client trust ledger account
 transaction errors go undetected.
Recommendations:
1.
Are your trust receipts and disbursements always up to date?
2.
Do you ensure that the trust comparison, which compares the reconciliation of the
trust bank account and the client trust listing, is prepared within 25 days of each
month end?
3.
Do you review the trust comparison, trust bank account statements, reconciliations
and the client trust listing each month?
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4.
When you review the monthly trust comparisons do you ensure that:
 The reconciliations have been prepared by the 25th of the following month?
 Reconciling items are listed individually and each one is clearly explained and
can be traced to the bank statement?
 The deposit book confirms any outstanding deposits listed on the trust bank
reconciliation were deposited the next banking day?
 Reconciling items, except outstanding cheques, are cleared promptly and do not
recur the next month?
 Uncashed cheques that are outstanding for more than two months are followed
up?
 Stop payments are requested on stale dated cheques over six months old, the
cheques are reversed, the client trust liability reinstated in the clients’ trust
ledger, and the cheque reissued if appropriate?
 The balance held in trust for each client on the client trust listing is correct?
 There are no overdrawn client trust ledger accounts?
 Funds in trust for completed matters have been billed to the proper clients, and
the funds either transferred to your general account or returned to the client as
appropriate?
 You have followed up on all client trust ledger account balances that have had
no activity in the past twelve months?
 All funds in the trust account are allocated to a client and that there are no
miscellaneous or suspense accounts or accounts in your name or the firm’s
name?
5.
Do you periodically check the clients’ trust ledger looking for unusual or incorrect
items?
6.
Do you ensure that you have adequate documentation, for example, the client’s
written instructions, to support the transfer of trust funds from one client's trust
ledger account to another client’s trust ledger account?
7.
Are all transfers of funds between client trust ledger accounts recorded in a trust
transfer journal as required by section 18(4) of By-Law 9?
8.
Does your trust bank statement clearly indicate that it is a trust account?
9.
Have you given a written direction to your financial institution to pay all interest on
your mixed trust account directly to The Law Foundation of Ontario as required by
section 57.1 of the Law Society Act?
10. Have you advised your financial institution in writing to deduct any service charges
for your mixed trust account from your general account?
11. Have you sent a completed Form 2: Report on Opening a Mixed Trust Account to
The Law Foundation of Ontario within 30 days of opening each mixed trust
account?
12. Have you sent a completed Form 3: Report on Closing a Mixed Trust Account to
The Law Foundation of Ontario within 30 days of closing each mixed trust account?
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13. If you make automatic banking machine (ABM) deposits, do you always print out
the ABM deposit receipts, attach them to your deposit book, and record the details
of the deposit (i.e. source of funds, client reference and amount) in your deposit
book?
14. Are credit card and debit card receipts from clients paying retainers for future fees
and disbursements always deposited directly to your trust account and the details
recorded in your trust deposit book?
15. Are credit card and debit card receipts from clients paying your invoices always
deposited directly to your general account and the details recorded in your general
deposit book?
SEGREGATION OF DUTIES AND HANDLING OF MONEY
Goal:
To ensure cash and cheque receipts are properly controlled and safeguarded.
Risks:
 funds received are lost
 funds received are not recorded
 funds received are stolen
Recommendations:
1.
Do you ensure that the individual who opens and reviews your firm’s mail, stamps
each cheque with a restrictive endorsements such as “deposit only” to reduce the
likelihood of fraud?
2.
If opening mail and depositing funds is assigned to staff in your firm, do you ensure
that one person opens the mail and a separate person deposits funds?
3.
If a staff member deposits the cash and cheques, does another person enter the
receipts in the accounting records?
4.
Do you ensure cash and cheque receipts are deposited by the end of the next
banking day and if they are not deposited immediately that they are locked in a safe
location?
5.
Do you review the stamped deposit slips to ensure each cheque is listed by source,
client reference and amount?
6.
Do you issue pre-numbered receipts to clients with a copy to accounting staff for all
cash and cheques received to:
 provide clients with proof of payment?
 ensure funds are posted to the correct client's account?
 reduce the risk of theft?
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7.
Does a person, other than the person who issues receipts for cash or cheques,
verify the numerical sequence of receipts to ensure that all funds receipted are also
recorded in the accounting records and deposited in the bank?
8.
If you are a partner in a law firm, do you have management controls in place to
monitor the handling of money to:
 scrutinize your firm’s trust and general bank account statements and returned
cheques for any unusual transactions?
 assess the reasonableness of the trust bank account balance(s)?
 review the monthly trust account reconciliation and list of outstanding items and
follow up on items over two months old and any stale-dated cheques over six
months old?
 review the client trust listing for overdrawn and inactive accounts and any
accounts not in the name of a client?
Petty Cash:
9.
If your firm uses petty cash, have you established a reasonable dollar amount for
your firm as petty cash?
10. Do you require pre-numbered written requests supported by original receipts for
petty cash?
11. Does the sum of petty cash on hand, plus the amounts in the written
requests/receipts, always total your firm’s established petty cash amount?
12. Do you ensure the petty cash account is reconciled monthly to the requests and
receipts for petty cash by a person independent of the person who handles the
petty cash?
13. Does your firm have a policy setting out what types of expenditures are acceptable
for petty cash disbursements?
DISBURSEMENTS
Goal:
To ensure that all withdrawals of money from the trust and general bank accounts are for
goods and services properly billed and authorized and that trust money is properly
disbursed in accordance with By-Law 9.
Risks:
 money could be erroneously or fraudulently withdrawn from bank accounts
 funds could be withdrawn from the incorrect client trust ledger account
 trust accounts could be overdrawn
 payments could be made twice
Recommendations:
A)
Cheque Preparation Policies
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1.
Are original copies of invoices stamped "paid" to prevent invoices being paid more
than once?
2.
Are only original invoices, and not photocopies, required as backup for cheques?
3.
Are your trust account cheques clearly marked “trust” and your general account
cheques marked “general”?
4.
Are your trust cheques and general cheques different colours to avoid confusion?
B)
Cheque Signing Policies
1.
Do you review the validity and reasonableness of cheques before signing them?
2.
Do you check that there are adequate trust funds available for the related client
before signing cheques?
3.
Do you review the supporting documentation prior to signing cheques to ensure the
service was provided and billed, or the disbursement is proper?
4.
Do cheques issued on behalf of clients include a client reference to ensure the
disbursement is allocated to the proper client in your disbursement journal and
client ledger?
5.
Do cheques made payable to financial institutions include details of the transaction,
for example, a mortgage number?
6.
Do cheque stubs have sufficient detail to provide a trail to supporting
documentation?
7.
Are trust cheques always signed by at least one licensee of the Law Society who is
permitted to hold trust funds?
8.
Do you have a practice to never sign blank cheques?
9.
If you are in a partnership, do cheques above a certain dollar limit require more
than one partner’s signature?
10. If you are a sole practitioner, have you made arrangements with another licensee of
the Law Society who is entitled to hold trust funds, to sign cheques on your trust
account if you are unable to do so?
C)
Internet Banking and Automated Banking Machines (ABM)
1.
If you use Internet banking to transfer trust funds, do you ensure your firm is
following the procedure set out in section 12 of By-Law 9?
2.
Do you prepare a proper audit trail for electronic transfers, for example:
 does each electronic transfer start with a properly numbered, completed, and
signed Form 9A - Electronic Transfer Requisition?
 does each electronic Teranet withdrawal from a special trust account for
registration fees and Land Transfer tax, start with a properly numbered,
completed, and signed Form 9B - Authorization for Withdrawal by Teranet?
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 do you print the bank confirmation for each electronic transfer and Teranet
withdrawal, compare it to the requisition details for accuracy, then sign and date
the confirmation?
3.
Do you keep all electronic transfer requisitions (Form 9A), Teranet withdrawal
requisitions (Form 9B), and bank confirmations in numerical sequence with your
accounting records?
Note: By-Law 9 and Forms 9A and 9B can be viewed on the Law Society website at:
www.lsuc.on.ca
4.
If your financial institution offers automatic banking machine (ABM) access, have
you carefully read the ABM agreement and made sure you understand, and are
willing to accept, the risks and liabilities involved before signing the agreement?
5.
Have you confirmed that the ABM agreement for your trust account does not allow
any funds to be withdrawn unilaterally by your financial institution?
6.
Do you ensure that trust funds are never transferred or disbursed from an ABM?
7.
Is the ABM access card for your trust account encoded for deposits only?
8.
Do you keep your passwords to access and authorize ABM and Internet
transactions confidential?
D)
Cash Refunds
1. Do you prepare a proper audit trail when making cash refunds (such as when
required by section 6(e) of By-Law 9), for example:
Always obtaining a detailed receipt from the payee?
If using a withdrawal slip, requesting a duplicate copy of the withdrawal slip for
your records?
If issuing a cheque payable to yourself or your firm, noting the client file number
and that it is a cash withdrawal?
2. Do you obtain written instructions from the client on the method of refunding
BILLINGS
Goal:
To ensure that billings to clients for services rendered, are prepared promptly and
accurately, and are properly recorded in your books and records
Risks:





legal services not billed
invoice delivered to client but legal services not provided
errors in invoices to clients
revenue recorded in incorrect period
invoice to client posted to incorrect client ledger account
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Recommendations:
1.
Do you discuss the fees for legal services and the expected disbursements with
your client at the start of a matter?
2.
Do you confirm all fee arrangements in writing for all services in easy to understand
language?
3.
Do you bill work-in-progress within a specified time frame and according to your
agreement with the client?
4.
Do you review the appropriateness and accuracy of invoices to clients?
5.
Do you bill disbursements on a regular basis to maintain cashflow and prevent
allocation of personal disbursements to client ledger accounts?
6.
Do you check the original documents for accuracy before authorizing a request to
transfer a disbursement from one client ledger account to another client ledger
account?
7.
Do you ensure invoices for legal fees are mailed or delivered to clients before
transferring the fee amount from your trust bank account to your general bank
account?
8.
Are invoices to clients promptly recorded in your books and records as to date,
client and amount?
9.
Do you review the accounts receivable monthly to identify any credit balances
which may indicate that invoices to clients have not been prepared, mailed to the
client and entered in the client’s ledger account?
PROTECTION OF CLIENT ASSETS
Goal:
To protect physical assets, important documents and financial records from loss.
Risks:
 misappropriation of clients’ assets.
 inability to fulfill your financial obligations
Recommendations:
1.
Do you maintain an up to date inventory of valuable items and negotiable
documents held on behalf of clients in a Valuable Property Record as required by
section 18(9) of By-Law 9?
2.
Do you periodically check the physical existence of the valuable items, to ensure
items have not been lost, stolen, taken for personal use or used as collateral?
3.
Do you keep all unissued cheques locked up and ensure they are all accounted
for?
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4.
Are all issued cheques numerically accounted for in your trust and general
disbursement journals and do you follow up on any missing cheques?
5.
Do you print hard copies of your trust and general bank journals on a regular
basis, at least monthly, and store them in a secure, fire proof location so that you
can reconstruct your records in the event your computer crashes or your data is
corrupted?
6.
Do you print a hard copy of the client trust ledger account and review it for
accuracy whenever you bill the client?
PERSONNEL POLICIES
Goal:
To ensure you and your staff conduct yourselves in a professional manner and identify
and address conflict of interest situations.
Risks:
 inappropriate activities or conduct by lawyers or staff
 errors and Omissions and/or Compensation Fund claims
 fraudulent transactions are not identified or prevented
 decline in revenue
Recommendations:
1.
Do you have an adequate conflicts checking system, and does everyone in your
firm know how to use it?
2.
Do you conduct thorough reference checks before hiring lawyers and staff?
3.
Do you ensure all staff are aware of, and respect, the requirements for client
confidentiality?
4.
Does your firm require lawyers to disclose when they are acting as an executor or
estate trustee, or are exercising a power of attorney on matters that are not
reflected in the firm’s books and records?
5.
Do you ensure that any files of lawyers who act as executors of estates or in which
the lawyer exercises a power of attorney is subject to the same scrutiny as "firm"
files and that proper accounting records are being kept?
6.
Does your firm conduct periodic reviews of lawyer and staff work to identify:
 a lawyer or staff member who is consistently too busy to take holidays?
 a lawyer or staff member who appears to be living beyond his or her means,
including any sudden significant increase in advances of entertainment
expenditures, or large increases in unbilled disbursements?
 a lawyer whose production has fallen off for no apparent reason, or a lawyer
who appears withdrawn or nervous?
 a lawyer or staff member who often makes last minute requests for funds?
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SMALL BUSINESS COMPUTER CONTROLS
Goal:
To ensure financial data is protected and to ensure you will be able to continue to
practice in the event of a disruption.
Risks:
 misappropriation of funds
 unauthorized access to your financial records
 loss of data
 loss of clients and income during the recovery of operations after a disaster
Recommendations:
1.
Do you deal with a reputable software dealer to ensure that updates, service and
support are available?
2.
Do you have appropriate licenses for all the software on your firm’s computers?
3.
Do you back up your computer data daily so that when your hard drive crashes you
will lose only one day’s data?
4.
Do you have surge protectors for all your computers and modems?
5.
Do you know how to operate your computer and accounting systems?
6.
Do at least two people know how to operate your firm’s systems?
7.
Has your firm implemented segregation of duties in using the various functions in
your computer system?
8.
Are your computer systems password protected?
9.
Do you safeguard your system’s passwords to ensure client confidentiality?
10. Do you change passwords periodically?
11. Do you have adequate firewalls to prevent unauthorized access to your computer
through the Internet?
12. Does everyone in your office scan for viruses prior to installing or using software or
copying any file to the hard drives on your office computers?
13. Do you restrict access to your clients’ and your firm’s accounting information to
authorized personnel?
14. Do you have adequate insurance, including business interruption insurance and
insurance on records in storage?
15. Do you have a business recovery plan and procedures in place to ensure that:
 your hardware and software are safeguarded from loss or damage?
 electronic files are regularly backed-up and kept off-site?
 important financial documents and files are copied and stored off-site?
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16. Do you periodically test your business recovery plan to ensure it is effective?
And a final word of advice…
A system of internal controls will work only if it is understood, accepted and implemented
by everyone in your firm. We suggest you use this guide as a basis for discussion with
your partners, employed lawyers, staff, and accountants to set up appropriate internal
controls that will work for your practice.
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USE OF CREDIT CARDS IN THE LEGAL PRACTICE
Licensees may enter into agreements with financial institutions that offer credit card
services subject to certain conditions.
The definition of “money” in By-Law 9 includes “credit card sales slips” and provides that
credit card sales slips like other money received into trust, must be deposited to the
licensee’s trust account not later than the following banking day.
CONDITIONS
Accounts from which Discounts and Services Charges are to be Deducted
Any credit card agreement that licensees enter into must provide that all service
charges, discounts and other fees payable by the licensee to the financial institution are
to be deducted from the licensee’s general account and that no such charges are to be
deducted from the trust account. Licensees should note that most financial institutions
offering credit card services require the opening of accounts at one of their branches. If a
trust account is opened with a financial institution to facilitate the use of a particular
credit card, the financial institution must be directed to pay interest on the funds held in
trust to The Law Foundation of Ontario.
CONFIDENTIALITY
The sales slip may show the name of the lawyer or firm and its address, the necessary
code numbers and date. The nature of the legal services provided must not be
indicated, but only the words “legal services” plus a file number and a dollar amount.
Details of the services are to be provided to the client in the usual way.
AMOUNT MUST BE SHOWN
Licensee must not accept a charge card sales slip unless the amount of the charge has
been inserted at the time the client signs the sales slip.
PAYMENT OF RETAINERS
The words “trust account” must appear on the original credit card sales slip and the
credit card sales slip must be presented for deposit in the appropriate trust account in
accordance with By-Law 9. Normal accounting procedures are then to be followed in
transferring the funds from trust to general. Any refund is to be made by credit card
voucher. All service charges are to be deducted from the general account and the client
96
must receive full credit for the face amount of the credit card invoice. The credit card
company’s discount or fee is a cost of carrying on practice and is not to be
charged to the client.
The procedures of some credit card companies place licensees in conflict with
provisions in By-Law 9. Some credit card companies require merchants (including
lawyers) to designate only one account into which credit card payments are to be
deposited. Additionally, the discount charged by the company is automatically debited
from this account.
This process will not permit licensees to receive by credit card both retainers and
payments for billed fees and/or disbursements. Subsection 2(1) of By-Law 9 requires
licensees to deposit funds received in trust (e.g. retainers) into an account designated as
a trust account. Meanwhile, subsection 8(2) of By-Law 9 prohibits the deposit into trust,
funds that are “received by the licensee on account of fees for which a billing has been
delivered...” Consequently the use of one account for both purposes is not permissible.
Additionally, as with bank charges, the discount must be withdrawn from the licensee’s
general account.
Licensees are urged to canvass this issue with credit card companies that they are using
or contemplating using. If the company imposes the above restrictions, licensees can
only designate their general account and thus may only receive payments for billed fees
and/or disbursements.
TELEPHONE AUTHORIZATIONS
We are asked from time to time whether it is acceptable to take a client’s card number
over the telephone and process payment of the account that way. It could be acceptable
provided the lawyer has rendered the account before doing this. It is always preferable
to have the best possible paper trail in any financial dealings, and the signature of the
client on the sales slip is obviously the best proof one could have of the client’s
agreement to use this service.
The issue also arises as to whether it would be acceptable to renew a retainer in this
way. It is suggested that the firm would not wish to put itself at risk of having the client
deny that permission was given for this type of transaction and that if it is contemplated
that retainers would be renewed by telephone permission, this arrangement should be
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clearly set out in the written retainer. In fact we would suggest having the client
specifically initial the paragraph of the retainer that would permit this arrangement.
Reference should then be made to the paragraph headed “Payment of Retainers” set
out above, and the procedure therein followed. It is emphasized that the “paper trail” is
for the protection of the lawyer as much as for the protection of the client, and licensees
are urged to take care in their use of credit cards so that misunderstandings do not arise
between the firm and the client.
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PRIVATE MORTGAGES – RECORD KEEPING
What is a “private” mortgage?
A “private” mortgage is any mortgage not excepted by section 24(2) of By-Law 9. These
are funds, which are advanced usually from an individual, a corporate client or group of
clients, rather than funds advanced by a financial institution.
The following questions can help you determine if the transaction is classified as a
“private” mortgage:
Do you act for private lenders?
Do you receive money from private lenders?
Do you act on mortgages arranged through mortgage brokers or other third
parties?
Do you act for lenders on mortgages where the lender is not a financial
institution?
NOTE: Mortgage loans through RRSPs are not loans provided by a financial institution;
the lender is the plan holder.
I am confused as to what is considered to be acting for clients on a private
mortgage transaction and what is arranging a mortgage transaction?
Acting is the preparation and registration of documents pursuant to client instructions,
certifying title, reporting, charging a legal fee, etc. Arranging (not necessarily a business)
is being involved in the negotiations between the lender and borrower. A brokerage or
arranging fee may be charged. Merely giving the name, address and telephone number
of a lender to a borrower by itself does not constitute arranging a mortgage.
When are Forms 9D and 9E required?
The Forms are required whenever a lawyer "acts for or receives money from a lender"
(section 24(1) of By-Law 9). A lender is defined in section 1(1) of By-Law 9 as "a person
who is making a loan that is secured or to be secured by a charge, including a charge to
be held in trust directly or indirectly through a related person or corporation."
However, section 24(2) sets out the transactions in which the Forms are not required.
The exceptions are, where:
a)
the lender,
i.
is a bank listed in Schedule I or II to the Bank Act (Canada), a licensed
insurer, a registered loan or trust corporation, a subsidiary of any of them, a
pension fund, or any other entity that lends money in the ordinary course of
its business;
ii. has entered a loan agreement with the borrower and has signed a written
commitment setting out the terms of the prospective charge, and,
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iii. has given the licensee a copy of the written commitment before the advance
of money to or on behalf of the borrower;
(Note: all three conditions must apply)
b)
the lender and borrower are not at arm's length; [Note: "arm's length" is defined
in sec.1(1) of By-Law 9 as having the same meaning as in the Income Tax Act
(Canada)]
c)
the borrower is an employee of the lender or of a corporate entity related to the
lender;
d)
the lender has executed the Investor/Lender Disclosure Statement For Brokered
Transactions approved by the Superintendent under subsection 54 (1) of the
Mortgage Brokerages, Lenders and Administrators Act, 2006, and has given the
lawyer written instructions, relating to the particular transaction, to accept the
executed form as proof of the loan agreement;
e)
the total amount advanced by the lender does not exceed $6,000; or
f)
the lender is selling real property to the borrower and the charge represents part
of the purchase price.
See the Appendices for samples of completed Forms 9D and 9E.
What is the purpose of Forms 9D and 9E?
The Forms were developed to ensure documented communication between lawyers and
their clients. Written instructions reduce allegations of miscommunication and failure to
follow client instructions. The Law Society's goal is to ensure that the public is protected
and to reduce claims and complaints by lender/clients to the Lawyers' Professional
Indemnity Company and the Lawyers Fund for Client Compensation.
Form 9D contains the written instructions from the lender. It crystallizes the transaction
and is available for confirmation purposes in the event of an Errors & Omissions claim.
Form 9D is a prescribed form and may not be changed. Every point on the form must be
completed, with “N/A” being noted only if the point is not applicable, for example: Form
9D paragraphs 8a, 8b, and 8c are always applicable and should not be answered “N/A”;
the legal fees paid are to be specified and to whom paid in paragraph 14 of Form 9D and
paragraph 15 of form 9E, and the investor’s answer to question B2a must be initialed by
the investor. Form 9D must be signed and dated by the lender before the first advance
of money to or on behalf of the borrower.
Form 9E, or a reporting letter that answers all of the questions in Form 9E, is your report
to the lender and should be fully completed and dated after the mortgage registration
and sent to each lender within 60 days of the mortgage registration.
What if the mortgage is arranged through a mortgage broker?
While Forms 9D and 9E would normally be applicable, the transaction may be exempt
provided that the lender:
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a)
has executed the Investor/Lender Disclosure Statement for Brokered
Transactions, approved by the Superintendent under subsection 54(1) of the
Mortgage Brokerages, Lenders and Administrators Act, 2006,
and
b)
has given the licensee written instructions, relating to the particular transaction,
to accept the executed form as proof of the loan agreement. Section 24(2)(d)
7(2)(d).
May I act for both lender and borrower in a mortgage transaction?
Rule 2.04(11) of the Rules of Professional Conduct which came into effect November 1,
2000 prohibits a lawyer, or two or more lawyers practising in partnership or association,
from acting for, or otherwise representing, both lender and borrower in a mortgage or
loan transaction unless the transaction falls under one of the exceptions in Rule
2.04(12). The exceptions are:
a)
the lawyer practices in a remote location where there are no other lawyers that
either party could conveniently retain for the mortgage or loan transaction,
b)
the lender is selling real property to the borrower and the mortgage represents
part of the purchase price,
c)
the lender is a bank, trust company, insurance company, credit union or finance
company that lends money in the course of its business,
d)
the consideration for the mortgage or loan does not exceed $50,000, or, the
lender and borrower are not at "arm's length" as defined in the Income Tax Act
(Canada).
Please note that Independent Legal Advice does not meet the requirements of
Independent Legal Representation. If a mortgage transaction does not meet the
requirements of subsection 2.04(12) the other party must either be legally represented
throughout the transaction by another lawyer, in which case subrule 6.03(7) applies or
the other party is unrepresented, in which case subrule 2.04(14) applies.
When reviewing the Rules of Professional Conduct to determine whether you could be
considered to be representing both lender and borrower, keep in mind the following
points:
When you act for a lender, there are essentially three situations with respect to the
borrower:
i.
The Borrower is Represented (ILR) - subrule 6.03(7)
You communicate only with the borrower’s lawyer throughout the transaction
ii.
The Borrower is Unrepresented - subrule 2.04(14)
a.
You urge the borrower to obtain independent legal representation i.e.
retain his or her own lawyer
b.
You ensure that the borrower does not believe you are looking after his or
her interests, and
c.
You make clear to the borrower that you are acting solely in the interests
of the lender and therefore your comments may be biased.
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You should convey the above three points to the unrepresented borrower in
writing at the first opportunity.
iii.
You represent the Borrower - subrules 2.04(6), (7), and (8)
Where permitted by subule 2.04(12), you may also represent the borrower if
you have obtained the written consent of both the lender and borrower before
you begin to act for the borrower: Depending on the circumstances, you may
or may not refer the borrower for independent legal advice (ILA); e.g. if the
lender is one of your regular clients.
If you are unable to produce documentation establishing either situation i) or ii) exists, it
will be assumed that situation iii) applies, and depending on the circumstances, i.e.
prohibited transaction [subrule 2.04(11)] or no consents [subrule 2.04(6)], it could result
in a finding that you are not in compliance with the Rules of Professional Conduct.
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ESTATES – FINANCIAL RECORD KEEPING
Record keeping requirements for estates applies to all lawyers who have control of
estate assets, whether as estate trustee or as solicitor managing the funds on behalf of
the estate trustee. You should decide at the very beginning of the administration of an
estate how you are going to prepare the estate accounts and who is going to prepare
them. If the will designates separate income and capital beneficiaries, you may be
required to keep the estate records in court passing form according to Rule 74 of the
Rules of Civil Procedure.
There is a duty at common law and under the Trustee Act for estate trustees, executors,
administrators, and guardians to keep complete and accurate accounts of the assets
under their administration. A beneficiary is entitled, on notice, to inspect the accounts
and any of the supporting documentation. All trustees, and especially lawyers who hold
trust funds, should maintain accurate, up to date estate accounts, and organize and
keep all source documents such as bank statements, duplicate deposit slips, cancelled
cheques, receipt confirmations and vouchers to support the records. While maintaining
estate accounts in court passing form is preferred, spot auditors expect to see, as a
minimum, the same information in records for estate assets controlled by lawyers as is
required for trust records in section 18 of By-Law 9.
You should distribute estate assets in a timely manner, including filing income tax
returns and paying any taxes due.
If there is no compensation for the estate trustee set out in the will, the Trustee Act
states that the compensation is based on "fair and reasonable allowance for [the
trustee's] care, pains and trouble, and [the] time expended in or about the estate". The
Court has applied "tariff guidelines". For an estate of average complexity the allowance
is usually set at 2.5% for capital receipts, 2.5% for revenue receipts, 2.5% for capital
disbursements, and 2.5% for revenue disbursements. If the will sets up a trust, the
compensation may include 2/5 of 1% of the assets under administration. For
uncomplicated estates the compensation should be less. For complicated estates an
executor can apply to the court for compensation in excess of the guidelines. Transfers
between the estate accounts and payment of executor’s compensation itself are
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deducted from the calculation and in specie transfers of estate assets are usually
compensated at a reduced rate.
These amounts are the total compensation for all estate trustees as well as for anyone
(e.g. estate solicitor) who claims fees for performing estate trustee duties. Those lawyers
who act as estate trustee as well as solicitor for an estate, or just assume some of the
estate trustee duties, must be careful to distinguish between these two roles. If your
legal fees include services which are properly the responsibility of the estate trustee,
(such as accumulating, evaluating, and distributing estate assets; paying debts,
preparing estate accounts and income tax returns; and notifying and reporting to
beneficiaries), then the amount of your legal fees which relate to the performance of
executor’s duties must be deducted from the amount of executor’s compensation
claimed; otherwise the estate would be charged twice for the same service. Legal work
and estate trustee work are compensated differently, and the remedies for the estate
trustee and beneficiaries to dispute the legal fees and executor’s compensation are
different. You should consider maintaining separate dockets for executor’s duties and
solicitor’s duties in order to avoid double billing the estate and as supporting
documentation for fees charged. Also, your fee bills for legal services should detail the
services provided.
If you are the estate trustee and compensation is not set out in the will, once you have
completed the estate administration, you can take executor’s compensation if all the
residual beneficiaries are legally competent adults and they specifically consent in
writing to your claim for compensation, which should be in accordance with the court
guidelines. Beneficiaries should be fully informed, preferably by independent legal
advice, of the appropriate procedure for billing for estate work. Otherwise, you must
apply to the Court to pass the estate accounts and obtain judicial approval for any
executor’s compensation. (See Re: Knoch (1982), 12 E.T.R. 162 (Surr. Ct.))
The case of Rooney Estate v. Stewart Estate (2007), Carswell Ont 6560 has some
interesting comments on the role of lawyers in estates; the court held inter alia:
The roles of the estate trustee [funeral arrangements; locating the will and
instructing the solicitor; locating, securing, preserving, and disposing of estate
assets in accordance with the will; advertising for creditors and paying the debts
including filing tax returns; preparing estate accounts for the approval of the
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beneficiaries or the court; distributing estate assets] and the estate solicitor
[apply for certificate of appointment for the estate trustee and attend on a passing
of accounts if required] are distinct but complementary.
The solicitor's client is the trustee, not the estate. Therefore, the solicitor takes
instructions from the trustee and reports to her. With respect to the solicitor's
account, the solicitor is entitled to be paid for these legal services from the
estate.
The trustee cannot expect to receive compensation for services performed by
others whose services are charged to the estate. In other words, the trustee
cannot claim compensation for time she did not expend; rather, she must pay the
accounts for services of others out of her compensation.
The solicitor should not perform trustee's work unless instructed to do so by the
trustee. If such a request is made, the solicitor should advise the trustee that he
will render an account to the trustee personally for doing her work. Generally, the
estate is not liable to pay this account; rather, it falls to the trustee to pay out of
her compensation.
It follows that a solicitor is not entitled to charge a solicitor's rate for doing work
that could have been done by the estate trustee.
While it is proper to render an account for trustee's work done by the solicitor, the
account must be rendered to the trustee, to be paid out of her compensation.
[T]he solicitor is not entitled to charge for the performance of trustee's work at the
solicitor's rate, since he is not rendering legal advice or performing legal services.
It is not an answer to say that the beneficiary approved of the accounts and gave
a release. One of the obligations of the solicitor acting for the trustee is to ensure
that all beneficiaries have competent, independent advice in reviewing the
accounts.
Where there is no special agreement between solicitor and estate trustee, the
proper measure of the solicitor's account for legal services to the estate and for
doing trustee's work is on quantum meruit basis.
The practice of holding a beneficiary’s cheque until the beneficiary sends the
signed release to the estate trustee implies that the beneficiary's entitlement was
conditional upon forwarding the release. This practice was criticized by the court
in Brighter v. Brighter Estate 1998 CarswellOnt 3113 [1998] O.J. No. 3144, (Ont.
Gen. Div.).
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An executor’s duty is to carry out the instructions contained in the will ... The
executor has no right to hold any portion of the distributable assets until a
beneficiary provides an approval or release of the executor's performance of
duties as trustee, or the executor's compensation or fee. It is quite proper for an
executor … to accompany payment with a release which the beneficiary is
requested to execute. But it is quite another matter for the trustee to require
execution of the release before making payment; that is manifestly improper.
[T]he solicitor owes a fiduciary duty to the beneficiary in respect of her beneficial
interest.
Whenever you do estate trustee work on behalf of an estate trustee, you should properly
advise the estate trustee that he/she, and not the estate, is responsible for your fees for
doing estate administration work on behalf of the estate trustee, how this would affect
his/her claim to executor’s compensation, and also affect the amount of the distribution
to the beneficiaries, for which the estate trustee is accountable to the beneficiaries.
Powers of Attorney
When exercising a power of attorney you should be maintaining proper accounts as
required by the Substitute Decisions Act. As with estate work, you must be aware of the
distinction between your role as a solicitor and as an attorney. Most, if not all, of your
services will be as an attorney, and you should consult the Substitute Decisions Act for
the appropriate compensation procedure.
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