G.  Specific Trust Investment Account

The basic requirements outlined above for pooled trust accounts and trust accounts generally also apply to specific trust investment accounts. For example, you need a book of original entry, client trust ledgers, and a monthly trust reconciliation for a specific trust investment account.

However, there are also specialized requirements in Rules 5-46(1) and (2) that apply only to a specific trust investment account:

1.   All trust money must first be recorded in the records of and deposited into a pooled trust account, even if the entire amount is to be invested.

2.   When you open the specific trust investment account, the pooled trust cheque written to initiate it is written to your law firm’s name, in trust for your client’s name.

3.   You then update your specific trust investment account records (book of original entry and client trust ledger) for the receipt of the investment, and provide the pooled trust cheque to your savings institution to invest in a daily interest savings account, a term deposit, or a guarantee investment certificate [Rule 5-41].

4.   Interest earned on the investment will need to be recorded in the book of original entry and client trust ledger for the specific trust investment account.

5.   When the time comes to redeem the investment, you must deposit the redeemed investment proceeds in the firm’s pooled trust account, even if it is to be paid immediately to the client. Again, the accounting records for both the specific trust investment account and the pooled trust account must be updated to reflect the redemption in one and the receipt of money in the other, respectively.

Like any other trust account, you will need to perform a monthly trust reconciliation for your specific trust investment account [Rule 5-43(2)].

Although it may be appealing to every client to open a specific trust investment account, the broad guideline for the lawyer to follow is that the cost to the client of opening and administering the specific trust investment account should not exceed the interest earned on it for the client.

Before opening a specific trust investment account both you and the client should consider:

  • the administrative costs of opening an account and completing the required bookkeeping;
  • the length of time the money is to be retained;
  • the sum of money involved; and
  • the interest rate payable on the account.

You, as the lawyer, should also consider the Law Society’s
Practice Direction 84-01: Interest on Client Trust Funds.

CAUTION:

A common error is to make the cheque payable to the savings institution where the investment will be held.  Using the proper payee instead recognizes that control stays with the member the money is merely being moved to another trust account of the firm.