Did you ever wonder why you don’t receive any interest on the client funds held in your firm’s pooled trust accounts?
I confess that I never thought about this when I was practicing, probably because the firms I worked with already had trust accounts in place when I started. I was aware, however, that the only way clients themselves could receive interest on their funds held in the firm trust account was if those funds were placed into a separate interest-bearing account. Had I pondered this further, I might have assumed that there simply was no interest earned on money held in lawyers’ pooled trust accounts. What I now know is that if I had let my mind wander in that direction, I would have arrived at the wrong conclusion.
In fact, in 1986, The Law Society Act was amended to provide that interest earned on pooled trust accounts in Manitoba belongs to The Manitoba Law Foundation. This provision came into effect at the same time as The Manitoba Law Foundation was established and as a result, for some 40+ years, the Foundation has been receiving interest earned on the dollars held in these accounts.
The relevant provision under the current legislation, The Legal Profession Act reads, in part:
Interest to foundation
50(2) Interest earned on the pooled trust account belongs to The Manitoba Law Foundation….
How does this work, you ask? If you read the rest of s. 50(2), you will note that it also creates an obligation upon lawyers responsible for pooled trust accounts to “…direct the financial institution where the account is kept to remit the interest, less accrued service or other charges pertaining to the operation of the account, to the foundation.”
That direction to remit the interest (less service charges and fees) to the Foundation is provided to the relevant financial institution in the form of a Letter of Direction. The contents of the Letter of Direction are set by The Law Society in consultation with the Foundation, and updated from time to time as required.
Lawyers opening new trust accounts must provide the signed Letter of Direction to their bank or credit union, and copies to both The Law Society and to the Manitoba Law Foundation. This applies to every new trust account opened and not only when new firms are established. Helpfully, the form itself reminds you of your obligation under the Act and Law Society’s Audit Department will ensure that you have provided them with a copy.
In the past months, a flurry of new Letters of Direction has arrived at our offices as lawyers prepare to take advantage of the recent rule amendments permitting direct transfers from trust to the land titles registry through use of restricted trust accounts. We receive these letters, often, by mail but increasingly in electronic form as well. Either is perfectly acceptable for our purposes.
What is most important is that we receive them promptly so that we can begin to monitor and ensure that the interest on balances held in those trust accounts is in fact being paid by the financial institutions holding the trust accounts. While ensuring compliance is not typically a problem, sometimes we do encounter circumstances where interest is not being paid, whether due to oversight or where accounts have been improperly coded. Your strict compliance with this obligation therefore helps to minimize the necessity for us to chase down outstanding interest owing on such accounts.