How Maintaining a Trust Account in Real Estate and Legal Firms

Real estate and legal firms in Australia that hold or receive money on behalf of others are required to open and maintain trust accounts to manage these funds. There are strict rules around the setup and maintenance of trust accounts that can differ in each state and territory. These include, but are not limited to, the naming convention for trust accounts, the banking institutions that can be used to deposit trust account funds, how trust account transactions are processed, reconciliation requirements, reporting requirements, and external audit requirements.

What is a trust account

A trust account is a legal arrangement through which funds or assets are held by a third party (the trustee) for the benefit of another party (the beneficiary). The beneficiary may be an individual or a group.

Real estate and legal firms are required to setup and maintain trust accounts to record transactions and hold funds resulting from the purchase or sale of a house, property management, or deceased estate matters on behalf of a client.

Trust accounts must be used exclusively for monies held ‘in trust’ and not include the general operational transactions of the agency or firm. The removal of money from a trust account for reasons other than a lawful purpose is a criminal offence.

Most real estate agencies setup two (2) trust accounts: one for sales and one for rentals.

In legal firms, solicitor trust accounts are used for:

  • General Trust Money
  • Controlled Money
  • Transit Money
  • Power Money
  • Written Direction Money
  • Investment of Trust Money.

Darcy Bookkeeping & Business Services has years of experience helping real estate and legal firms with their bookkeeping. Contact us on 1300 728 875 or send us a message to discuss your needs.

Trust account legislation Australia

There are strict rules around setting up and maintaining a trust account in Australia and these rules are legislated and enforced by each state and territory. Different rules apply to different industries, e.g. property trust accounts have different rules to solicitor trust accounts. To ensure you are complying with the current regulations in your region applicable to your industry, consult the websites of the regulatory bodies in your state/territory.

Trust account rules and regulations Queensland

A trust account is not a personal bank account and there are laws that apply to trust accounts to protect a beneficiary’s money. A trustee has certain legal requirements to fulfil and trust accounts operating in Queensland have reporting requirements under Queensland legislation depending on the type of trust account it is.

According to the Queensland Law Society Trust Accounting Guide, solicitors must keep trust account records for seven years after the last entry in the trust record.

A ledger must also be maintained for the individual person from whom money was received and it is used exclusively for trust transactions. All deposits and withdrawals for the individual are recorded in the ledger. Reconciliation statements (bank and cashbook) and Trust Account statements must also be kept.

It is also a requirement that evidence of all ledger entries is kept. These are crucial as they provide the paper trail for auditing. The various trust records which must be kept are:

  1. trust account receipts
  2. cheque butts or cheque requisitions
  3. records of authorities to withdraw by electronic funds transfer
  4. deposit records
  5. trust account ADI statements
  6. trust account receipts and payments cash books
  7. trust ledger accounts
  8. records of monthly trust trial balance
  9. records of monthly trust account reconciliations
  10. trust transfer journals
  11. statements of account required to be given under a regulation
  12. registers required to be kept under a regulation
  13. monthly statements are required to be kept under a regulation
  14. files relating to trust transactions or bills of costs or both
  15. written directions, authorities or other documents required to be kept under this Act or a regulation
  16. supporting information required to be kept under regulation in relation to powers to deal with trust money.

Supporting documentation such as correspondence, trust account authorities, bills of costs and invoices, trust cashbooks of receipts and cashbooks of payments should also be kept as these form part of the trust accounting records.

In addition to keeping thorough records of all financial activity of a trust account, an annual declaration of monies held in a trust and must also be made.

Trust account audits in Queensland

All of the above are bookkeeping requirements. There are also auditing requirements. The Trust Accounts Act 1973 (Queensland) requires accountants to appoint an independent auditor to check everything has been done correctly.

Trust account audits in Qld legal firms

In order to comply with legal trust accounting in Queensland (Trust Accounts Act 1973 and Trust Accounts Regulation 1999), your solicitor must have their trust accounts independently audited within two months after 31 March each year. The auditor is required to check details including:

  • which bank the account is being held in
  • details of all overdrawn trust bank accounts and trust creditor ledger accounts, including:
    • account name (or names)
    • date (or dates)
    • amount (or amounts) involved
    • explanations given
    • corrective action taken
    • whether the trust account bank statement balance and the trust account ledger balance each month
    • proof of receipt numbers, direct debit or EFT transactions
    • details of trust monies invested by the trustee.

Trust account rules and regulations NSW

Real estate trust accounts NSW

Real estate trust accounts in New South Wales are regulated by NSW Fair Trading. At the time of writing the below rules are in place. Consult the NSW Fair Trading website before setting up your trust account to check these rules are still current.

  • Trust accounts must be kept at an authorised deposit-taking institution in New South Wales. Refer to NSW Fair Trading’s current list of authorised deposit-taking institutions.
  • The deposit-taking institution needs to be notified in writing that the account is a ‘trust account’.
  • The naming convention of the trust account is also regulated and must include the words ‘Trust Account’, its unique identifying number (obtained from NSW OneGov) and the name of the licensee, firm or corporation (dependent upon on the corporate structure of the business/agency).
  • If a business/agency maintains multiple trust accounts, each account needs to be registered separately.
  • Only a licensee in charge of a real estate business may authorise withdrawals from a trust account. There can only be one licensee in charge per agency and this authority cannot be delegated to another person.
  • The licensee in charge is responsible for reviewing and approving all transactions from the trust account BEFORE THEY OCCUR.

Trust accounts in NSW legal firms

In NSW, the rules around trust accounts in legal firms are legislated by the Legal Profession Uniform Law (NSW) scheme, a summary of which can be found in the Legal Accounting Handbook published by the NSW Law Society.

A general trust account must be operated by the principal of a law practice who is authorised to receive trust money. Depending on the corporate structure of the practice, this can be a sole practitioner, a partner of the practice (if operating in a partnership), or a legal practitioner director (if operating in an incorporated legal practice).

In the absence of the principal, other persons may be authorised to operate the general trust account, provided they are authorised by the law practice. For example, an employed legal practitioner, an Australian legal practitioner with an unrestricted practising certificate, or two or more employees jointly of the law practice.

Need help?

Darcy Bookkeeping & Business Services has years of experience helping real estate and legal firms with their bookkeeping. Contact us on 1300 728 875 or send us a message to discuss your needs.

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