What is a Trust Account?
A trust account is as the name suggests. A trust account is a bank account where an individual or entity (trustee) is trusted to hold money on behalf of someone else. A trustee can use the account for making and receiving payments.
Solicitors are permitted to be trustees. In Queensland, when solicitors set up and operate a trust account they must report to the Queensland Law Society. The Office of Fair Trading also issue licences to other occupations to enable them to be trustees. These include real estate agents, motor dealers, letting agents, and auctioneers.
There are many reasons for a trust account to be established. Trust accounts may be set up for rental bonds, deposits on a property, holiday accommodation, upfront fees, retainers, etc.
Regulations for Trust Accounts
A trust account is not a personal bank account and there are laws that apply to trust accounts to protect your 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.
Requirements to Maintain Compliance
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 be kept. These are crucial as they provide the paper trail for auditing. The various trust records which must be kept are:
a. trust account receipts
b. cheque butts or cheque requisitions
c. records of authorities to withdraw by electronic funds transfer
d. deposit records
e. trust account ADI statements
f. trust account receipts and payments cash books
g. trust ledger accounts
h. records of monthly trust trial balances
i. records of monthly trust account reconciliations
j. trust transfer journals
k. statements of account required to be given under a regulation
l. registers required to be kept under a regulation
m. monthly statements required to be kept under a regulation
n. files relating to trust transactions or bills of costs or both
o. written directions, authorities or other documents required to be kept under this Act or a regulation
p. supporting information required to be kept under a 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.
All of the above are the 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.
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:
o account name (or names)
o date (or dates)
o amount (or amounts) involved
o explanations given
o 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
You can see that when a solicitor holds money for you in a trust account, there are numerous checks and balances put into law which make every cent accountable and provide you with the maximum possible protection.
Darcy Bookkeeping are specialists in overseeing trust accounts. We will handle all of the bookkeeping, reporting and auditing requirements to ensure your trust account remains compliant to all of the laws and regulations and your money is secure.