Some Final Advice and Suggestions (continued)
Request funds in the form of money order, certified cheque, or a bank wire directly into your trust account if you have to pay out before a cheque has time to clear the bank. Alternatively, get the money in early enough so that it has time to clear.
Be aware of processing times for cheques. Cheques presented for payment are processed on the same date but deposits made after a certain time (usually 3 pm) may not be credited until the next banking day.
Cheques drawn on US banks take time to clear. Cheques drawn on US banks may be credited to the bank statement but then charged back for a 3 to 4-week period before being cleared and permanently credited to your account.
A cheque deposited at a different bank branch may not be credited immediately. Cheques deposited at one bank to the credit of an account at another branch may not be credited for several days if the financial institution uses a courier system instead of online facilities.
Establish a policy as to when you will require certified cheques. If an uncertified cheque is returned ‘NSF’ you will be responsible to make good any deficiency until the funds can be recovered.
Follow the Standards for the Practice of Real Property Law for real estate transactions: Under the General Practice Procedures section, Standard 6.2 states that a lawyer shall only accept certified cheques or bank drafts from a client for deposit in a trust account, with some exceptions.
Telephone instructions to hold funds are not a substitute for certification. Your bank may telephone another financial institution to ask that funds be held to cover a cheque, but this is not foolproof; an NSF cheque is still your responsibility.
Encourage your staff to ask questions about how to operate your trust account. Your staff should ask questions when in doubt about a trust account. Be sure they know you would much rather they ask the question than guess at the answer.
Do not allow staff to take trust ledgers out of your office. Many bookkeepers work off site. If you need to disburse funds from trust and the client trust ledger is not in the office, you can’t be sure the funds are there.
Be aware that ‘stop payments’ may be ineffective to prevent the cashing of a cheque deposited at an ATM. Fully investigate the circumstances before issuing a replacement cheque, and if possible, have the client pick up a trust cheque. Always get the client to confirm a safe address for mailing a trust cheque.
Credits: These tips to avoid trust accounting pitfalls were taken from the article ‘Getting Started: Trust Accounting’ by Felicia Folk, formerly of the LSBC, updated to August 2005.