Trust money
A law practice that, or approved clerk who, receives trust money to which the Legal Profession Act 2004 (Vic) (“the Act”) applies must maintain a general trust account in Victoria. The trust account must be maintained in accordance with the Act, its regulations and any applicable legal profession rules.
Who is entitled to receive trust money?
A law practice (other than an incorporated legal practice (ILP)) must not receive trust money unless a principal holds an Australian practising certificate authorising the receipt of trust money. An ILP must not receive trust money unless at least one legal practitioner director of the practice holds an Australian practising certificate authorising the receipt of trust money. See further information about obtaining a practising certificate with authorisation to receive trust money.
An approved clerk may also receive trust money on account of legal costs of a barrister or barristers.
What is trust money?
Trust Money for Law Practices
In relation to a law practice, trust money means money entrusted to the law practice in the course of or in connection with the provision of legal services by the practice. It includes:
- money received on account of legal costs in advance of providing the services;
- controlled money received by the practice (i.e. money subject to written direction to deposit into an account controlled by the law practice other than the general trust account);
- transit money received by the practice (i.e. money received by a law practice subject to instructions to pay or deliver to a third party, other than an associate of the law practice); and
- money received by the law practice subject to a power exercisable by the practice or an associate of the practice, to deal with money for or on behalf of another person.
Trust Money for Approved Clerks
In relation to an approved clerk, trust money means money received by the approved clerk on account of the legal costs of a barrister in advance of the provision of the legal services to which those costs relate.
Trust money for law practices does not include:
Money for Financial Services
Trust money does not include money that is entrusted to or held by a law practice for or in connection with financial services provided by the practice or an associate of the practice in circumstances where the practice or associate:
- is required to hold an Australian financial services licence covering the provision of the service (whether or not such a licence is held at any relevant time); or
- provides the service as a representative of another person who carries on a financial services business (whether or not the practice or associate is an authorised representative at any relevant time).
Money for Managed Investment Schemes and Mortgage Financing
Trust money does not include money that is entrusted to or held by a law practice for or in connection with a managed investment scheme or mortgage financing undertaken by the practice.
Money for Investment Purposes
Money that is entrusted to or held by a law practice for investment purposes is not trust money unless:
- the money was entrusted to or held by the practice in the ordinary course of legal practice; and primarily in connection with the provision of legal services to or at the direction of the client; and
- the investment is or is to be made in the ordinary course of legal practice; and for the ancillary purpose of maintaining or enhancing the value of the money or property pending the completion of the matter or further stages of the matter or pending payment or delivery of the money or property to or at the direction of the client.
Trust money for approved clerks does not include:
- money for barristers’ fees for past services;
- money directed to a third person such as a party in proceedings;
- money on loan or ‘parked’ by a solicitor; and
- mixed funds used to run a clerking business.
How must trust money be dealt with?
A law practice or an approved clerk that receives trust money to which Part 3.3 of the Act applies, must maintain a general trust account in Victoria. Heavy penalties apply for failing to comply. This requirement does not apply to a law practice or an approved clerk in respect of any period in which only controlled money or transit money (or both) are received, except where it is received in the form of cash. The trust account must be established and maintained in accordance with the Act and the Legal Profession Regulations 2005 (Vic). See information about Trust accounts.