4.2 Underpinnings to the Trust Safety Program
There are several important principles that underpin the Trust Safety Program:
- All lawyers must either be approved to operate a trust account or obtain an exemption.
- Trust money can only be held in a trust account operated by a lawyer who has been approved to operate a trust account and is approved as Responsible Lawyer.
- Trust accounts cannot be used where no legal services are provided in relation to the trust money in the trust account.
- Lawyers and law firms cannot benefit from operating a trust account.
This chapter will review these principles to ensure that lawyers have a common understanding.
Division 2 of Part 5 of the Rules, which sets out the Law Society’s Trust Safety Program, expands on this legislative provision.
Rule 119.1 states that all lawyers who wish to commence practice in Alberta are required to obtain and maintain the following approvals:
(a) Designation as a Responsible Lawyer and
(b) Authorization to operate a trust account
unless exempted from this requirement.
This means that all lawyers commencing their own practice must apply to the Law Society for either designation as a Responsible Lawyer and authority to operate a trust account or an exemption from this requirement.
Only a law firm with an approved trust account can hold trust money (Rule 119.18). If you are going to hold money on behalf of any person, you must apply for approval to open a trust account and be a Responsible Lawyer.
Unless you are going to bill for services rendered after the services have been provided or only provide services through Legal Aid, you will need to apply for approval to operate a trust account.
Please keep in mind, however, that obtaining approval to open a trust account and becoming a Responsible Lawyer takes time. Trust Safety’s goal is to process all applications received within three weeks; however, this can vary depending on the number of applications received at any given point. In order to process an application, we must have all information including confirmation that Legal Education Society of Alberta (LESA) courses have been completed and all supporting documents.
You never want to be in a situation where a client is asking you to hold trust funds as part of your retainer and you do not have approval as either a Responsible Lawyer or authorization to operate a trust account.
Rule 119.17 prohibits use of a lawyer’s trust account where no legal services are being provided in relation to the trust money.
Always ask yourself how the money you will be receiving will be used in connection with the services you are rendering.
For example, you are providing conveyancing services to Client A who is purchasing a property. Client A asks you if he can put an extra $100,000 in trust and then have you issue a trust cheque to a third party which he says is in relation to repayment of a loan. He says that the creditor would prefer to receive a cheque drawn on a law firm trust account because the creditor wants assurance that the money is there. Can you do this? What other mechanisms can you suggest?
Benefiting from Trust Accounts
Lawyers and law firms are not permitted to receive or permit any person other than the client or the Alberta Law Foundation to receive a benefit in any way calculated or determined as a consequence of depositing or maintaining funds in a trust account (Rule 119.17.1(1)).
Only clients, if the funds are in a separate interest bearing trust account, or the Alberta Law Foundation for all other matters, can receive interest or other benefit. The only exception to this is found in Rule 119.17(2) which provides that Rule 119.17.1(1) does not apply to adjustments of trust account fees charged by the deposit taking institution.