Interest on the Trust Account


What happens to the interest earned on the client funds in the mixed trust account?
The financial institution where I'd like to open a mixed trust account has advised me that they do not pay interest on mixed trust accounts. Is this permitted?
How do I advise the financial institution that the interest earned on the mixed trust account must go to the Law Foundation?
How do I inform the Law Foundation that I have opened a mixed trust account, so that they know to expect the interest earned on that account?
How do I report annually to the Law Foundation about my mixed trust account?
What do I do if one of my clients wants the interest earned on the money I hold in trust for them?
 


 

Q: What happens to the interest earned on the client funds in the mixed trust account?  

A: When you open a mixed trust account (i.e. one into which you deposit or will deposit money for more than one client), the interest earned on the funds contained in that account must be remitted to the Law Foundation of Ontario in accordance with section 57(1) of the Law Society Act. The Law Foundation administers funds for various purposes, including contributions to the funding of the Ontario Legal Aid Plan and County and District law libraries as well as a program to assist with financial costs associated with class actions.

You must direct your financial institution to forward to the Law Foundation the interest earned on any trust account. See the Law Foundation's sample Letter of Direction Regarding Interest on a Mixed Trust Account. You must also advise the Law Foundation any time you open a mixed trust account ( Form 2: Report on Opening a Mixed Trust Account), report annually on all mixed trust accounts to the Law Foundation ( Form 1: Annual Report to the Law Foundation of Ontario), and must also advise the Law Foundation when you close any mixed trust account ( Form 3: Report on Closing a Mixed Trust Account).

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  Q: The financial institution where I'd like to open a mixed trust account has advised me that they do not pay interest on mixed trust accounts. Is this permitted?
A: In accordance with section 57(1) of the Law Society Act, every licensee who holds money in a mixed trust account must do so in an account that bears "interest at a rate approved by the trustees" of the Law Foundation of Ontario. The Law Foundation of Ontario has agreements with most approved financial institutions respecting the rates of interest to be paid and the procedure to be followed when remitting interest on mixed trust accounts. The Law Foundation of Ontario will negotiate such interest agreements with any approved financial institution as the need arises. To ensure that your financial institution has obtained approval for the rate of interest in question, contact the Law Foundation directly. Where the Law Foundation has not agreed to this arrangement, you may be precluded from using that financial institution for your mixed trust account.

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 Q: How do I advise the financial institution that the interest earned on the mixed trust account must go to the Law Foundation?
A: You must direct your financial institution to forward the interest to the Law Foundation of Ontario. See the Law Foundation's sample Letter of Direction Regarding Interest on a Mixed Trust Account.

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 Q: How do I inform the Law Foundation that I have opened a mixed trust account, so that they know to expect the interest earned on that account?
A: You must advise the Law Foundation of Ontario any time you open a mixed trust account. See the Law Foundation's Form 2: Report on Opening a Mixed Trust Account.

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 Q: How do I report annually to the Law Foundation about my mixed trust account?
A: You must report annually to the Law Foundation of Ontario about all mixed trust accounts, via the Law Foundation's Form 1: Annual Report to the Law Foundation of Ontario. This report is due to the Law Foundation by March 31st each year, a copy of which accompanies the Annual Report to the Law Society of Upper Canada (i.e. the Lawyer Annual Report and the Paralegal Annual Report).

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 Q: What do I do if one of my clients wants the interest earned on the money I hold in trust for them?
A: If a client wants interest on the trust funds you hold for that client, you must obtain the client's written instructions to deposit that client's funds into a separate interest bearing account, for example, a GIC, term deposit or passbook account, in your firm's name in trust for that client. See section 8(1) of By-law 9. Separate interest bearing trust accounts must be reconciled and included in the monthly trust comparison required by section 18(8) of By-law 9.

To fulfill your obligations as trustee, as well as to avoid misunderstandings and complaints from your clients, you should ensure that all clients for whom you hold trust funds are aware that they will not receive any interest on funds held in your mixed trust account.

If you expect to hold client funds for an extended period of time, if the amount you hold in trust is significant, or if you discover such large amounts on your monthly review of the client trust list, you should discuss the issue of earning interest on the funds held in trust with the client and let the client make the decision as to the type of account where the funds should continue to be held. In these circumstances, you should obtain written instructions from the client or confirm the client's instructions in writing to avoid being put in the position of financial advisor. If the client instructs you to put the funds in an interest bearing account, you should obtain the client's Social Insurance Number or corporate number, if applicable. You should also discuss with the client how the interest is to be allocated for income tax purposes, as you will receive a T5 supplementary income slip from the financial institution for the earnings (interest or investment income). This is especially important where the funds being held are in dispute. You should also check with the financial institution how much notice is required to have the funds released and whether earlier redemption will affect the interest paid on those funds.

If your client directs you to put the trust funds in an investment outside the trust requirements of section 7 of By-law 9, such as a money market fund, Treasury bills, or bankers' acceptance, section 8 of By-law 9 requires that you obtain the client's instructions in writing.

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