94-01 : Proper Procedures for Handling Estate Funds When Acting as Lawyer for an Estate

Although most members of the profession are aware of the basic requirements of the Society’s financial accountability rules, there appears to be a great deal of inconsistency in the practices followed by lawyers acting on estate matters with respect to the treatment of estate funds handled by the lawyer. The Society wishes to remind members that estate funds received by the lawyer must be treated in the same manner as any other trust funds. The requirements of the Law Society financial accountability rules [see Rules 5-41 through 5-56(2)] apply without exception, notwithstanding that it may be necessary or desirable to involve the personal representative in some of the tasks relating to the administration of the estate such as the payment of outstanding bills and so forth.

First, the lawyer must determine in consultation with the client the extent to which the lawyer or the personal representative will receive and control the estate funds. To the extent that it is the lawyer, then the estate funds are like any other trust monies and must be handled accordingly. Thus, all monies from the estate which pass through the hands of the lawyer must be immediately deposited in the lawyer’s pooled trust account in the name of either the estate or the personal representative. Where appropriate, the funds can then be either invested in a specific trust investment account (i.e. GIC, term deposit, daily interest account) on which interest earned will be for the benefit of the estate or the residual beneficiaries, or disbursed to the appropriate parties pursuant to the instructions of the personal representative.

Where cheques from a third party are made payable to the estate rather than to the law firm in trust for the estate, then it would be appropriate to have the personal representative endorse the cheque to the law firm or provide a letter of direction authorizing the lawyer as solicitor for the estate to deposit all such estate cheques to the lawyer’s trust account in trust for the estate.

On the other hand, if the lawyer and the personal representative agree that the funds should be under the direct control of the personal representative so that the personal representative can attend to payment of estate accounts and other debts, then the estate account should be outside of the law firm’s trust account system and the lawyer should have no signing authority on the account whatsoever. Parties indebted to the estate should be instructed where possible to send the cheques directly to the personal representative, payable to the estate. Where cheques payable to the estate are sent to the lawyer, the lawyer may deliver the cheque directly to the personal representative for deposit in the estate account. However, where the lawyer receives a cheque payable to firm in trust for the estate, those monies constitute trust funds received by the lawyer and must be immediately deposited in the pooled trust account. The lawyer can then issue a trust cheque payable to the estate and deliver it to the personal representative for deposit in the private estate account.

Some examples of practices which have been observed which the Society considers to be inappropriate and which should not be followed are:

• the lawyer opens an “estate bank account” with signing authority given to both the lawyer and the personal representative, where both signatures are required or where either one of them can sign. It is improper to allow trust funds to be under the control of anyone other than the lawyers in a firm or those lawyers in conjunction with other law firm employees [see Law Society Rule 5-44(1)(e)];
• the personal representative initially opens an estate bank account and then later turns control of that account over to the lawyer, with any variation of signing authority as noted above. The account is therefore not part of the lawyer’s trust account system and not recorded accordingly;
• the lawyer opens a separate bank account in trust for the estate, but does not identify the account as a trust account nor record the transactions under the law firm’s trust record system. The funds are therefore under the control of the lawyer but not documented and not reconciled monthly as required by the Society’s rules.

In summary, if estate funds are to be handled by the lawyer acting for an estate, then the funds should be solely within the control of the law firm and should be deposited, disbursed and documented in accordance with all requirements of the Society’s financial accountability rules.