Deposits to the prescribed account

Transcription

1 Deposits to the prescribed account Version Practice support

2 Table of Contents Deposits to the Prescribed Account Deposits by law practices to the Prescribed Account Initial calculation by a new law practice Calculation when there is an existing deposit Time of deposit Method of making deposit When there are insufficient funds to effect the required lodgement Withdrawal of funds from the prescribed account Calculation of amount to be withdrawn from the prescribed account Drawing against Letter of Credit Law practice s responsibility to relodge withdrawn funds When two or more trust accounts are conducted...8 Deposits to the prescribed account Version page 2

3 Deposits to the Prescribed Account Section 285 of the Legal Profession Act 2007 replaces the provisions of Section 205 of the Legal Profession Act 2004 relevant to the withdrawal of money from a law practice s general trust account and the deposit of it to an account in the name of the Chief Executive, Department of Justice & Attorney-General Special Deposit Account ( the prescribed accounts ). The provisions of the Legal Profession Act 2007 in relation to the deposit of money to, and the withdrawal of money from, the prescribed accounts, are essentially the same as the provisions of the Legal Profession Act Deposits by law practices to the Prescribed Account Each January, law practices must ascertain whether or not they are required to deposit trust moneys to the prescribed accounts in compliance with s.285 of the Legal Profession Act 2007 and r.70 of the Legal Profession Regulation To satisfy these requirements, law practices should proceed as follows: 1. Determine the lowest combined balance (the total of the law practice s trust account balance and the law practice s prescribed account balance at the same time) in the previous calendar year. N.B. Any trust moneys held in a separate trust account maintained for the exclusive benefit of a particular person or persons are not to be included. For example, investment moneys or controlled account moneys [Legal Profession Regulation 2007 r.71(2)]. 2. After identifying the lowest combined balance, calculate the required deposit amount by calculating two-thirds of the lowest balance. The calculated amount is then rounded down to the lower even hundred of dollars. e.g. Lowest combined balance in previous calendar year $9, Two-thirds of lowest combined balance $6, Required deposit amount $6, Initial calculation by a new law practice Law practices are exempt (pursuant to r.70(5) of the Legal Profession Regulation 2007) from making a deposit to the prescribed account if the lowest amount of trust money held in the previous calendar year was less than $3, Nil balances before the first credit entry to the general trust account are ignored for the purpose of determining the lowest balance. However, if a trust approved ADI account statement records a nil balance after the initial entry, that nil balance is an effective balance for the purpose of determining the lowest balance. When calculating the initial deposit, the law practice simply ascertains the lowest approved ADI statement balance in the previous calendar year and calculates two-thirds of that balance. Deposits to the prescribed account Version page 3

4 3. Calculation when there is an existing deposit If a law practice has an existing deposit with the prescribed account, it is unlikely that the amount deposited in the previous calendar year would have been the same throughout the entire year. If we assume that the law practice increased the amount deposited to the prescribed account on 16 January in the previous calendar year, the law practice will need to proceed in the following manner to determine the lowest combined balance held in that year: i. determine the lowest approved ADI statement balance during the period from 1 January to 15 January and add the amount of the prescribed account deposit during that period to determine the lowest combined balance held on any day during that period from 1 January to 15 January; ii. determine the lowest approved ADI statement balance during the period from 16 January to 31 December and add the amount of the prescribed account deposit during that period to determine the lowest combined balance during the period from 16 January to 31 December; and iii. calculate two-thirds of the lower of the two figures determined in (i) and (ii) above to calculate the required deposit amount. An example of how to calculate the required deposit amount when there have been a number of changes in the amount deposited to the Prescribed Account during the previous calendar year is set out hereunder: Date Balance as per financial institution statement Prescribed account deposit Combined balance 01/01/XX $160, $40, $200, /01/XX $193, $125, $318, /02/XX $55, $125, $180, /03/XX $241, $125, $366, /04/XX $1, $125, $126, /05/XX $31, $35, $66, /06/XX $42, $35, $80, /07/XX $4, $5, $9, /08/XX $126, $5, $131, /09/XX $185, $5, $190, /10/XX $16, $5, $21, /11/XX $102, $5, $107, /12/XX $43, $5, $48, The lowest combined balance for the year was $9, The required deposit amount is 2/3 X $9, = $6, = $6, rounded down to an even hundred of dollars (Legal Profession Regulation 2007 r.70(3) allows the required deposit amount to be rounded down to an even hundred dollars). Therefore, an additional $1, would be lodged to the prescribed account on or before 21 January. If the law practice has an existing lodgement with the prescribed account, which is less than the calculated figure, then the difference will have to be lodged on or before the prescribed date. Deposits to the prescribed account Version page 4

5 If the law practice has an existing lodgement with the prescribed account, which is in excess of the calculated figure, then the law practice can either maintain the existing lodgement or obtain a return of the excess lodgement by withdrawing the surplus amount from the prescribed account. 4. Time of deposit A law practice is required to make the required deposit into the prescribed account on or before 21 January each year [Legal Profession Regulation 2007 r.75]. 5. Method of making deposit When required to make an initial deposit or increase an existing deposit, the law practice will proceed as follows: i. Draw a trust account cheque for the adjustment amount in favour of Chief Executive, Department of Justice & Attorney-General Prescribed Account with the notation on the cheque butt being: 15/01/XX Chief Executive, Department of Justice & Attorney-General Special Deposit Account deposit pursuant to Section 285 of the Legal Profession Act 2007 $1, ii. Give trust account cheque to approved ADI with existing Letter of Credit, if there is an existing deposit, and instructions that the funds are to be credited to the Chief Executive, Department of Justice & Attorney-General Special Deposit Account at the main branch of the approved ADI. (No moneys are to be forwarded direct to the Department of Justice & Attorney-General.) iii. Details of the trust account cheque are to be recorded in the trust account payments cash book from the cheque butt. iv. The entry in the trust account cash book is to be posted to the individual trust ledger account in the name of Chief Executive, Department of Justice & Attorney-General Prescribed Account as a debit item. v. Within two (2) weeks, the financial institution should furnish a Letter of Credit to cover the total deposit with the Chief Executive, Department of Justice & Attorney-General Prescribed Account or an additional Letter of Credit for the further deposit. It is strongly recommended that the lowest combined balance be ascertained after the completion of each monthly reconciliation and recorded in a suitable place in the trust account cash book e.g. following the approved ADI reconciliation statement. Adoption of this procedure will reduce the time and effort involved in calculating the required deposit in January of each year. 6. When there are insufficient funds to effect the required lodgement Because of substantial distributions of trust funds to the rightful beneficiaries early in January, it could happen that there are not sufficient trust moneys available to effect the required deposit on or before the prescribed date. For example: The lowest amount of trust moneys held in the previous year, the law practice s first year of practice, was $30, The law practice is required to deposit $20, into the prescribed account on or before 21 January (there is no money held on deposit in the prescribed account). Deposits to the prescribed account Version page 5

6 An Estate is finalised on 10 January and following distribution of Estate funds, the trust account balance as at 18 January has reduced to $9, In such a case, the law practice would act as follows: i. The law practice cannot lodge the required $20, but is required to deposit some of the trust moneys based on January figures. ii. The law practice ascertains the lowest amount of trust money held between 1 January this year and 20 January this year (a date on or before 21 January this year). This figure is $9, Two-thirds of $9, is $6, Therefore, the required immediate deposit is $6, ($6, is rounded down to an even hundred dollars). iii. iii. The law practice draws a trust account cheque as previously outlined for $6, in favour of Chief Executive, Department of Justice & Attorney-General Prescribed Account. iv. Note: If the lowest balance between 1 January this year and 20 January this year had been less than $3,000.00, then no immediate lodgement would be required. v. iv. The law practice has a requirement to increase the deposit to $20, (the amount originally calculated) when the law practice has held $30, (the previous year s lowest combined balance), or more, for thirty (30) consecutive days [Legal Profession Regulation 2007 r.74(3)]. vi. v. As the law practice has a deposit of $6, with the prescribed account, a further $23, is required in the approved ADI account to make up the combined balance of $30, When the law practice s approved ADI statement records a balance of $23, and maintains this figure, or more, for thirty (30) consecutive days, the law practice is then required to make a further deposit of $13, into the prescribed account. 7. Withdrawal of funds from the prescribed account The law practice may require a return of trust moneys previously deposit to the Prescribed Account in order to operate and keep the trust account in credit [Legal Profession Regulation 2007 r.74(1)]. When assessing the amount to deposit with the prescribed account, the approved ADI statement balances are perused. However, the trust account cash book balances are perused to ascertain whether or not deposited funds should be returned to the trust account. When a law practice wishes to withdraw funds, via trust account cheque or EFT, from the general trust account and discovers that there are not sufficient moneys available as per the trust account cashbook, the law practice should draw against the Letter of Credit for the prescribed account before the cheques are issued or the EFT payments are processed. 8. Calculation of amount to be withdrawn from the prescribed account There are two acceptable ways of calculating the amount to be withdrawn from the prescribed account. The first is to reduce the amount deposited to the prescribed account to two-thirds of the lowest amount of trust moneys held in the preceding thirty (30) day period. For example: The lowest trust account cash book balance in the preceding thirty (30) day period was $1, The amount deposited to the prescribed account on that day was $20, The deposit can be reduced to $14, being two-thirds of ($1, $20,000.00) (i.e. $5, can be withdrawn). Deposits to the prescribed account Version page 6

7 If the above method does not enable sufficient money to be withdrawn, the law practice should proceed in the following manner: a. a. Ascertain the balance as per the trust account cash book. e.g. $1, in funds b. b. Ascertain the number and value of all payments to be made against the general trust account on that day against money received into the trust account. e.g. six cheques & 2 EFT payments totalling $16, c. c. The law practice estimates a figure of, say, $1,000.00, $2,000.00, $5, or $10,000.00, depending on the size of the practice, to cover the normal day-to-day drawings from the general trust account for the next three to four days. e.g. $2, Funds available $1, Funds required:- Cheques to be issued $16, Daily requirements $2, $18, Shortfall $17, The anticipated shortfall of $17, is rounded off to the next thousand dollars so the amount to be returned from the prescribed account is $18, Drawing against Letter of Credit To obtain a return of the moneys from the prescribed account, the law practice will make a drawing against the Letter of Credit and will proceed as follows: i. Send a letter to the approved ADI, signed by a signatory to the trust account, instructing the approved ADI to withdraw money from the prescribed account and deposit same into the trust account. ii. Issue a trust account receipt recording the entry as a return of trust moneys from the prescribed account. iii. Details on the trust account receipt are posted to the trust account receipts cash book. iv. Cash book entry is posted as a credit to the individual trust ledger account in the name of Chief Executive, Department of Justice & Attorney-General Prescribed Account, reducing the debit balance by the amount of the drawing. v. Cleared funds are now available in the approved ADI trust account, so required EFT payments and/or cheques can be drawn. 10. Law practice s responsibility to relodge withdrawn funds The law practice is required to redeposit money withdrawn from the prescribed account when the combined balance (trust account statement balance and existing prescribed account deposit) has built up to the lowest combined balance for the previous calendar year and has maintained this figure, or more, for thirty (30) consecutive days [Legal Profession Regulation 2007 r.74(3)] For example: A law practice s deposit as at 21 January this year was $24, being two-thirds of the lowest amount of trust money held in the previous calendar year ($36,000.00). On 5 April this year, the law practice withdrew $11, from the prescribed account reducing the lodgement with the prescribed account to $13, Deposits to the prescribed account Version page 7

8 When the combined balance exceeds $36, and maintains this figure for thirty (30) consecutive days, then $11, is to be deposited back into the prescribed account. When the trust account statement balance is $23,000.00, or more, for thirty (30) consecutive days, then the law practice is required to withdraw from the general trust account $11, in favour of the prescribed account to bring the deposit back to the original figure. Until the combined balance has built up to the lowest combined balance in the previous calendar year (in this case $36,000.00) and maintains this figure, or more, for thirty (30) consecutive days, then the law practice is not required to adjust their deposit in the prescribed account. 11. When two or more trust accounts are conducted If a law practice keeps two (2) or more trust accounts the total of the balances in the trust accounts at a particular time is taken to be a law practice s trust account balance, for the purposes of calculating the required deposit [Legal Profession Regulation 2007 r.71(1)(b)]. Hence, the law practice is not able to withdraw funds deposited in the prescribed account in order to keep one trust account in credit when the law practice has surplus trust moneys available in the other trust account(s). The trust accounts are to be combined and treated as one composite trust account. For example: If $5, is withdrawn from one prescribed account to cover cheques to be issued and/or EFT payments against that trust account it will be necessary for the law practice to withdraw $5, from another trust account and deposit that to the prescribed account for that trust account. In this manner, the deposit in the prescribed accounts will be maintained at all times provided the law practice has available trust moneys. Deposits to the prescribed account Version page 8

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