Attorney Trust Accounts

One of the fundamental components of being a legal practitioner is acting as a fiduciary of client funds which comes with a duty of care and significant responsibility.

December 5, 2019

The management of client trust accounts by legal practitioners is regulated by Section 86 of the Legal Practice Act, 28 of 2014 which sets out stringent standards that must be followed to ensure the security of the funds deposited.

Firstly, it is important to note that all funds deposited into the trust account are not the property of the legal practitioner, nor of his or her firm but instead they remain the property of the client. The legal practitioner responsible merely acts as a custodian and will invest the funds upon the client’s instruction and in accordance with a signed mandate authorising this.

Why do lawyers use trust accounts?

Trust accounts are used by legal practitioners for holding money on behalf of a client, in connection with the provision of the type of legal service the client needs. For example, where funds are received towards the deposit on the purchase of a property.

What are the responsibilities of a legal practitioner when managing trust accounts?

Client funds must be deposited into a separate interest-bearing account and noted accordingly. These funds are to be held in trust and may not be utilised by the firm until the relevant transaction for which they are intended has been completed. This ensures that the legal practitioner is able to track all transactions made from the client’s initial deposit.

Interest accrued on funds held in the trust account must be paid over to the client, provided that 5% of the interest earned will be paid over to the Fidelity Fund in terms of Section 86(5) of the Act.

In addition, all legal firms have to register with the Legal Practitioners Fidelity Fund. All practicing legal practitioners, who are directors or partners or single practitioners, are issued with a Fidelity Fund Certificate which must be renewed annually, without which they may not practice. This body is essentially the legal practitioners insurance against professional negligence.

What happens if a trust account is mismanaged?

If a client has reasonable grounds to believe that funds held in trust by an attorney have been misappropriated, the client can report this to the relevant Legal Practice Council. An investigation will be conducted and should the legal practitioner be found to be at fault, reparations will be ordered. The attorney also runs the risk of losing his or her license to practice.

Whether practicing individually or as a partner or director of a legal firm, a legal practitioner accepts certain responsibilities when taking on the task of managing a trust account. As such, he or she has a duty to take reasonable measures to ensure compliance with the Act and all relevant regulations.

Written by Wessel de Kock

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