Trust money refers to the funds held by a law firm on behalf of its clients or other parties concerning the provision of legal services. In Australia, law firms must hold trust money in a regulated trust account with a bank.
However, certain regulations must be met before a lawyer or law firm can access these funds. It is important to note that the regulations may vary in each state of Australia. A lawyer or law firm is prohibited from using a client’s trust money for purposes other than the intended legal services until these regulations are satisfied.
At its core, the Legal Profession Act and Regulations exist to ensure transparency and accountability in the management of trust money. It protects the interests of clients and legal practitioners, ensuring that trust money is managed with the utmost care and diligence.
Regulations for handling trust money in Australia
At NebuLAW, we understand the importance of complying with Australia’s highly regulated accounting of trust money. It is crucial to note that even though the law practice controls the trust money, it belongs to the client until it is applied to an invoice or disbursement. However, the exact regulations differ for each state, causing inefficiencies and costing clients millions yearly.
Before 1976, it was common for solicitors to pay their costs and disbursements from trust money without obtaining the client’s instructions. However, the profession now accepts that this practice is unlawful, and prior instructions must be obtained.
A 1976 New South Wales Supreme Court decision limited withdrawals by lawyers from a trust account to two situations: when the client has given clear instructions or when the solicitor has a “particular lien” and obtained a court order entitling them to withdraw the money.
In 1984, the New South Wales Law Reform Commission published a report titled “Handling Trust Money: Issues Relating to Costs and Disbursements,” discussing many issues related to trust accounts in NSW and across Australia.
To eliminate differences between states, the national legal profession model bill took about ten years to develop and was finally signed off by the Standing Committee of Attorneys General in 2011.
All Australian states and territories have adopted the national legal profession model except for South Australia from 2004 to 2008.
Trust Money Regulation in Victoria
In Victoria, the regulation of trust money is governed by the Legal Profession Act 2004 and the Legal Profession Regulations 2005.
According to the law, a law practice can withdraw the trust money if they have provided the person with a bill related to the money. If the person does not object to withdrawing the money within seven days of receiving the bill, the law practice is authorized to withdraw the money. Alternatively, suppose the person objects within seven days after being given the bill but fails to apply for a review of the legal costs under the Act within sixty days. In that case, the law practice can still withdraw the trust money.
Trust Money Regulations in New South Wales
The legal industry in New South Wales is governed by the Legal Profession Act 2004 and the Legal Profession Regulation 2005. These regulations outline the requirements for the management of trust money by law firms operating in the state.
Clients who wish to dispute a withdrawal from their trust account must notify their solicitor within seven days of receiving the bill. The solicitor can withdraw the money from the trust account if no objection is made. However, if the client wishes to challenge the bill, they must apply for a cost assessment with the Supreme Court of NSW within sixty days of receiving it.
Regulation of Trust Money in Queensland
In Queensland, the trust money is regulated by the Legal Profession Act 2007 and the Legal Profession Regulation 2007. These regulations provide guidelines for law practices to manage trust money received from clients.
Under these regulations, a law practice may withdraw trust money if they have provided the client with a bill relating to the money and the client has not objected to the withdrawal within seven days of receiving it. Alternatively, suppose the client has objected to the withdrawal within seven days but has not applied for a review of the legal costs under the Act within sixty days of receiving the bill. In that case, the law practice may also withdraw the trust money.
It is important for law practices in Queensland to understand and adhere to these regulations to ensure proper management of trust money and compliance with legal requirements.
Trust Money Regulation in Western Australia
In Western Australia, trust money is regulated by the Legal Profession Act 2008 and the Legal Profession Regulations 2009. These laws outline the conditions under which a law practice may withdraw trust money. Specifically, if the practice has provided the person with a bill related to the money and the person has not objected to the withdrawal within seven days of receiving the bill, or if the person has objected but has not applied for a legal cost review within sixty days of receiving the bill, the law practice may withdraw the trust money. Law practices in Western Australia must adhere to these regulations to maintain compliance and ethical business practices.
Trust Money Regulation in South Australia
In South Australia, trust money is governed by the Legal Practitioners Act, 1981, and the Legal Practitioners Regulations 2009. However, the state has yet to push the national legal profession model bill through parliament due to a political deadlock over compensation for victims of trust account fraud.
Under the act, legal practitioners or firms cannot use trust money to pay for legal costs without delivering a bill specifying the total amount and describing the legal work. The person liable to legal costs has six months after receiving the bill to request a detailed statement showing how the amount is made up.
In 2012, the Law Society of South Australia published a fact sheet on appropriating Trust Money for Payment of Fees. The fact sheet suggests that three business days be allowed to pass after posting the bill before trust money is used to pay fees, and that trust money should remain in trust if the client objects to the bill.
Trust Money Regulations in Tasmania
In Tasmania, the regulation of trust money is overseen by the Legal Profession Act 2007 and the Legal Profession Regulations 2007. These regulations dictate that a law practice may only withdraw trust money if the person has been given a bill, a written request for payment, or a notice of proposed withdrawal related to the money, and has not objected to the withdrawal within seven days of receiving the bill, request, or notice.
If the person does object within the seven-day window, but does not apply for a review of legal costs under the Act within sixty days of receiving the bill, request, or notice, then the law practice may still withdraw the trust money.
Trust Money Regulations in Australian Territories
Australian Capital Territory
Trust money in the Australian Capital Territory is governed by the Legal Profession Act 2006 and the Legal Profession Regulations 2006. According to these regulations, a law practice may withdraw trust money if the person has received a bill related to the money and has not objected to the withdrawal within seven days of receiving the bill. Alternatively, suppose the person has objected to the withdrawal within seven days of receiving the bill but has not applied for a review of the legal costs under the Act within sixty days. In that case, the law practice may still withdraw the trust money.
Northern Territory
In the Northern Territory, trust money is regulated by the Legal Profession Act and the Legal Profession Regulations. Like in the Australian Capital Territory, a law practice may withdraw trust money if the person has received a bill related to the money and has not objected to the withdrawal within seven days of receiving the bill. Alternatively, if the person has objected to the withdrawal within seven days of receiving the bill but has not applied for a review of the legal costs under the Act within sixty days of receiving the bill, the law practice may still withdraw the trust money.
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