Trust money you cannot return to the client

Two situations qualify

Small balances that cannot be returned are one of the most persistent irritations in a trust account. They never resolve on their own, and they never stop appearing on the reconciliation. There is a route out, and it has two entrances.

• The funds have been held in trust for at least two years from the date of receipt, and the client's location is unknown despite the licensee's attempts to find them.
• The licensee is unable to determine who is entitled to the funds — which the Law Society treats as meaning the records are insufficient to establish where the money came from.

The two-year clock runs from receipt, not from the day the file closed or the day someone noticed the balance. That single detail decides whether a stale balance is already eligible or still has years to run.

The situations that look qualifying and are not

Most rejected applications concern money the firm genuinely cannot pay out — just not for a reason this process covers:

• Two parties both claim the money. That is a dispute rather than unknown entitlement, and the funds continue to be held until it is resolved.
• You know exactly where the client is and they simply will not cash the cheque. Their location is known, so it does not qualify.
• The client has died and an estate trustee has been appointed — the trustee can direct payment, so the money has somewhere to go.
• Funds are held under a settlement, court order or undertaking on a matter that has since gone quiet.
• The client is an inactive corporation, in which case the money is directed to the Public Guardian and Trustee or to Corporations Canada, depending on how the company was incorporated.

For several of these, the route for genuine uncertainty about who should receive client property is an application to a tribunal of competent jurisdiction for direction — the Rules of Professional Conduct say so in terms. Continuing to hold the money while nobody decides is not a neutral act; it is a decision to hold the balance indefinitely.

You cannot bill against money you cannot return

Where the client cannot be located, fees are not to be taken out of the balance being held. The Law Society does not approve licensee accounts, and an account cannot be rendered to a client nobody can find.

Expenses actually incurred in searching for the client are treated differently and may be reimbursed. That reimbursement is best completed before the application goes in, so the client ledger submitted with it reflects the final position rather than one that shifts afterwards.

How the application runs

Approval comes first and the money second. The licensee applies through the Law Society's secure online portal; the funds are not sent with the application, because they cannot be processed until the application has been approved. Once it is, the Law Society asks for the money, paid by trust cheque or bank draft.