Trust Bank Accounts

Trust Bank Accounts

TRUST ACCOUNT

  • Section 86 (1) Every legal practitioner referred to in section 84(1) must operate a trust account.
  • Section 86 (2) Every trust account practice must keep a trust account at a bank with which the Fund has made an arrangement as provided for in section 63(1)(g) and must deposit therein, as soon as possible after receipt thereof, money held by such practice on behalf of any person. – Interest accrued must, in the case of money deposited in terms of this subsection, be paid over to the Fund and vests in the Fund.
    • 100% of trust interest earned, less approved recoverable bank charges, will be paid monthly to the Fund as provided for by Rule 54.14.16.1 made under the authority of Section 95 (1) of the Legal Practice Act, 28 of 2014.

TRUST SAVINGS AND OTHER INTEREST-BEARING ACCOUNT

  • Section 86 (4) A trust account practice may, on the instructions of any person, open a separate trust savings account or other interest-bearing account for the purpose of investing therein any money deposited in the trust account of that practice, on behalf of such person over which the practice exercises exclusive control as trustee, agent or stakeholder or in any other fiduciary capacity. – Interest accrued on money deposited in terms of this section must, in the case of money deposited in terms of this subsection, be paid over to the person referred to in that subsection: Provided that 5% of the interest accrued on money in terms of this paragraph must be paid over to the Fund and vests in the Fund.
  • In terms of section 86(5)(b) and as provided for by Rule 54.14.16.4 made under the authority of Section 95 (1) of the Legal Practice Act, 28 of 2014, 5% of the interest accrued, on money deposited, during the course of a calendar month or on maturity shall be paid over to the Fund or its nominee on or before the last day of the next succeeding calendar month
  • This was effective from 1 March 2019

LIST OF BANKS THAT HAVE ENTERED INTO A BANKING ARRANGEMENT WITH THE FUND IN TERMS OF SECTION 63(1)(G)

  • Section 86(6) – A legal practitioner referred to in section 84(1) may not deposit money in terms of subsection (2), nor invest money in terms of subsections (3) and (4) in accounts held at a bank which is not a party to an arrangement as provided for in section 63(1)(g), unless prior written consent of the Fund has been obtained.
  • Section 86(7) – A legal practitioner referred to in section 84(1) must comply with the terms of an arrangement concluded between a bank and the Fund as provided for in section 63(1)(g.
  • Click here to view the list of banks that have entered into a banking arrangement with the Fund.

LPA and Rules Section 86 Requirements

Section 86(2) trust interest

  1. Every trust account practice must keep a trust account at a bank with which the Fund has made an arrangement as provided for in section 63(1)(g) of the Legal Practice Act and must deposit therein, as soon as possible after receipt thereof, money held by such practice on behalf of any person.
  2. In terms of rule 54.14.16.1 it is mandatory for trust account practices to pay over 100% of any trust interest accrued in terms of section 86(5), earned on section 86(2) trust bank accounts, less approved recoverable bank charges, monthly to the Fund on or before the last day of the next succeeding calendar month.

Section 86(3) trust interest

  1. A trust account practice may, of its own accord, invest in a separate trust savings account or other interest-bearing account any money which is not immediately required for any particular purpose.
  2. In terms of rule 54.14.16.3 it is mandatory for trust account practices to pay over 100% of trust interest accrued in terms of section 86(5), earned on section 86(3) trust bank accounts, less approved recoverable bank charges, annually to the Fund on or before the last day of May each year for any interest accrued for the 12-month period ending February.

Section 86(4) trust interest

  1. A trust account practice may, on the instructions of any person, open a separate trust savings account or other interest-bearing account for the purpose of investing therein any money deposited in the trust account of that practice, on behalf of such person over which the practice exercises exclusive control as trustee, agent or stakeholder or in any other fiduciary capacity. – Interest accrued on money deposited in terms of this section must, in the case of money deposited in terms of this subsection, be paid over to the person referred to in that subsection: Provided that 5% of the interest accrued on money in terms section 86(5)(b) must be paid over to the Fund and vests in the Fund.
  2. In terms of rule 54.14.16.4 it is mandatory that 5% of the interest accrued in terms of section 86(5), on money deposited during the course of a calendar month or on maturity shall be paid over to the Fund or its nominee on or before the last day of the next succeeding calendar month.
  • Banks that have made an arrangement, as provided for in section 63(1)(g) of the Legal Practice Act, with the Fund are required to automatically sweep the 5% of trust interest accrued monthly to the Fund, within three working days of the month end.
  • A trust account practice may only invest section 86(4) trust funds in a trust investment where the bank, automatically sweeps the 5% of trust interest accrued, monthly, to the Fund.
  • This was effective from 1 March 2019

Payment of trust interest accrued on trust accounts & Unclaimed and Unknown Trust Monies.

  • Generally speaking, the rate of interest earned on a section 86(3) interest – bearing account can be up to 45% higher than the rate of interest earned on a section 86(2) trust bank account.
  • Trust account practices are urged to engage with their Banks and invest money, not immediately required for any particular purpose, from their trust accounts into an interest-bearing account in terms of section 86(3).
  • Benefits of investing surplus funds terms in section 86(3)
    • Increased trust income possibly leading to:
      • Increased refund of recoverable bank charges
      • Increased refund of audit fees
  • The Fund’s trust interest income will increase, and this will assist the Fund in carrying out its mandate in terms of the Legal Practice Act
  • The Fund exists to support consumers of legal services as well as legal practitioners by protecting the consumers of legal services against loss resulting from misappropriation of trust money or property entrusted to trust account practices in the course of their practices
  • The Fund is required to financially support legal regulation and may, in the case of legal education in the country, also support such, and we continue to do so in the interests of both the public and the legal profession

PAYMENT OF TRUST INTEREST ACCRUED ON TRUST ACCOUNTS TO THE LPFF IN TERMS OF LPA AND LPC RULES

PAYMENT OF UNCLAIMED AND UNKNOWN TRUST MONIES IN ACCORDANCE WITH SECTION 87(4) OF THE LEGAL PRACTICES ACT, NO. 28 OF 2014

  1. The remaining Chapters of the Legal Practice Act, No. 28 of 2014 (LPA) came into effect on 1 November 2018, and the Legal Practitioners and all relevant stakeholders are reminded about the requirements of section 87(4)(a), which make it mandatory for Legal Practitioners to pay any unclaimed and unknown monies held in a trust account to the Legal Practitioners’ Fidelity Fund (LPFF).
  2. Section 87(4)(a) and (b) of the LPA states that:
    1. Any money held in the trust account of a trust account practice in respect of which the identity of the owner is unknown, or which is unclaimed after one year, must, after the second annual closing of the accounting records of the trust account practice following the date upon which those funds were deposited in the trust account of the trust account practice, be paid over to the Fund by the trust account practice.
    2. Nothing in this subsection deprives the owner of the money contemplated in paragraph (a) of the right to claim from the Fund any portion as he or she may prove an entitlement to.

Please download Payment of Unclaimed and Unknown trust monies in terms of Section 87_4 of the LPA (updated 8 March 2024)

 

  • Section 86(4) of the LPA allows trust account practices to invest client monies in a separate trust savings account or other interest-bearing account where there is an underlying transaction with an explicit mandate from the client to do so. These investments should be made through Banks in terms of Rule 54.17 and 54.18 with which the Fund has entered into an arrangement.
  • These investments remain part of entrusted monies and are recorded as such in the trust accounting records of the legal practice and enjoy protection by the Legal Practitioners’ Fidelity Fund (the Fund).
  • Some trust account practices operate investment practices, wherein they regularly open investment accounts in terms of the Rules for their clients. With effect from 1 November 2018 trust account practices and legal practitioners are regulated in terms of the LPA and its Rules. These rules permit trust account practices to invest on behalf of individuals without there being an underlying transaction, and these investments can be done in terms of Rule 55. Monies invested in terms of the Rules that have no underlying transaction and are not earmarked for any purpose other than to invest, do not form part of general trust monies and should not be accounted for as part of general trust monies/balances, and DO NOT enjoy the protection by the Fund.
  • Trust account practices investing in terms of the Rules should pay attention to the requirements of the Rules as follows:
    • Rule 55.1 – A firm shall for the purpose of this rule be deemed to be carrying on the business of an investment practice if it invests funds on behalf of a client or clients and it controls or manages such investments, whether directly or indirectly.
    • Rule 55.2 – A client shall for the purpose of this investment practice rule include any person on whose behalf a firm invest funds or manages or controls investments, whether or not such person is otherwise a client of the firm concerned
    • Rule 55.4 – A firm carrying on an investment practice shall obtain an investment mandate from each client before or as soon as possible after investing funds for that client. The form of the investment mandate shall be substantially in the form of the Ninth Schedule to these rules and shall contain a statement that the client acknowledges that moneys so invested DO NOT enjoy the protection of the Fund.
  • Trust account practices are urged to read rule 55 in full to get more information on Investment Practice Rules. Refer and Download the Payment of Unclaimed and Unknown trust monies in term of Section 87 4 of the LPA.
  • Following on an opinion sought, the Law Society of South Africa (LSSA) sought clarity from the Financial Sector Conduct Authority (FSCA), previously known as the Financial Services Board (FSB), and were advised in July 2015 by the Deputy Registrar of the FSB that investments in terms of the LPA would not fall within the ambit of the FAIS Act, while investments in terms of the Rules would require compliance with the FAIS Act. As such trust account practices that run investment practices are required to be licensed with the FSCA as Financial Service Providers (FSPs).
  • Proper and accurate distinctions of investments should be made by legal practices when investing client funds in terms of the Act or the Rules so as to ensure compliance with relevant legislation and/or regulations.
  • Legal practices who invest monies in terms of the rules are running an investment practice and must ensure that they:
  • Are licensed to do so by the FSCA
  • Obtain a mandate from their client to invest his or her money
  • Make an accurate classification of an investment at all times
  • Explicitly disclose to the client that the investment is NOT protected by the Fund and
  • Fully comply with the requirements of the FAIS Act

  • Trust account practices are required to submit their annual audit reports on their trust accounts to the relevant Provincial LPC within 6 months of the closing of the financial period
  • The Audit Report comprises of 2 sets of documents, which must be submitted together to the Provincial LPC
  • Trust interest received on all section 86(2), (3) and (4) trust accounts is aggregated when calculating the audit fee refund amount
  • The Legal Practitioner’s Annual Statement on Trust Accounts contains, inter alia the reconciliation of the trust interest and bank charges, the balance of the trust creditors as well as trust money available
  • Application for Refund of Bank Charges and Audit Fees
  • The application for the Refund for Bank Charges and Audit Fees, which must be submitted to the relevant LPC Provincial Council , is a separate document and in order to prevent any delay in receiving the refund payment, it is best lodged at the same time as the audit report
  • If no refund application is submitted, no refund will be received
  • A refund application is only approved and processed when outstanding trust interest at the close of the financial period, has been paid to the LPFF
  • Any errors on the Audit Report and the Annual Statement will result in the delaying of the finalisation of the audit report and the delaying of the payment claimed as a refund from the LPFF
  • Download the Application for Refund of Bank Charges and Audit Fees Form.