Practitioners often receive funds to be held until distributed to the intended party when acting in family law matters, for a vendor selling land and when acting for the executor of a deceased estate.
Claims sometimes arise where practitioners fail to seek instructions from the client to invest the money in an interest-bearing account rather than leave it in the trust account.
In one claim the practitioner initially acted for the client in a family law property settlement and the client died shortly after final orders were made.
The practitioner then acted for the executor, who was the deceased’s sister. The practitioner received approximately $200,000 from the deceased’s superannuation fund.
The practitioner met with the executor shortly after receipt of the monies and discussed investing the funds but for no apparent reason the monies remained in his trust account. The practitioner’s view was that it was the executor’s responsibility to instruct him to invest the funds.
About one month later the practitioner received proceeds from the deceased’s life policy of approximately $1.5m. No further advice was given about investing the funds. Another month later the estate was distributed.
Twelve months later new practitioners acting for the executor sent a letter of demand for payment of interest on the funds held by the practitioner due to the practitioner failing to invest the funds. Ultimately, the matter settled with a payment of a portion of the interest lost on the funds.
Here are a few things to consider to help you avoid this sort of claim.
- On a weekly basis check the trust account ledger on all files and raise the possibility of investing the funds with the file operator.
- Inform the client, preferably in writing, that funds held by the firm in their trust account do not accrue interest and that the client needs to provide instructions in writing about the investment of the funds.
- Ensure the client receives regular statements detailing the amount held in the practitioner’s trust account.
Inform the client that they should consider any tax consequences of investing funds. In estate matters the client might rather leave the money in trust and avoid the need to lodge a tax return as no interest would be earned.