Legal Ease, June 18

Nunavut lawyer James Morton explains what a trust is. (FILE PHOTO)

Sometimes when you are working with a lawyer you will hear that money is being held “in trust.” Most people do not really understand what that means, but it is important and a major part of dealing with a lawyer.

Holding money in trust is something a lawyer does when the lawyer is the custodian of the money—the money does not belong to the lawyer, and the lawyer cannot use the money, except in accordance with the basis the lawyer got the money.

So, for example, someone may be buying a business for, say, $100,000. The purchase will take place a few months from now, but in the meantime the lawyer could be given $15,000 to hold for the closing of the transaction.

That $15,000 must go to the sale price of the business, or, if the deal fails, back to the person who is buying the business. It cannot go to the lawyer for a fee or for some other purpose.

Similarly, if you give a lawyer a retainer to pay for some work to be done, the lawyer holds the money in trust until a bill is rendered. If there is money left over, it has to come back to the client.

If a lawyer obtains money in a case in trust for the client, the lawyer has to send the money to the client and account for it. So if I collect $10,000 on a judgement for you, I have to send you the $10,000. It’s not my money to keep!

Since the lawyer does not own the money he or she holds in trust, the money isn’t lost if the lawyer goes bankrupt—the lawyer never had the money to begin with.

The law societies of Nunavut and Ontario make sure that lawyers’ trust accounts are properly kept and accounted for. Any lawyer who fails to keep trust accounts properly is in serious trouble with their law society.

James Morton is a lawyer practising in Nunavut with offices in Iqaluit. The comments here are intended as general legal information and not as specific legal advice.