August 31, 2020September 1, 2020 Dynamic

How to transfer funds from Trust to Business

This post deals with the circumstances under which trust funds may be transferred to the business, and the procedure for doing so.

Bulk Trust to Business Transfers

When may Trust Funds by paid out?

Trust funds belong to the client. The lawyer maintains the trust on behalf of his client. Only in very limited circumstances is the disbursement of trust funds authorized. Disbursement here has the wide meaning of paying out money, and it means payment to any party not the client.

Generally,

the client may always receive payment of funds held on his behalf;
third parties, if duly authorized by the client, by receive payment from the trust;
the law firm, as payment for its professional services rendered.

This post does not deal with retainers and the point at which a retainer may become transferable from trust to business.

Where payment is made directly to the client, or a third party, this will be a direct bank transaction, such as an EFT (electronic banking) or a paper cheque. A specific beneficiary for such payment must be apparent and trust payments may not be made to unspecified (“cash“) recipients.

The ledger will merely reflect a trust debit entry.

Trust to Business Transfer

Few Transactions

For a very few law firms, it may be suitable to transfer trust funds as settlement of its bill on a one-to-one basis. In this case a simple trust payment is made, and should then be received on the same account with a business receipt.

In any busy law firm, with many active files and high transaction volumes it would soon become impossible to manage the number of files and keep accurate tabs on the current balances. This one-to-one type transfer is not recommended.

Problems associated with this method include

an increased administrative burden
additional costs (bank charges)
multiple additional transactions
increased reconciliation workload

for no apparent benefit.

Many Transactions

Dynamic is designed for trust accounting. This means that a sophisticated and dedicated trust-to-business-transfer function is available.

The trust-to-business transfer is composed to of two distinct set of transactions, (a) the Ledger entry, showing the movement of funds from trust to the business, and (b) the Banking transactions, which show payment from trust and the receipt in the business account.

The benefits of this method include

reduced administrative burden
lower costs (bank charges)
few individual transactions to track
reduced reconciliation workload

less time spent on administration allows more time for professional activities.

How Trust to Business Transfers should be done

The Bulk Trust to Business Transfer procedure

The discussion below is designed to give a complete and accurate description of the transfer procedure. It is the recommended procedure. This can be done on demand, any time, any day.

Bear in mind that Dynamic is designed to ensure compliance in a legal trust accounting environment. Following the steps outlined below will facilitate compliance. The Bulk Trust to Business Transfer procedure will ensure the integrity of the trust.

The goal throughout is to ensure that the trust cash books are always equal to the trust ledgers.

Required

Recent, accurate trust bank reconciliations.
A business Transfer Control Account, we recommend a generic account such as #99000. If separate control accounts are required for each trust account, #99001 can be used for bank 1, #99002 for bank 2 etc.

Procedure

All current transactions must be up to date.
Confirm most recent Bank Reconciliations. Unprocessed banking transactions, or outstanding transaction may present a problem. Please see elsewhere for details on the bank reconciliation procedure. If either the cash book is not up to date or there is no recent bank reconciliation, do not proceed beyond this point.
Management Snapshot prior. The purpose is to verify the integrity of the system at the start of the process. Check the trust assets and liabilities, make sure it does not report a problem. This document represents the state of the books at the start of the process. If anything is unclear, do not proceed beyond this point. Print this report.

Management Snapshot with Trust in balance

Processing > Trust to Business Transfer. This journal entry totals the current business and trust client ledger balances on a by-account basis, then typically debits trust and credits the relevant ledger. This will reduce the trust obligation, which will reduce the trust creditors. This report should be printed, but it can also be found in the diagnostic reports.

Management Snapshot post. The purpose is to find a summary of the trust funds in excess of the trust creditors. These funds have become available due to the trust to business journal entry. This document is a summary, and a detailed report such as the Trial Balance may be required in some areas. Find the trust surplus on this report. Print this report.

Banking Transactions. Process this trust surplus amount with a trust payment and a business receipt. Take the funds out of the trust banking account with a Trust Payment. Process this transaction against the Transfer Control Account. Receive this payment in Business, against the same Transfer Control Account. These transaction should show a nil balance on the Transfer Control Account once we are done. Unbalanced control accounts indicate a problem.

Management Snapshot final. The purpose is to confirm that the books balance correctly after all transactions have been processed. Print this report.

Age Analysis. Inspect the Age Analysis for Accounts Receivable at this point to ensure that Management is fully aware of the extent of outstanding Receivable accounts.

Common Questions

Sometimes we make mistakes or the unexpected happens. What happens to the trust then?

How do I recover VAT on my transfer ? No. There is no VAT applicable to the trust to business transfer transactions. VAT is calculated on transactions as they occur. This means when a Fee is processed, Output VAT is calculated and processed in the system. Similarly when a payment on an expense is made, Input VAT is processed. The cash transfer from trust to business is only that, a cash transfer, and no additional VAT should be raised on that amount.

Must we wait for month end to do a transfer? No! Dynamic is fully integrated and immediately up to date. Post all the necessary transactions and do a transfer immediately. There is no reason to wait for month end. Transfers may be done daily.

I did not do a transfer at the end of last month. Can I force transfer on a specific date? Yes. Simply select the date on which you want to process this transaction and a ledger entry will be processed on that date. Do follow the remaining steps in order to avoid creating a double transfer.

The bank reconciliation is a few months behind, or inaccurate. May I proceed with the transfer ? No. The bank reconciliation is a required preceding step. Proceeding without an up to date cash book and a recent, accurate bank reconciliation undermines the entire process.

My system shows a Trust Deficit. What do I do now? The discussion above assumes the normal position where positive cash flow is from the Trust account to the Business account. It may happen, for reasons not explored here, that a Trust Deficit arises: this is a situation where the net Trust Cash Books are worth less than the Ledger requirements. In such a situation Dynamic will clearly indicate the Trust Deficit position and banking transactions must be processed to correct this state of affairs.

Process a Business Cheque and Trust Receipt against the standard Trust Transfer Control account.
Check the Management Snapshot for the Trust Position.

The Trust to Business feature balances the ledgers. Any remaining differences between the cash books and ledger balances will be reflected by the Management Snapshot.

Also see Dynamic’s Analyzed Transfer

-Dynamic

February 28, 2017March 1, 2017 carl

Process discrete transactions

DynamicLTA uses both a pre-defined Chart of Accounts and a pre-defined set of transaction types.

The following explains some of the concepts used:

Client gives us a deposit (retainer) to be kept on trust until work is done.
Professional work is done.
Funds transferred from Trust to Business.

In order to fully and accurately capture all these events and obtain final ledger reports which reliably indicate the full audit trial, each transaction has to be isolated. Each distinct transaction has to be captured separately. At least the following must be captured:

Trust Receipt. Deposit belongs in the trust. A trust receipt is issued and processed as such, updating the client trust ledger and the trust cash book. Credit the ledger, debit the trust cash book.
Business Fee. The trust is not subject to fee charges. Work done must be charged to the client’s business account. Debit the client business ledger and credit the revenue account used for Professional Fees. Simply transferring funds from the trust account and calling it a “Fee” does not make it so.
Transfer. There are two options when it comes to transferring money from trust to business.
1. Individual transfers. On the client ledger account, process the trust payment out to the business account. Debit client trust ledger and credit the trust cash book. Now receive the money in the business account: business receipt. Credit the client business ledger and debit the business cash book. This works well for few accounts and relatively large sums. but becomes an administrative burden when managing many accounts. This method is generally discouraged.
2. Bulk Transfer Procedure. Use the Dynamic transfer journal option. This will generate a “Transfer Journal” transaction on each eligible ledger, debiting the trust ledger and simultaneously crediting the business ledger. Individual ledger entries are allocated. This ledger entry reduces the trust creditors, but does not affect the trust cash book. This creates a global difference between the total trust cash book balance and the client trust ledger balance. The difference is then processed as a single bulk bank payment. Process a transfer payment against a transfer control account: debit trust on transfer control ledger and credit the trust cash book. Directly after credit business on the same transfer control ledger and debit the business cash book. This method is recommended. See more below.
The clients ledger (combined trust and business) shows the full audit trial of all transactions processed.
Each individual transaction has now been processed and is clearly distinguishable from other transactions.

The Bulk Transfer Procedure is is shown in the images below.

Transfer Journal report identifies individual ledgers and exact amounts

Bulk Transfer Control Account shows trust payment and business receipt

The Bulk Transfer Procedure discussed above is also discussed elsewhere. From the top down, the main features are as follows:

The Bulk Transfer Control account (normally #99900) reflects the amounts paid out from trust and received into the business. The same amounts should reflect on the trust and business cash books and bank statements. Control in place? Check
The Transfer Journal listing identifies each individual ledger and the exact amount debited or credited at that time. The total here should be what is paid between the cash books. Total transfer valued determined? Check. Individual ledgers identified? Check. Exact amounts to transfer determined? Check.
The Ledger History Report on any given client ledger will reflect the discrete transactions and indicate how Dynamic determined the transferable amount. Compliance achieved? Check.

Please note that on Dynamic, as on all bookkeeping systems, transactions should be entered accurately and as up-to-date as possible. Bank reconciliations should be done frequently, preferably up to current month. No transfer system, manual or otherwise, can be accurate where the underlying transactions or account management procedures are not accurate or up to date.

-Dynamic

Featured carl

www.DynamicLTA.com

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