For Ontario law firms, trust accounting is one of the most closely regulated areas of practice. The Law Society of Ontario (LSO) requires strict compliance with By-Law 9 and the associated Trust Account Rules, covering everything from monthly reconciliations to how long records must be kept.
One area that can create hidden risk is the dormant trust account—funds held in trust for a client or matter that haven’t moved foran extended period. While these balances may seem harmless, they can raise significant compliance concerns.
• Non-Compliance with By-Law 9 – The LSO requires that trust funds be disbursed “promptly” once the purpose of the retainer is fulfilled. Leaving funds in trust unnecessarily can be viewed as a breach.
• Audit Red Flags – During spot audits, the LSO looks closely at old or unexplained balances. Firms may be asked to demonstrate why funds remain in trust and what steps have been taken to return them.
• Unclaimed Funds Obligations – Where clients cannot be located, law firms must follow Ontario’s Unclaimed Intangible Property Act, which may require remitting dormant balances to the Ministry after a prescribed period.
1. Monthly Ledger Reviews
Don’t just reconcile. Review for balances with no activity for 6+ months.
2. Client Communication
Document all attempts to contact clients to return funds. This paper trail is essential if reviewed by the LSO.
3. Formal File Closures
At the end of a retainer, ensure a final accounting is provided and any remaining trust funds are refunded immediately.
4. Unclaimed Funds Process
If clients cannot be found, follow LSO guidance and provincial legislation for handling unclaimed trust funds.
Integrate a “Dormant Trust Checklist” into your firm’s quarterly bookkeeping cycle. This ensures balances are identified early, clients are contacted promptly, and you remain audit-ready under the LSO’s requirements.
At TandemBooks, we help Ontario law firms maintain clean trust ledgers, resolve dormant balances, and prepare for LSO spot audits with confidence.
