What Are Trust Accounts?

Trust account refers to the special account for trust funds opened by the trustee.

Trust account

Right!

Trust account means

1.The trust account is to enlarge the original funds by a certain proportion, and there are certain

1. Due to the enlarged nature of the trust account risk, when the index is in a downward trend, heavy storage operations are prohibited and long-term holding of shares is prohibited.

2. Due to the strict limit on the loss ratio of the trust account, and the allowable loss ratio is generally small, conservative operations should be taken before profit is created. Under the premise of a certain profit, the degree of aggressiveness should be appropriately increased in accordance with the profit ratio.

3. Because the trust account exists

I. Feasibility and Related Models of Law Firm Trust Account Standard Operation

In an online questionnaire survey on the trust account of the Beijing Municipal Bureau of Justice, 70% of the 140 valid answers to the law firm's need for centralized management of trust funds agreed. In fact, 118 of the 140 law firms surveyed have adopted various forms of internal centralized management systems.

Internationally, the trust fund management of law firms has matured experience. In France, clients and lawyers ask about the various fund operations and deposits that may occur. They are managed centrally by the Lawyers Fund Settlement Depository (CARPA) or the "escrow" account of the Bar Association. Lawyers can accept funds, property or securities for clients during the practice process, but they must be deposited into CARPA indefinitely after acceptance. Therefore, lawyers can only keep these funds, property or securities temporarily, and should attach a copy of the deposit or escrow agreement. Once the funds are deposited in the CARPA account, CARPA will pay the client the amount transferred at the request of the lawyer. Therefore, the depository can supervise the operation of all funds.

In the U.S. The lawyer manages the fund account independently, and the code of practice for lawyers also strictly stipulates the relevant rules for lawyers to receive and manage client funds. The account that lawyers use to manage trust funds is called a lawyer trust account, and the opening of a lawyer trust account must meet certain conditions. First, the account must be opened in a financial institution approved by the Supreme Court or a lawyers' punishment agency. It is a legal obligation of a lawyer to choose a designated financial institution to open an account. At the same time, financial institutions that can open trust accounts also need to obtain corresponding qualification certifications. Second, lawyers must distinguish client funds from their own properties in different accounts to avoid various types of misconduct. The court may appoint auditors to audit lawyers' trust accounts, which not only protects the client's interests to the greatest extent, but also provides practical expert help for practicing lawyers in maintaining accounting records and supporting accounting information.

The cost of setting up centralized management of trust funds is an unavoidable practical problem. To solve this problem, we can first examine how the United States can resolve cost resistance intangible in the operation of lawyer account management. In the United States, lawyers represent clients often accepting their trust funds to complete entrusted matters quickly or to collect various payments on behalf of clients. If the amount of funds is large or the escrow period is long, a special interest account needs to be opened for the customers so that they can obtain benefits. However, if the amount of a client's funds is too small or the escrow time is too short to generate interest, lawyers can put the client's funds into a special account, a lawyer's trust account. The interest generated from the pool of lawyers' trust accounts, after deducting bank fees, will be collected by a specialized agency in each state, which is mainly used to provide legal aid to the poor and can also be used to finance judicial-related projects. Bar Associations can also get some of their income, such as funding state civil legal aid projects, legal education, and law promotion.

The small or short-term funds that cannot generate income alone generate large-scale returns by focusing on the trust account. Achieving the maximum utilization of assets, which is a basic theory in economics, is extremely valuable in practice, and it will also become a reference for us when we study and solve such problems.

Second, the concept of establishing a basic framework for the standardized operation of China's trust account

1. Ensure the independence and specificity of the trust account

Chapter 159 of the Laws of Hong Kong, Chapter 73 "Accounting Rules for Solicitors", "the current or savings account opened in a bank in the name of a solicitor, and an account with the name" Client "is called a" party account " '.

The funds that should be deposited into the account mainly include: a. Trust funds b. Funds that are owned by the firm and need to be used to open or maintain the account c. To fill violations of the requirement that the solicitor should not draw money from the client's account The money used in violation of the rules has been used. Except for special regulations, no other money related to the law firm can be deposited into this account. This is a regulation on the nature of the account deposits of the parties, and it also shows the independence of the parties' accounts from another angle. Article 85 of the Code of Professional Conduct for Lawyers (Trial) stipulates: "When a law firm is entrusted to keep the client's finances, the client's property shall be strictly separated from the property of the law firm, and the client's funds shall be kept in the law firm In the independent account of a financial institution with good credit in the locality, or in a separate bank account designated by the client. "This principle is also the principle that such a lawyer or law firm shall not mix its own funds with the trust funds of the client. The "trust account" discussed in the Office should have the meaning.

Article 5 of the "Interim Regulations of the People's Republic of China on Business Taxes" stipulates that "the taxpayer's turnover shall provide the taxpayer with taxable labor services, the transfer of intangible assets, or the sale of immovable property to the entire price and out-of-the-money charges". Article 14 of the "Implementation Rules of the Interim Regulations of the People's Republic of China on Business Taxes" stipulates: "Extra-price expenses referred to in Article 5 of the Regulations include handling fees, funds, fund-raising fees, collections, advances and other various charges collected from the other party. The extra-price charge of the State Administration of Taxation's Reply on the Collection of Business Tax by Lawyers' Case Handling Fees is more clearly stipulated: "All extra-price charges, regardless of the accounting system's calculation, should be incorporated into the turnover to calculate the taxable amount . According to this, all the fees charged by the law firm to the client during the case handling process, including case handling fees, regardless of the name of the fees and regardless of financial accounting, shall be calculated as the taxable amount in the combined turnover " Therefore, the above-mentioned capital flow in accordance with the prescribed law firm must truthfully reflect on the book and issue a unified invoice, and pay taxes in accordance with the national regulations. However, the client funds collected by the law firm do not belong to the law firm in nature If the tax is payable, then the client's trust fund collected by the law firm does not need to be invoiced. That is to say, the money in the "trust account" will be free of the tax funds directly paid by the law firm. It involves a reasonable doubt on the integrity of the lawyer. How to ensure that the lawyer uses the account correctly and in good faith. Without making the trust account a safe haven for some lawyers to avoid paying taxes is a problem that needs to be solved by institutional innovation.

Therefore, an independent bank account opened in the name of a law firm dedicated to depositing trust funds of clients is a prerequisite for law firms to regulate trust business. And how to ensure the independence and specificity of their accounts in the system It is a major core in establishing a trust account's standardized operating system.

2.Determine the regulatory body and regulatory model for the trust account's standardized operation

Choosing the supervisory body and determining the scale and intensity of management are just a technical issue in system design, but also related to realistic operability and the rule is a guiding issue that can be voluntarily followed by law firms.

We do not agree with the suggestion that a judicial administrative agency should be used as a temporary administrative agency in practice. On the one hand, the principle of unifying power and responsibility in administrative law reminds the judicial administrative department. Where administrative power goes, the administrative responsibility that comes with it will also become a cost of administrative responsibility that the administrative department cannot ignore. On the other hand, the revised Lawyer Law further affirmed the legislative tendency to give full play to the autonomy of lawyers and expand the independence of lawyers' practice. The voice of industry self-discipline in the legal profession requires the law firm to fully enjoy the independence of its own operation and management, excluding the administrative department's excessive prejudice. For example, in Japan, the issue of opening and managing "client funds accounts" is a type of civil behavior between banks and parties. After the banks have formulated internal rules to regulate this issue, the parties themselves decide whether to engage with them. Establishing business relations, the administrative agencies do not interfere with this, which is the embodiment of the principle of freedom. At the same time, Article 46, paragraphs 3 and 4, of the Lawyers Law stipulates that bar associations should perform their duties of "making industry norms and disciplinary systems." "Organizing lawyers' business training and professional ethics and practice disciplinary education, and evaluating the practice activities of lawyers." This provides a legitimate legislative basis for the bar association to become the subject of the formulation and supervision of such industry norms.

Therefore, we believe that it is appropriate for the bar association to classify and sub-area as the regulatory body for the law firm's trust account regulatory operation.

Third, the basic system and model of trust account operation

Opening of trust account

Regarding the entity that opens the trust account, we believe that there are two alternatives. First, any law firm that needs to receive trust funds in its business activities should apply to the bank with certain qualifications designated by the supervisory authority in the name of the law firm to open an account dedicated to depositing trust funds and file it with the supervision and management department. . As for whether one account or several accounts can be set up, each law firm can make its own decision based on its business volume or business nature (such as distinguishing foreign and domestic business). Any trust account used for depositing trust funds must be opened and filed in accordance with the above conditions. However, starting from the principles of ease of supervision and ex-post verification, the number of trust accounts opened by a law firm should not be too small.

We tend to take self-regulatory rights organizations such as the Lawyers Association as the main body of supervision, and open the trust account as the starting point for supervision by the supervisory authority. The supervisory authority should regulate the entire process from the opening of the trust account to the flow of funds in its business process to ensure the independence and speciality of the trust account of the law firm and the safe and secure operation of the trust business of the law firm. Is the second option.

Compared with the two main differences, Option 1 requires the law firm to act as the principal for opening the trust account, while Option 2 requires the supervisory authority to act as the initiator. In fact, the difference between the issuing entities directly results in the opening and maintenance of the trust account, the handling costs of the deposit of funds, and the annual bearer of bank costs. Some short-term or small amounts of interest cannot be obtained separately. The amount of interest obtained by the sum of money and the entity receiving interest will also be different. Comparing the experience and practical feasibility of various countries, we believe that the schemes opened by the Southern Regulatory Department can not only reduce the extra business operation procedures of the law firm, but offset the costs in the regulatory process of the management department. It can also ensure that the legal income belonging to the client is not affected. Some illegal lawyers smuggled it out. Under this scheme, the benefits from maximizing the use of social wealth can also be used for legal aid, judicial projects, lawyers' rights protection, and improvement of self-regulatory supporting facilities in the lawyers industry under reasonable and unified arrangements. These are all difficult for a law firm to open an account and handle the costs and benefits by itself.

Contractual obligations of the bank

The supervisory authority has signed a "trust fund deposit service format contract" with one or more bank head offices or authorized branches in advance. Such contract towels should stipulate a series of contractual obligations for banks. It mainly includes the seal of the law firm that keeps and uses bank deposit accounts, a copy of the fund custody agreement on which the law firm deposits into the bank, and other authorization documents required for account management. Banks settle funds in accordance with the lawful and effective instructions of law firms. Check the amount, source and destination of each fund of the law firm in accordance with the source and purpose of the funds specified in the "Fund Custody Agreement" signed between the firm and the client, and make a detailed account of each business fund. Ensure trust funds operate in accordance with the Fund Custody Agreement and prevent misappropriation of funds. The bank should also regularly provide contractual obligations such as fund custody reports to relevant persons in charge of the law firm, and report any abnormalities in the account to the supervisory authority, inquire, suspend the transfer, and freeze the account in accordance with the requirements of the management department.

In short, banks should strictly abide by the laws and regulations and the stipulated obligations of the "trust fund deposit service format contract" in the handling of business. They should help prevent the risk of legal liability brought by law firms to illegal operations.

3. The general steps of the trust business

According to the practice of Beijing Junhe Law Firm, the general steps for the development of trusts and services are as follows: Step 1: Lawyers of the law firm are engaged in a certain transaction activity on behalf of one party or for two or more parties in a business such as a business merger. Where legal services are provided and the intermediary trust functions are undertaken, a "fund custody agreement" should be signed with the client or a separate supplementary agreement should be signed on the basis of the original legal service contract. In such agreements, at least it should be clear: a. Source of payment b. Type and nature of funds c. Amount of funds d. Purpose of funds e. Payee or source of funds f. Clear and effective customer instructions by means of reserving a customer seal.

The second step: through the service contract signed with the supervisory authority in advance, the bank receives the funds deposited by the law firm based on the "fund custody agreement" or a separate supplementary agreement, which are only within the scope of the service format contract agreement. When the bank accepts the payment, it shall also check whether the balance in the fund custody agreement is consistent with the law firm s reserve seal in the bank.

Step 3: When the law firm needs to transfer client funds, it falsely strictly follows the methods, uses, amounts, provenance and other provisions stipulated in the Fund Custody Agreement, and draws money from the bank with effective client instructions. The bank should also check the reserve seal of the bank's Yinzi when depositing and making payment, and should check the "fund custody agreement" (reserved copy) signed by the client and the law firm in accordance with the transfer requirements of the law firm. The convention is unanimous.

4. Law firms should formulate and improve relevant systems for trust accounts and business management

Article 23 of the revised Lawyers Law adds provisions for the law firm's own system and operating model: "Law firms should establish and improve practice management, conflict of interest review, fee and financial management, complaint investigation, and annual numbers. Auditing, file management and other systems to supervise compliance with professional ethics and discipline in the practice of lawyers ". In the entire process of the standardized operation of trust accounts, law firms are the main stakeholders in bearing business risks. Even with the supervision and guidance of regulatory authorities, law firms still need to strengthen their awareness of risk aversion from their own interests. Therefore, we recommend that law firms formulate and improve the following relevant business process regulations and financial systems:

(1) Qualification or filing system for the subject to limit the acceptance of trust business: Law firms should formulate separate trust business rules or restrict in internal regulations that only qualified lawyers or the approval of the person in charge of the business or the filing of the business department can Accept trust business. It may also be stipulated that major trust fund flows must be approved by the partners' meeting or the signatures of the financial and business executives. So that the law firm can keep abreast of the development of this business in the firm and supervise and inspect it at any time.

(2) Business information filing system: Law firms should establish independent files for each trust business. Including the written agreement of each trust business, the reserved seal of the effectiveness of the client's instructions, the written evidence of the execution of the client's instructions in accordance with the prior agreement of the escrow agreement, and the evidence of the transfer of funds in accordance with the method prescribed in the agreement.

(3) Special financial record checking system: Law firms should establish separate business classification accounts for the receipt and release of trust funds, and regularly check the accounts to ensure that each record of income and expenditure is consistent with the bank's statement. The most important thing is that each receipt and payment of money and its amount, source, provenance, etc. must have real and valid credentials (such as funds custody agreement, valid customer instructions, and evidence of transfers, etc.) as each trust. Basis for financial revenue and expenditure flows. The supervisory authority of the trust account will ultimately monitor the law firm's compliance with regulations based on the financial records of bank accounts and law firms and these valid credentials.

(4) Law firm's professional liability compensation insurance system: Because the trust business of a law firm often involves a large amount of money, the high risk of compensation liability caused by the lawyer's fault in practice has become a problem for many small and medium law firms. The reasons for retaining this business. This has hindered the development of the lawyer industry to a certain extent. Therefore, we suggest that law firms in conditional areas can learn from the Western lawyers' liability compensation system in Canada such as the United States and Canada, and establish a lawyer's practice liability compensation insurance system. Nan Law Firm or law firm invested in "lawyer's practice liability insurance" to the insurance company. Once the lawyer's work mistakes caused economic losses to the client, and after the client filed a claim, Nan Law Firm applied for the insurance company to compensate for it. The insurance company will pay the client according to the insurance situation of the lawyer or law firm. It is understood that Beijing Zhang Yongtao Law Firm took the lead in insuring the new insurance "lawyer liability insurance" of Zhongtong Ping An Insurance Company Beijing Branch in 1996. The Hainan Provincial Law Association also signed an insurance agreement with Pacific Insurance on behalf of 500 lawyers across the province. In this way, although Nan Law or a law firm's purchase of a commercial insurance system has increased the operating costs of the law firm, it has greatly enhanced the ability of practicing lawyers and law firms to withstand various risks during the practice process, and strengthened the entrusted parties to The degree of trust in practice can also ensure that the lawful rights and interests of the parties can be promptly and effectively compensated and remedied when the lawyer's lawful rights and interests are damaged due to the lawyer's illegal execution or subjective fault, which is an inevitable trend to improve our lawyer system.

Fourth, the Bar Association's supervision of trust accounts

Lawyers associations shall establish complete and reasonable rules and regulations for the supervision of the trust account of the law firm and its disciplinary system, as well as relevant industry regulations.

First of all, under the premise that the opening body of the trust account is a bar association, the National Law Association or the Law Association of each province, autonomous region, or municipality level should consult with the banking department to try to establish a bank within the existing and business scope of the bank. A "trust account deposit service format contract" that facilitates banks to play a supporting role in the trust account operation of law firms. The regional law associations open special accounts with specific banks in accordance with this format contract, and may associate law firms within the jurisdiction with such accounts on a one-to-one basis. Banks perform their obligations in accordance with the contract stipulated in the previous text. When receiving the "Account Abnormality Report Form" issued by the bank, the legal association with jurisdiction shall promptly review the security of the trust funds of the law firm corresponding to the account in accordance with certain procedures and methods. When necessary, banks can be required to perform suspension of transfers and freeze accounts.

At the same time, in order to better regulate the operation of trust accounts, the supervisory authority may establish a dual supervision review method that combines regular or periodic inspections with random checks to check the specificity and independence of trust accounts in law firms. The main inspection contents are: whether the trust funds of the law firm are deposited in the special account designated by the supervision department; whether the income and expenditure records in the special financial ledger of the law firm's trust account are consistent with the bank's business records; Whether the income and expenditure records are based on valid customer instructions, fund custody agreements, and funds transfer credentials; whether the source, amount, source, purpose, and customer instructions of each fund are consistent with the original "fund custody agreement", instead Inconsistent, whether there is a corresponding valid proof of change; whether the law firm paid the interest of the client's trust funds in the trust account in accordance with regulations.

Thirdly, the supervisory authority should set boundaries for the different vesting of interest on trust funds, in order to prevent lawyers from embezzling funds that should belong to the parties.

Supervisory departments should formulate corresponding standards, clarify the interest vesting of different trust funds under different conditions, and use trust account interest to offset management costs, use it for legal aid, carry out judicial projects, assist lawyers to safeguard their rights, and improve the self-discipline supporting facilities in the lawyers industry And other usage rules.

Aiming at establishing a law firm's practice liability compensation liability system, local lawyers' associations can stipulate a proportion of business income or an appropriate amount that suits the actual local conditions, and require law firms to deduct and pay from the practice fee and establish a profession within the industry. The insurance mechanism uses the economic strength of the entire industry to improve the compensation capacity of each law firm in the practice process. Or the Southern Bar Association uniformly stipulates that law firms that meet certain conditions must establish a practice liability insurance system. This unsatisfactory system is only a good recipe for the smooth development of trust business, and it is also a strong guarantee to enhance the legal risk resistance of the law firm, increase the industry's credibility, and reduce the resistance of the entire industry.

To sum up, the lawyers association should continuously improve the service management level in order to achieve the purpose of line, coordination, sustainable and stable development, and implement the requirements of Article 46 items 3 and 4 of the Lawyers Law. Gradually establish and improve each The industry regulations and punishment system laid a solid institutional foundation for achieving a high degree of autonomy in the legal profession.

In a word, the standardized operation of law firm trust business and trust account is still a forward-looking and pioneering subject in China's practice, and we are just discussing this topic here. Its perfection urgently requires further in-depth research by colleagues, drawing on the mature experience and advanced models at home and abroad; it requires the judicial administrative departments, lawyers associations, law firms and lawyers to constantly explore and summarize in practice: financial institutions, insurance institutions are also needed Communication and cooperation from multiple departments.