As the practising year concludes, many practitioners may be considering retirement, merging, or withdrawing from practice. Practitioners with trust accounts and those who hold wills and deeds for clients need to make sure there are plans in place for both. It is particularly important to communicate with affected clients promptly so that they can make decisions about what to do next and so that they know where any documents you hold will be held in the future.

Practitioners winding down a practice also need to have a clear plan about how current and stored client files will be dealt with. 

Practitioners with trust accounts must close them before officially ending their practice. The New Zealand Law Society Te Kahui Ture o Aotearoa’s Practice Note, 'Closing down or selling a law firm' includes guidance on closing trust accounts and trust bank accounts.

A member of the Law Society’s Inspectorate must conduct an 'exit review' before any trust account is closed. This review ensures all loose ends are appropriately addressed and that there are arrangements in place to meet the firm’s continuing duty to retain files and trust account records.

All ledger balances must be resolved. Any transaction involving client funds must be referenced back to instructions or statutory/court authority. The only exception to that rule is where payment is made back to the client i.e. a refund; Lawyers and Conveyancers Act 2006 section 110 (1) (b) refers.

Fees cannot be deducted from a clients’ funds held without both proof of authority and an issued invoice.

The contact details of owners of inactive balances (often misdescribed as dormant balances) should be known if the firm has met its duty to report all balances (at least annually), as required by the Lawyers and Conveyancers Act (Trust Account) Regulations 2008, regulation 12(7).

Sending clients a copy of their trust account ledger is often an easy and economical way to fulfil this duty in most instances.

If the practice has been remiss in their reporting duties, efforts must be redoubled to locate clients, possibly by engaging a debt collection agency. Costs for tracing cannot be deducted without client authority.

Only after reasonable efforts have been made will the IRD receive any unclaimed money. The Law Society provides a practice note to assist with amendments to the Unclaimed Money Act 1971 and its implications for lawyers’ trust accounts.

Closing a practice involves numerous tasks, including storing records, relocating deeds, dealing with client files (open and stored), withdrawing from trusteeships, and resolving all client balances in the firm’s trust account. These tasks require time but are essential to ensure that your clients’ interests are protected.

In the Inspectorate’s experience there are a number of sole practitioners who are unaware of the full range of duties and tasks required upon closure or the necessary lead times. If you are considering closing your trust account, you must address these issues promptly.

The Inspectorate welcomes queries and can assist lawyers with trust account closures and administration.

For assistance, contact the Inspectorate at inspectorate@lawsociety.org.nz