Trust Accounts: Authority and Money Held for Others

What Trust Accounts Hold

A trust account holds money that the account operator must deal with for an identified person or purpose. Client trust accounts can hold settlement proceeds or money advanced for legal work. A family trustee can hold investment receipts, while an estate representative can hold money collected during administration.

Separate the bank account from the relationship that governs it. The bank account records deposits and withdrawals. The underlying trust or client-money arrangement determines the permitted use of those funds. The bookkeeping ledger records how much is attributed to each person or matter.

The working sequence starts when money is received and its source is recorded. The operator allocates that receipt to the correct person or matter, makes authorised payments and accounts for the remaining amount. A bank statement supports the cash movements. It rarely explains the whole authority for them.

Identify the Account Type Before Applying Rules

Identify the jurisdiction and the arrangement before applying trust-account rules. Statutory trust accounts derive their requirements from a particular statute. The phrase does not describe one universal Australian account category.

QBCC means the Queensland Building and Construction Commission. Its trust-account framework distinguishes project accounts from retention accounts. A separate project account is required for each eligible contract. One retention account can cover multiple projects.

The Law Society of NSW’s client-money guidance explains how the Uniform Law governs money held during legal services. Those rules do not automatically govern a private family trustee’s bank account.

Different Types of Trust Accounts in Real Estate

Sale deposits and rental money describe what an agent holds, rather than nationwide legal categories of bank account. Consumer Affairs Victoria allows one or multiple trust accounts, depending on the agency’s needs. Separate sales and rental accounts can therefore reflect the agency’s organisation.

Western Australia’s Consumer Protection guidance also recognises separate interest-bearing trust accounts. Identify the jurisdiction-recognised arrangement and the client instructions before treating an account as an investment for a particular client.

Who sets up family trust accounts?

Establishing a family trust, opening its bank account and preparing its accounts are separate jobs. For a deed-based trust, the establishment documents identify the settlor who provides the initial trust property. The deed records the trustee’s appointment and powers. The trustee arranges the bank account in its trustee capacity, including the bank’s authorised signatories.

A lawyer or accountant can assist with particular steps. Preparing financial statements does not itself appoint an accountant as trustee or give authority to spend trust money. Request the executed deed, trustee appointment records, the decision to open the account and the bank mandate. Compare those documents with the accountant’s opening balances and subsequent records.

A family trust bank account is operated by the trustee in that capacity. The deed-created trust, the bank mandate and the accountant’s financial accounts perform different functions. Opening a bank account does not itself create the trust.

To check how a family trust account was opened, compare the signed bank application with the executed deed and any trustee appointment changes. Identify the trustee giving the instructions and each authorised signatory. For example, NAB’s trusts checklist asks for trustee and signatory details, identification and the trust’s governing documents. A company trustee also requires the bank’s company-document checks.

Whether a family trust needs a bank account depends on its assets, transactions and governing requirements. Identify how the trustee will receive income, pay expenses and keep trust money separate. For cash transactions, check the proposed account and mandate against those needs. The label ‘family trust’ alone does not establish the required bank-account structure.

For estate holdings, identify the executor or administrator and the authority relied on to collect funds. The Western Australian Public Trustee’s estate guidance explains the distinction between probate and letters of administration. Use the relevant state’s requirements for the estate under examination.

Check Who Can Authorise and Receive Payments

Check payment authority against the governing arrangement and the person entitled to the money. A bank signatory has practical access to the account. That access alone does not establish a legal entitlement to spend the funds on any purpose.

For each disputed payment, record the account holder, the signatory who initiated it and the person whose funds were charged. Match those details to the deed, appointment, client instruction or contract. Include any statutory authority or court order relied on.

Record the effective period of each appointment and instruction. When trustees change, identify who held office when the payment occurred and when the bank updated its mandate. A later signature does not, by itself, establish authority for an earlier transfer.

Segregation and separate matter or beneficiary ledgers help identify whose funds remain within a pooled account. They do not establish a universal requirement for a separate bank account for every beneficiary. The applicable regime determines the required account structure.

An invoice supports the purpose and amount of a charge. Pair it with the instruction or other authority that permits payment from the particular person’s funds. A payment to an otherwise legitimate supplier can still be charged to the wrong ledger.

Does the Interest Belong to the Client or Beneficiary?

Trust accounts can earn interest, but entitlement depends on the account type, governing rules and instructions. The deposit product’s interest rate answers a different question from who is entitled to the interest.

For NSW solicitors’ general trust accounts, the Law Society’s Legal Accounting Handbook explains that interest goes to the Public Purpose Fund. It does not accrue for the individual client or the practice. Controlled-money arrangements can earn interest for the person whose money is held, subject to the directions and account arrangements.

In Victoria, interest on estate agents’ trust accounts is paid to the Victorian Property Fund. The statutory destination explains why the interest does not appear as a credit to the deposit payer. Do not apply that destination to another state or a private trust.

Queensland project and retention trusts have a different rule. Under section 51D of the Building Industry Fairness Act, the trustee is entitled to account interest. Withdrawal is permitted once every 12 months or on dissolution, unless it would prevent full payment of another required amount.

For private trust-bank-account interest, trace the bank credit into the trust’s accounts. The deed and valid trustee decisions govern its treatment and beneficiary allocation, alongside applicable law. A bank’s description of an interest payment does not establish a particular beneficiary’s entitlement.

To test disputed interest, obtain the account terms and full statements, including any separate interest account. Compare them with the governing authority and allocation records. Identify the amount earned, where it was paid and how the accounts treated it. Keep the entitlement question separate from any calculation of the deposit rate.

Connect Trust Bookkeeping to the Bank Records

Connect each trust receipt and payment to its source statement and its matter or beneficiary ledger. Establish the account population and period first. Missing opening statements or omitted accounts can make an apparently complete reconciliation misleading.

Request the records needed for the arrangement:

• Statements for the operating account and any related deposit or interest accounts.
• Receipts, cashbooks and individual client or beneficiary ledgers.
• Payment authorities, bank mandates and appointment documents.
• Invoices, contracts and documents supporting journal entries.
• Reconciliation statements and records of returned or cancelled payments.

A bank balance shows cash held at a point in time. Aggregate ledger liability shows the total recorded as owed across the client ledgers. An individual client balance shows the amount attributed to that client. These figures answer different questions.

Compare bank movements with the cashbook and ledgers. Retain unpresented payments, deposits awaiting clearance and other supported timing differences as separate reconciling items. Do not use an unexplained journal to remove a difference.

Review journal-only reallocations and duplicate receipts against their source records. Check whether a returned payment restored the correct client balance. Trace transfers between accounts on both sides. A pooled bank balance can agree with total ledger liabilities even when one client has been credited with another client’s funds.

A Worked Client-Money Accountability Check

This fictional example assumes a permitted pooled client-money arrangement. Opening receipts establish $60,000 for client A and $40,000 for client B. The bank holds $100,000, matching total client liabilities of $100,000.

An operator then journals $15,000 from B’s ledger to A’s ledger. A becomes $75,000 and B becomes $25,000. The entry reduces the liability to B and increases the liability to A by the same amount. Cash and total liabilities remain $100,000.

Next, the bank pays $15,000 for A, and the payment is debited to A’s ledger. The bank closes at $85,000. A closes at $60,000 and B at $25,000, also totalling $85,000. The journal’s authority remains unresolved.

The following references are fictional record identifiers.

Without the journal, the authorised $15,000 payment leaves A with $45,000 and B with $40,000. Both versions produce an $85,000 pooled total. The journal version leaves A $15,000 higher and B $15,000 lower than the alternative.

Complete two separate checks. First, reconcile bank cash to the aggregate ledger liability, allowing for supported timing differences. Second, establish the authority for each change to the individual client’s balance. Matching the pooled total settles neither the journal’s authority nor which client must bear the payment. The questioned journal requires evidence before anyone characterises it as theft.

Investigate Irregularities Without Presuming Misuse

Investigate irregularities by identifying the record that can resolve each questioned movement. An unexplained transaction is an open factual issue. A supported departure from a governing instruction is a different finding, and its legal consequences require professional assessment.

Obtain records through the instructing lawyer, trustee or authorised regulator using the access route available for that arrangement. A beneficiary’s status does not automatically give access to every other beneficiary’s private records. For Queensland construction trusts, QBCC’s notice guidance identifies information a beneficiary can request about their own interest.

FinTrace’s statement-analysis service saves lawyers and forensic accountants hours of manual statement review when reconstructing these payment histories. You receive a searchable Excel ledger and a clear findings report from the supplied PDFs. Suspicious transactions are flagged with direct references to the source filename and page, so the supporting bank evidence is at hand.

Use that factual chronology alongside the governing documents to distinguish a bank movement from an authorised use of a particular person’s money. An entry can remain unresolved while the missing instruction is sought. A documented inconsistency can then be referred with its supporting records for legal assessment.

When the Question Requires an Audit or Legal Remedy

Refer a discrepancy to the responsible auditor, regulator or lawyer when the identified regime requires reporting or specialist intervention. An analysis provider’s transaction category cannot settle a statutory reporting duty. Preserve the source records and identify any continuing risk to funds when making the referral.

A trust-account audit or examination addresses the independent statutory task under the relevant regime. A breach-of-trust assessment addresses the legal duties and remedies after the facts are established. Keep those questions distinct from the arithmetic and authority checks.

For allocation disputes, trust-distribution reconciliation connects recorded entitlements with payments actually made. For administration after death, examine the deceased estate bank account alongside the will and appointment records. Send the appropriate adviser the payment chronology, reconciled balances and specific authority documents for the disputed entries.