Do escrow accounts earn interest, and who gets it?

Can escrow accounts earn interest? Yes, if the money is in an interest-bearing account, and who receives the interest turns on who holds it. In a business sale, escrowed or holdback funds may sit with a lawyer, another agent or the parties themselves. Ask the buyer’s and seller’s lawyers who holds the money, in what kind of account, and what the agreement says about interest. This page covers money a lawyer holds in trust, in Ontario and British Columbia. Other provinces run their own regimes.

Ontario: interest on pooled trust money

Under s.57(1) of Ontario’s Law Society Act, a licensee who holds money in trust for or on account of more than one client in one fund must hold it in an interest-bearing account at an institution the section lists. Under s.57(2), the interest on that money is deemed to be held in trust for The Law Foundation of Ontario. Section 57(4) says the licensee need not account to anyone else for it, subject to s.57(5).

Ontario: when the interest can go to the client

Section 57(5) preserves two things: any arrangement in writing between the licensee and the person for whom the money is held about the disposition of the interest, and any entitlement of a client to the interest on money held in trust in an account separate from any other money. So the written escrow terms matter. If you want interest to follow the funds, ask whether a separate account is available and put the arrangement in writing.

British Columbia: pooled and separate accounts

British Columbia’s Legal Profession Act, s.62(2), says that, subject to s.62(5), a lawyer or law firm credited with interest on money held in trust holds it in trust for the foundation, and s.62(4) says the lawyer is not liable to account to a client for interest received on money in an account established under s.62(1). Section 62(5) says that, on instruction from a client, a lawyer may place the client’s money in a separate trust account, and interest paid on it is the client’s property. The Law Society of BC’s rules require a lawyer with a pooled trust account to instruct the savings institution in writing to remit the net interest to the Foundation, and let a lawyer who receives trust funds with instructions to place them otherwise use a separate trust account.