How does a trust account transfer work when buying a law practice?

A law practice sale surprises many buyers on one point: the trust account is not part of what is being sold. Money held in trust belongs to the clients, so a buyer cannot pay for it or take it over with the practice. What can move is a client file, and with it the funds held for that client, once the proper steps have been taken. The rules come from each provincial law society.

Trust funds are not a business asset

Ontario guidance from Treadstone Law says trust funds are client money and never part of what a buyer purchases, so the purchase agreement should deal with them separately from the operating assets or shares being sold. The same guidance says the selling lawyer generally remains responsible for trust accounting until the files and their funds are properly dealt with, because a sale does not automatically discharge that duty.

How the money actually moves

Funds are tracked to the client file they belong to, and each movement needs a documented basis. It is not a bulk transfer from one firm’s trust account to another’s. The Ontario guidance lists the usual steps: reconcile every trust ledger, resolve or disburse balances on closed or inactive matters, obtain client consent or give notice when a file is moving to a new lawyer, and record the trust terms in the agreement. Clients generally keep the right to choose who acts for them, whatever the sale says.

What the law society expects

Regulators set the detail, and they differ. The Law Society of British Columbia tells a firm that is being deregistered to return remaining trust funds to clients or remit them to the Law Society as unclaimed, close its trust accounts, file a final trust report and report how client files were handled. That list is written for a firm closing, but it shows what a seller must do with money that cannot travel with the sale. The law societies of Alberta and Manitoba each carry a dedicated trust safety section of their own, so follow the rules of the province where the practice is licensed.

Questions to raise before closing

• Which law society rules govern the sale, and must the society be told?
• Is every trust ledger reconciled, and are there old unreconciled balances?
• Which clients will receive notice, and what happens to funds for those who do not move?