Solicitors' trust accounts and the fidelity fund in a property sale

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Kooky

Builder of Shaka, the payment router that pays every agent their commission on closing date.

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A few days before settlement, a buyer is asked to send the balance of their own money to their solicitor's trust account. For many people it is the largest transfer they will ever make, sent to an account they have never seen, on the strength of a letter. A seller is on the other side of the same arrangement: the proceeds of the home pass through accounts they do not control before any of it reaches them.

The arrangement rests on a set of rules that most clients never read. Money a law practice holds for someone else is trust money, and the Legal Profession Act 2007 surrounds it with obligations: records that must be kept, an outside examination of those records every year, a regulator with power to walk in and inspect, and a compensation fund for the rare case where money is lost through dishonesty.

This guide describes that structure from the client's side of the desk. It uses the Act, the Queensland Law Society's published material on external examinations and investigations, and the Society's claims information brochure for the Legal Practitioners' Fidelity Guarantee Fund, dated November 2025. It covers solicitors and law practices only. Money held by a real estate agent sits under different legislation and a different fund.

What makes money trust money

The idea is older than the statute. A solicitor who receives money that belongs to a client, or that is to be passed on for a client, does not own it. The practice holds it as trustee for the person entitled to it.

The Law Society's brochure on the fidelity fund gives the working description used across the scheme. It refers to trust money or trust property received by a law practice, or by an associate of the practice, in the course of or in connection with legal practice. Each part of that phrase carries weight.

"Trust money or trust property" means the rules are not limited to cash in a bank account. Property held for a client is within them too.

"A law practice or an associate" means the money does not have to be handed to the principal. Section 7 of the Act defines an associate widely: it includes the practice's lawyers in their various roles and also its employees and agents. Money given to a clerk at the front desk is received by the practice.

"In the course of or in connection with legal practice" ties the money to the legal work. This is the phrase that separates trust money from, say, a private loan between two people who happen to include a solicitor.

What is not trust money matters as much. A practice's own fees, once properly billed and paid, belong to the practice. They sit in its ordinary business account, not in trust. The dividing line between the client's money and the practice's money is the whole point of the system.

Where it turns up in a sale or purchase

In a property transaction a law practice may hold money at several points, and a client can usually identify each one from the correspondence.

A buyer may be asked for funds early, to cover the searches and other outlays the practice will pay on the buyer's behalf. Closer to settlement, the buyer may be asked for the balance needed to complete, beyond what the lender is providing. Where the contract names a law practice as the holder of the deposit, that money is held in trust as well, for whichever party becomes entitled to it under the contract.

A seller's side looks different. The practice may hold little until settlement, then receive or direct the proceeds: paying out the seller's lender, the agent's commission where the seller has authorised it, and the practice's own account, with the remainder going to the seller.

Two features are common to all of these. The money is held for a purpose the client has agreed to, and it moves on the client's direction or under the contract. The fidelity fund brochure reflects both when it sets out who may claim: either the practice held the money or property as trustee for the claimant, or another person had directed the practice to pay or deliver it to the claimant.

That second limb is easily missed. A seller waiting for proceeds that the buyer's side has directed to them is within the description, even though the seller was never the paying party's client.

The rules behind the account

The detailed obligations are found in Part 3.3 of the Legal Profession Act 2007 and in the Legal Profession Regulation 2017. This guide does not reproduce them. What it can do is show their shape, as it appears from the Law Society's descriptions of what its examiners and investigators check.

Three ideas run through the scheme.

Separation. Trust money is kept apart from the practice's own money. Without this, nothing else would work, because a client's funds could not be traced or protected.

Records. The Law Society's material on investigations refers to "all accounts and records required under a relevant law". A practice that holds trust money must be able to show, for each client and each matter, what came in, what went out, on whose direction and what remains. For a client, the visible end of this is the paperwork they are given: an acknowledgement when money is received, and an account of how it was applied when the matter ends.

Authority. Trust money is paid out to the person entitled to it or as that person directs. The fund brochure defines a default by reference to exactly this: a failure to pay or deliver trust money or trust property, or a fraudulent dealing with it.

The Act also gives the regulator a lever at the level of the individual lawyer. Section 53 allows conditions to be placed on a practising certificate, and the examples in the Act include conditions about trust accounts. The right to handle clients' money is therefore tied to the practising certificate itself.

A client is entitled to ask plain questions about any of this. When will a receipt be issued? Whose signature or approval releases a payment? When will a final statement be sent? A well-run practice answers them without hesitation, because the answers are part of its ordinary routine.

The yearly external examination

A law practice does not simply certify its own trust records. Each year they are examined by someone outside the practice, and the result goes to the Law Society.

The Society's published notice for the 2025 round sets out the cycle. The examination covered practices that held or received trust money, generally by operating a trust account, between 1 April 2024 and 31 March 2025. The external examiner's report, on a prescribed form the Society calls Form 5, was due to the Society by 30 May 2025, which the notice describes as within 60 days of 31 March.

Alongside the examiner's report sits a document from the practice itself, Form 4, titled the Law Practice Declaration and Trust Money Statement. A practice with no trust money to report lodges the first part of it alone. In this way the Society hears from every practice every year, whether or not it handled clients' funds.

The Act treats a missed report as more than a paperwork lapse. The Society's notice points out that failing to lodge is a "suitability matter" under section 9 of the Act, and that suitability is among the things considered under section 46 when deciding whether a person is fit to hold a practising certificate. The annual examination and the annual certificate are linked.

For a client, the examination has a simple meaning. The trust account receiving their settlement funds has been, or will be, read line by line by an examiner who does not work for the practice, on a fixed annual timetable.

The Law Society's own investigations

The external examination is the scheduled check. The Law Society also has a power of direct inspection, which it calls a Part 3.3 investigation after the part of the Act concerned with trust money.

The Society describes such an investigation as an examination of the affairs of a law practice, carried out under section 263 and Chapter 6 of the Act. "Affairs" is defined to include the accounts and records the law requires, and other records and transactions involving the practice or its associates. The work is done by the Society's trust account investigators, under authority delegated within the Society, including to its Professional Conduct Committee.

The Society states two principal purposes. One is to find out whether the practice has complied with Part 3.3. The other, in its words, is to "detect and prevent defaults in relation to the law practice". The second purpose shows that the investigations are designed as prevention, a way of finding weaknesses in record keeping before anyone loses money, and not only as a response after the event.

When an investigation ends, the investigator reports to the Society. Cost normally stays with the regulator, with one exception written into section 265: where breaches or defaults are found to be wilful or of a substantial nature, the Society may require the practice to pay the costs of the investigation.

Taken together, the two mechanisms give the regulator a regular view of every trust account through the examiners' reports, and the ability to look more closely at any one of them.

The Fidelity Guarantee Fund: what it is

Rules and inspections reduce risk. They cannot remove it. For the case where trust money is lost through dishonesty, the Act provides the Legal Practitioners' Fidelity Guarantee Fund.

The Law Society's brochure describes it as a compensation fund administered by the Society under the Legal Profession Act 2007, with its governing provisions in Part 3.6, beginning at section 355. The brochure stresses that it is not an insurance product. The Society's web page on the fund adds that the fund is vested in the Society by the Act, and that the Society has no discretion to cover losses outside what the legislation allows.

The money comes from the profession. According to the brochure, the fund is financed by compulsory annual contributions from solicitors who hold practising certificates issued by the Society. Every certified solicitor in the state pays towards a fund that exists to make good the dishonesty of a very small number.

Claims are decided by a Committee of Management. The brochure describes it as five to nine volunteer solicitor members, a majority of whom must sit on the Law Society's Council, acting under a delegation from the Council.

Who can claim, and what counts as a default

The brochure states that any person or company that suffers pecuniary loss because of a default by a law practice may claim. Claimants are usually clients of the practice, but as noted earlier they need not be: a person to whom the practice had been directed to pay or deliver trust money or property is also within the scheme.

Everything turns on the word "default". The brochure breaks it into three elements, all of which must be present.

1. Trust money or trust property was received by the law practice, or an associate of it, in the course of or in connection with legal practice.
2. The practice failed to pay or deliver that money or property, or there was a fraudulent dealing with it.
3. The failure or fraudulent dealing arose from an act or omission of an associate that involved dishonesty.

The loss the fund recognises is defined just as tightly. Pecuniary loss is the amount of trust money, or the value of trust property, that was not paid or delivered. In the case of a fraudulent dealing, it is the money a person loses or is deprived of, or the loss in value of the trust property.

The third element is what separates the fund from every other remedy. A payment made to the wrong account through an honest error, however costly, is not a default in this sense. A dishonest taking is.

What the fund does not cover

Because the scheme is statutory, its edges are sharp. The brochure lists the losses that fall outside it, and the list is the best guide to what the fund is for.

The brochure's own example of consequential loss is the bank interest a claimant might have earned had the money arrived when it was due. The fund replaces what was taken. It does not place the claimant in the position they would have reached had everything gone well.

The investment exclusion deserves a second look in a property setting. The brochure also excludes losses from financial services, regulated mortgages, managed investment schemes and mortgage financing. Money sent to a practice to complete a purchase is one thing. Money left with someone to be lent out or invested is another, and the fund is not built for it.

How a claim runs

The process starts with a deadline. A person who believes they have suffered a default must notify the Law Society within six months of becoming aware of it. The brochure and the Society's web page both give that period, and the web page warns that missing it may lead to a claim being refused.

A late notice is not automatically fatal. The brochure says the claimant must explain the delay, and the Society may allow more time having regard to the reason given, the alleged facts and any prejudice to the parties. If the Society declines, the Queensland Civil and Administrative Tribunal may extend the time on application.

Where a default may have affected many people, the Society may advertise for claims in the press and on its website. An advertisement sets a final date, and claims must be received by 5 pm on that day. The Society says it tries to tell those who have already given notice when an advertisement appears. Late claims after an advertised date follow the same route: an explanation, a discretion, and the tribunal behind it.

On timing, the brochure says claims are generally finalised within 6 to 12 months, depending on the availability of the practice's files, the volume of material and the cooperation of those involved. If an investigation will run past 12 months, the Society must tell the claimant and briefly explain why.

Staff at the Society will help a claimant complete the form. The brochure adds that a complex claim may justify engaging a lawyer, and the costs rules below take that into account.

Interest, costs, reductions and review

A claim that is allowed is not limited to the bare sum lost.

Interest. Interest is paid on an allowed claim at the rate prescribed in the Legal Profession Regulation 2017, running from the date the Society received the claim form to the date the claimant is told the claim has been allowed. The Committee may reduce or withhold interest if it decides special circumstances exist.

Legal costs. Where a claim is allowed in whole or in part, the claimant's reasonable legal costs of making and proving it must be paid, again unless special circumstances justify a reduction. Where a claim is wholly disallowed, the Society may still pay all or part of those costs.

Reductions. The brochure lists grounds on which a claim may be reduced or refused. They include that the claimant took part in or contributed to the wrongdoing, that the claimant's own negligence contributed to the loss, that the underlying transaction was illegal and the claimant knew or ought to have known it, that the claimant unreasonably refused to provide information or cooperate, and that the claimant unreasonably failed to mitigate the loss.

Other recoveries. A claimant cannot recover more than the pecuniary loss, and amounts already received or receivable from elsewhere are taken into account. If money for the same loss later arrives from another source, the excess must be repaid to the Society. On review, a claimant must show that the amount sought is not reasonably available from other sources, a requirement the Society may waive.

The size of the fund. The brochure names no fixed dollar cap on a claim. It does warn that the amount a successful claimant recovers may be reduced if the balance of the fund is insufficient to meet its ascertained and contingent liabilities.

What a client can take from all this

Very few people who use a conveyancing lawyer will ever deal with the fidelity fund or see a trust account investigator. The structure matters to them all the same, because it explains what happens to their money while it is out of their hands.

It also suggests a few habits. Keep the practice's written request for funds and the acknowledgement of receipt. Read the final statement when the matter closes and ask about any line that is unclear. Confirm account details through a channel already known to be the practice's own before sending a large sum. If something appears to be wrong with money held in trust, raise it promptly, since the six-month notice period runs from the time a person becomes aware of a default.

The system does not depend on a client checking the books. It was built so that someone else does: the practice's own records first, an outside examiner once a year, the Law Society's investigators when they choose, and behind them a fund paid for by the profession.

Kooky, from Shaka

Kooky edits Queensland Estate and builds Shaka, the payment router he made for Queensland property professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

About Kooky and Shaka →