Interest on estate money held in client account during an administration (rule 7)
Pemberton Hale LLP acts for the executors of the late Mrs Okafor. It has held £180,000 of estate money in its general client account for eight months while the house is sold and the estate administered. The firm's client care letter says nothing about interest. A partner suggests the firm should keep the interest earned on the money, because it is held in a pooled general client account rather than a separate deposit account.
Which of the following best describes the firm's obligation regarding interest?
Choose one answer to see the reasoning.
Worked answer
Correct answer B: The firm must account to the executors for a fair sum of interest, unless they have agreed a different arrangement in writing with informed consent.
THE RULE TO REMEMBER
A firm must account for a fair sum of interest on client money it holds, unless it agrees a different arrangement in writing with the client's informed consent.
Interest on estate money held in client account during an administration (rule 7)
Rule 7.1 of the SRA Accounts Rules requires the firm to account to clients or third parties for a fair sum of interest on any client money held on their behalf. The estate money is client money held for the executors, and the rule applies whether the money sits in a general client account or a separate account. Under rule 7.2 the firm may, by written agreement, make a different arrangement as to interest, but it must give the client enough information to enable informed consent. The client care letter is silent, so no such agreement exists. The firm must therefore pay the executors a fair sum of interest for the eight months the money has been held. The Rules do not prescribe a de minimis amount; the firm's own interest policy should set out how it calculates a fair sum.
Why A is wrong: Rule 7.1 applies to all client money held, including money in a general client account.
Why C is wrong: The current Rules require a 'fair sum' and contain no fixed de minimis threshold; any such limit must be in a fair policy or written agreement.
Why D is wrong: Rule 7.1 is not limited to designated deposit accounts.
Why E is wrong: Telling the client afterwards is not a written agreement made with informed consent under rule 7.2.
A little more practice done.
Related questions
Client account must not be used as a banking facility (SRA Accounts Rules, rule 3.3)
Which of the following best describes how the firm should respond?
Transferring client money for costs: bill first (SRA Accounts Rules 4.3)
Which of the following best describes what the firm must do before transferring the money?
Paying out more than is held for an estate client and replacing the shortfall (rules 5.3 and 6.1)
Which of the following best describes what the firm must now do?
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