Residual balance of £500 or less after an estate is distributed: payment to charity
Seven years ago Garside Mehta LLP finished administering an estate and accounted to all the beneficiaries. A tax refund of £120 later arrived for one residuary beneficiary, Mr Ferreira, and was paid into client account. The firm has written to his last known addresses, emailed and telephoned him, and searched online, without success. The ledger still shows £120 held for him. The firm spent £60 on a tracing search.
Which of the following best describes what the firm may do with the £120?
Choose one answer to see the reasoning.
Worked answer
Correct answer A: Pay the full £120 to a charity without SRA authorisation, having taken reasonable steps to return it and keeping a record of those steps.
THE RULE TO REMEMBER
A residual client balance of £500 or less may be paid to a charity of the firm's choice without SRA authorisation if reasonable tracing steps are taken and recorded, with no deduction for tracing costs.
Residual balance of £500 or less after an estate is distributed: payment to charity
Rule 5.1(c) of the SRA Accounts Rules allows client money to be withdrawn on the SRA's prior written authorisation 'or in prescribed circumstances'. The SRA's mandatory statement of prescribed circumstances permits a firm to withdraw a residual client balance of £500 or less on any one client matter without authorisation, provided the balance is paid to a charity of the firm's choice and the firm has taken reasonable steps to return the money to its rightful owner. The firm must record the steps taken and keep those records for at least six years, and keep a central register and the charity's receipt and confirmation of any indemnity provided. The statement also provides that the firm must not deduct from the residual balance any costs incurred in trying to trace the owner. The £120 is below the threshold and the firm's efforts appear reasonable for a small, old balance, so it may pay the full £120 to charity.
Why B is wrong: Client money never becomes the firm's money through the passage of time; that would breach rules 4.1 and 5.1.
Why C is wrong: The prescribed circumstances forbid deducting tracing costs from the residual balance.
Why D is wrong: SRA authorisation is needed only for balances over £500; for £500 or less the prescribed circumstances apply.
Why E is wrong: Payment to the Treasury Solicitor applies to money of a dissolved company client; Mr Ferreira is an individual beneficiary.
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?
Interest on estate money held in client account during an administration (rule 7)
Which of the following best describes the firm's obligation regarding interest?
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