What is MOTF?
The abbreviation stands for Misappropriation Of Trust Funds.
Who needs this cover?
Attorneys who receive a client’s money into their trust account for a legal matter. All legal practitioners are obliged to operate a trust account. In fact they must operate two separate accounts- one trust and one business. Monies held in trust on behalf of clients may not be mixed with the firm’s business funds. Attorneys must preserve a client’s money in trust pending the performance of a legal transaction. Typical instances when this would be the case, are holding monies for a deceased estate, conveyancing matter or a plaintiff’s settlement/ award of damages in a personal injury matter.
Once the legal transaction has been completed may monies be transferred from the trust account. If fees are to be paid from the monies held in trust, only when the fee is earned, ie when a legal service has been received by the client, may the attorney withdraw the amount required to cover his fee, from the trust account and transfer same to his firm’s business account.
Who is covered under the policy?
The attorneys practicing under the firm and staff members. Not all staff members are automatically covered. Make sure to name the staff who may be required to gain, or already have access to the firm’s trust account to effect payments on behalf of the firm to clients.
Why do staff members need the cover?
Well, staff authorised to make and effect transfers from the firm’s trust account could abuse their positions. Such an abuse would render the law firm liable to the client for a loss. Once a client has a claim against the firm for a reimbursement of any it money placed with the firm, the firm could find itself having to close its doors should it not be insured against such losses.
Are there instances where attorneys steal trust funds?
We would like to think this should never happen, however there are reported cases where this has happened. Should an investigation by a client or the law society reveal that trust funds have been misappropriated by an attorney, that attorney will be disciplined and disbarred from practising as one however disbarring the attorney does not mean the client will be refunded its money which was held in trust.
Why is insurance cover for this risk so important?
Well, firms that don’t have MOTF cover, won’t be covered for theft of trust funds by its employees should this event arise and would have to pay the client back themselves, which could have the effect of closing the firm down (ie having insufficient funds in business to pay the client).
Does the law society not offer this cover to its members?
The attorneys insurance indemnity fund specifically excludes claims against law firms arising from or in connection with misappropriation or unauthorised borrowing by an attorney or employee or agent of the attorney of any money or other property belonging to a client.
Share this article
For law firms and sole practitioners alike, it is critical that the limit of cover offered under your Professional Indemnity insurance policy is adequate for your business. We strongly recommend you review your limit to determine whether an increase in cover, beyond what may be offered by your professional indemnity fund. For attorneys this is…
Contemplating an application for the sequestration of a debtor’s estate in terms of the Insolvency Act?
An application may be launched in the High Court to sequestrate the estate of the insolvent if the creditor has a claim of R 1000 or more against the debtor. This figure hasn’t been increased for some time since the enactment of the Insolvency Act in 1936. However we can imagine only those persons with…
Should you suspect a loss has been suffered by an estate at the hands of a trustee / liquidator/ executor (the incumbent named on the bond of security), you should proceed to investigate it. Once your investigation is complete, you need to notify the Master of your investigations and be able to substantiate the loss…