Meaning
Financial accounting procedures used to identify the remaining portion of trust money in a mixed bank account focus on the smallest balance recorded during a specific timeframe. When a fiduciary deposits client funds into a personal account and then makes withdrawals, the law assumes the fiduciary spends their own money first. However, if the balance drops below the amount of the trust deposit, the trust claim is permanently limited to that lower figure.
The lower intermediate balance rule prevents subsequent deposits from being claimed by the beneficiary unless a specific intent to replenish is proven.
Fund Tracking
Tracing movements through a commingled account requires a chronological analysis of every transaction. The rule protects the interests of other creditors. It creates a ceiling for recovery based on the history of the account.
Depletion Limit
Reductions in the account balance act as a hard boundary for the potential recovery of the beneficiary. If an account starts with one thousand dollars of trust money and drops to fifty dollars before rising again, the recoverable trust portion is only fifty dollars. This reflects the reality that once the specific trust money is gone, it cannot be recovered from the account itself.
The audit of the balance history measures the demonstrated rate of depletion.
Recovery Valuation
Capability to return funds is measured against the lowest point of the account cycle rather than the final balance. A production yield in this context is the actual dollar amount available for distribution to the claimant. Calling a recovery successful early without checking the history leads to overpayment.
The cost of a failed trace is the loss of priority status in an insolvency proceeding. Accurate tracking of the daily balance ensures that the claim remains defensible against other creditors.
