Client Trust Account
Word of the day
Client Trust Account
The principal broker in an agency is responsible for all trust monies and, although the broker will usually authorize a salesperson in writing to deposit client monies, the broker is ultimately responsible for the account. These accounts may or may not earn interest, according to state regulations, and if interest is earned, the state will specify who may benefit from interest earned. The broker may suggest the use of an interest-bearing account when substantial funds are involved—there should be a clear understanding of who will benefit from the interest (usually the buyer, not the seller or the broker).
A main reason for requiring a broker to maintain a client trust account separate from the general account is to protect these monies from possibly being “frozen” during legal actions against the broker, such as creditor attachments or probate of a deceased broker’s estate. In addition, because the account is custodial in nature, the Federal Deposit Insurance Corporation personally insures each client’s funds up to $250,000 if each account is specifically designated as custodial and the name and interest of each owner in the deposit is disclosed on the depositor’s records. This insurance will not apply if the broker commingles personal or business funds with clients’ funds.
In addition to a client trust account for use with earnest money deposits, it is good practice for a broker to set up a management trust account when acting as property manager for several income rental properties. It is not necessary to open a separate trust account for each transaction; rather, a simple ledger system is sufficient.
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