A trust account is a dedicated bank account that a property manager or real estate broker uses to hold money belonging to other people. In property management, that usually means rent collected on behalf of owners, tenant security deposits and reserves held for repairs.
The money in a trust account is not the manager’s money. The manager is a fiduciary who must keep it safe, use it only as authorized and account for every dollar.
How it works
Most states regulate trust accounts through their real estate licensing laws. Common requirements include:
- No commingling. Client funds must be kept separate from the manager’s own business or personal funds.
- Proper account titling. The account is typically labeled as a trust account and held at a qualified financial institution.
- Detailed records. Managers keep a ledger for each owner and often for each tenant deposit, plus a running record for the account as a whole.
- Regular reconciliation. The bank balance, the account record and the sum of all individual ledgers should match. Some states require monthly reconciliation.
- Authorized disbursements only. Money can be paid out only for approved purposes, such as owner distributions, repairs or deposit refunds.
Some managers use separate trust accounts for operating funds and for security deposits. Certain states require deposits to be held in a particular way, sometimes with interest.
Example
A hypothetical management company collects $48,000 in rent for 20 owners in March. The money goes into the trust account. The company pays $6,500 in repair invoices for specific owners, deducts its management fees according to each contract, and disburses the remaining balances to owners with monthly statements. At month end, a three-way reconciliation confirms the bank statement, the trust account register and the owner ledgers all agree.
Why it matters for landlords
Trust account violations are among the most common reasons regulators discipline property managers. Even honest mistakes, like covering one owner’s bill with another owner’s money, can cause trouble. TenantLoop accounting supports bank feeds, reconciliation and owner statements, so each owner’s funds are tracked separately. If you hire a manager, ask how they handle trust funds. Rules vary by state, so confirm requirements with your real estate regulator, a CPA or an attorney.
Related terms
In practice. How the term shows up day to day.
What is commingling?
Mixing client money with the manager's own business or personal funds. Most states forbid it: owners' rent and tenants' deposits must stay in a separate trust account.
What is a three-way reconciliation?
A check that the bank statement, the trust account register and the total of every owner and tenant ledger all agree. Some states require it monthly.
Do I need a trust account if I only manage my own rentals?
Trust account rules in most states are written for managers and brokers who hold other people's money. If you manage only your own rentals, ask your state regulator or a CPA which rules apply to the deposits you hold.