Trust account

Key Takeaways

• In Washington, brokers must deposit all funds into the firm's trust bank account the next banking day following receipt, unless the purchase and sale agreement provides for deferred deposit or delivery (RCW 18.85.285(7)).
• Trust bank accounts are designated as trust accounts in the firm name or assumed name as licensed, and a firm keeping separate trust fund accounts must keep them in a recognized Washington state depository (WAC 308-124E-105(1), RCW 18.85.285(4)).
• Firm money may not sit in the trust account, except a minimal amount the designated broker deposits to open the account or to keep it from being closed (WAC 308-124E-105(15)).
• Interest on the pooled trust account is not firm income. Net of reasonable bank charges, it goes to the state treasurer for the Washington housing trust fund created in RCW 43.185A.130 and the real estate education program account created in RCW 18.85.321 (RCW 18.85.285(8)).

What It Means

A trust account is the bank account a real estate firm uses to hold money that belongs to somebody else. Earnest Money, rent collected for an owner, security deposits, and advance fees are never the firm's money at any point. The firm holds them for a client or a customer until the transaction determines where they go, and Washington treats keeping them separate as a licensing duty rather than as good bookkeeping habit.

Two ideas do most of the work. The first is separation. Client money lives in an account identified as a trust account in the firm's name, never in the operating account that pays the firm's rent and payroll. Mixing the two is Commingling, and it is a violation whether or not a client loses a dollar. The second is speed. Money moves into the trust account almost immediately, so there is no stretch of days when client funds sit in a desk drawer, a personal account, or an uncashed envelope.

Responsibility is personal, not corporate. The Designated Broker answers for the administration of the firm's trust funds and accounts, including how money is deposited, held, disbursed, and accounted for.

How It Works in Washington

In Washington, two sources control. RCW 18.85.285 sets the statutory duties, and chapter 308-124E WAC fills in the procedures.

• Deposit timing. Brokers must deposit all funds into the firm's trust bank account the next banking day following receipt, unless the purchase and sale agreement provides for deferred deposit or delivery (RCW 18.85.285(7)). WAC 308-124E-105(6) repeats the rule for funds received for the sale, renting, leasing, or optioning of real estate or business opportunities, for contract or mortgage collections, and for advance fees.
• Where the account sits. A firm that keeps separate trust fund accounts must keep them in a recognized Washington state depository (RCW 18.85.285(4)). Under WAC 308-124E-105 the institution must be a bank, savings association, or credit union that is federally insured and able to accept service in Washington state.
• How it is titled. Accounts are designated as trust accounts in the firm name or assumed name as licensed (WAC 308-124E-105(1)).
• Whose money may be in it. Not the firm's. WAC 308-124E-105(15) bars deposits of funds belonging to the designated broker or the real estate firm, except that a designated broker may deposit a minimal amount to open the trust bank account or maintain a minimal amount to keep the account from being closed.
• Interest. The firm maintains a pooled interest-bearing trust account for client funds, and WAC 308-124E-105 identifies a pooled interest-bearing account as a housing trust fund account for trust funds of ten thousand dollars or less. Under RCW 18.85.285(8) the interest, net of reasonable and appropriate financial institution service charges or fees, is paid to the state treasurer for deposit in the Washington Housing Trust Fund created in RCW 43.185A.130 and the real estate education program account created in RCW 18.85.321.

That last rule surprises new brokers. Client money earns interest in Washington, and the firm never keeps it. Our guide to audit-proofing a Washington practice covers the records side of the same duties.

Example

On a Thursday afternoon, buyer Priya signs an offer on a $610,000 house in Kent and hands her broker, Devon, an earnest money check for $18,300, three percent of the purchase price. Devon's firm, Cascade Ridge Realty, receives the check that day.

RCW 18.85.285(7) gives the firm until the next banking day, so the check belongs in the firm's trust bank account on Friday unless the purchase and sale agreement provides for deferred deposit or delivery. Devon decides to hold it over the weekend to keep it safe and deposits it on Monday. The deposit is late. The fact that Priya's $18,300 was never at risk does not repair the violation, because the rule is about timing, not about loss.

Now change one detail. Suppose Cascade Ridge's designated broker deposits $5,000 of firm operating money into the trust account to pad the balance ahead of a review. WAC 308-124E-105(15) forbids that. Funds belonging to the designated broker or the firm may not be deposited, and the narrow exception covers only a minimal amount to open the account or to keep it from being closed. Padding a balance is not a minimal amount, and mixing firm money with Priya's $18,300 is commingling whether or not a dollar of hers ever moves. Our walkthrough of earnest money and contingencies in Washington follows the same deposit through the rest of the contract.

Common Mistakes and Exam Traps

• The Washington deposit deadline is the next banking day after receipt, not two business days and not three. Course materials and national textbooks often carry a different figure than RCW 18.85.285(7).
• Commingling is a violation on its own. An answer choice noting that no client lost money is describing the facts, not supplying a defense.
• Interest on the pooled trust account is not firm revenue. RCW 18.85.285(8) sends it to the state treasurer for the Washington housing trust fund and the real estate education program account.
• A minimal amount of firm money may sit in the trust account to open it or keep it from closing, so an answer saying no firm funds may ever be present is too absolute under WAC 308-124E-105(15).