Setting Up a Trust Account Correctly

By Pamela J. Strickland
California Compliance Consulting

For those of you who have read this column over the years, you know that I keep harping on trust accounts and for those of you who have been through DRE audits or special investigations, you know why. Brokers make mistakes in setting up trust accounts all the time and no amount of education seems to keep this from happening. In the last few months, I have helped with audits for experienced, solid brokers/companies where they still had issues and violations with trust accounts. I just want to go over some of these audit findings and ask that you self-audit your company practices before you, too, get a violation and possibly an accusation.

First of all, you must choose the right bank. There are more banks that do not offer Real Estate Broker Trust Accounts than there are banks that do offer them. Oh, the retail side of the bank will tell you that they can set you up in a trust account (I’m looking at you Wells Fargo!), but they have no idea how to configure the account correctly. And, there are banks that will tell you to just file a dba with the words “trust account” in the name and they will title the account that way and it will be a trust account (ahem, Chase Bank), but this is NOT a trust account and would never meet the requirements. I don’t recommend any bank over another, but I do know that some of the best banks that do understand TRUE trust accounts and offer them to their Real Estate customers are Enterprise Bank (formerly Seacoast Bank), City National Bank, Citizen’s Business Bank, and First Republic Bank. There are others who do offer these types of accounts, but they are few and far between. Drop me an e-mail at if you are unsure if your account is truly a trust account and I’ll help you sort it out. Do not wait until you are undergoing an audit before you make sure that this important item is in compliance.

Next you must make sure the account is correctly titled. The words “trust account” or “trustee” must appear with the corporation or regularly used dba name in the account title. No variation of the words “trust account” or “trustee” can be used in the account title. Brokers are cited by the DRE if these words aren’t completely spelled out in the title. For example, I’ve seen violations cited in audits if TTSE, ITF, or TRST are used, to name a few examples of incorrect abbreviations that banks sometimes use. Again, if you have
any questions about how your accounts are titled, let me know and I’ll help you get the right titling.

Another important part of the puzzle concerns who the signers are on the account. The broker of record (designated officer if a corporation) MUST be a signer on any trust account. Other signers can be any licensed broker-associate or salesperson licensed to the broker/corporation with a signed authorization allowing them to sign on the account. An unlicensed employee of the broker/corporation can sign with the appropriate bonding/insurance and written authorization. Be extremely careful if you have an unlicensed signer, as the type and amount of the bond/ insurance is important and must meet the DRE regulations. Also, I have recently seen citations where investors or outside brokers sign on the trust account and that is strictly forbidden. And, if your licensed or unlicensed signers leave your company, don’t forget to remove them from the trust account signature card as soon as possible. Get a copy of the signature card from your bank and see where you stand on signers and sign a new card if any corrections are needed.

In future columns I will cover accounting issues in more detail, but for now you should work on making sure that the titling and signers on your account are correct. The DRE is serious about these items being in compliance.