What comes to mind when you consider your trust account? Is your blood pressure rising as you tremble in your shoes? If that's the case, don't worry; you're not alone. On top of handling their basic business finances, it appears that many property managers are occasionally overwhelmed by the financial requirements of operating a trust (if they own one).
Let's break down what a trust account is, trust money vs. non-trust money, the purpose of a trust account in real estate, and trust accounting best practises without further ado.
What is a trust account?
If you hold or manage client money as part of your business practice, that money is “entrusted” to you, and you may be required to keep that money in a “trust account”.
As defined by Commerce Western Australia, a trust account is a special type of bank account “where money is received or held by an agent (including any member of the agency’s staff) on behalf of another person in relation to real estate, business or settlement transaction.”
Legislation governs trust accounts, and real estate agents in Australia are required to have one while keeping client funds.
What is trust money?
According to the Queensland Government, trust money is “money you handle on behalf of someone else, under your appointment to act as an agent.”
It might include payments for residential, commercial or retail rent, sales deposits, utilities if they’re not already included in the rent, advertising expenses, maintenance costs, strata levies and bonds.
Trust money must be paid into a trust account, whereas non-trust money should be deposited in a general business account. See the table below from Consumer Victoria to see which payments should go into which accounts:
The purpose of a trust account in real estate
The purpose of a trust account is to protect all parties engaged in a real estate transaction. They are strictly regulated by law, and failure to comply can result in severe penalties and possibly licence revocation. Misuse of trust funds, for example, in Queensland can result in a fine of up to $24,380 or a year in prison!
As a real estate agent, you are not only held accountable for the health of your trust account, but you are also assisting in the implementation of best practises in trust accounting. You'll be able to ace your trust account audit, and you'll have a clear digital paper trail to refer to if any legal concerns occur.
Basic trust account in real estate requirements
There are some very specific requirements when opening and using a trust account, including:
Licensees must notify the deposit-taking institution in writing that the account is a trust account
If the trust account is held by a corporation, it must be in the name of the corporation
The trust account must be in the name of the licensee or firm if the account is not held by a corporation
The name of the licensee, firm or corporations must appear as a prefix of the account name, followed by any other necessary identifier or the trust account
The words "trust account" must also be included in the name of the trust account and all cheques drawn on the trust account
Trust accounting best practice
Imagine receiving cash for a rental payment then rushing off to an open for inspection. Hours later, you find a wad of cash in your pocket…but who is it from? And what is it for?
To avoid the above scenario, be sure to avoid common trust accounting mistakes such as accepting cash. You should have trust-specific policies and procedures in place to ensure consistency and minimise any chance of error.
Here are some simple trust accounting principles to follow:
All trust money must be deposited into your trust account and be tracked and reported
Your trust accounting software transactions must match your bank account transactions
Always be transparent when receipting and withdrawing money
Try not to accept cash, as this will increase your risk and will also need to be banked manually
To simplify your workload, be sure to use modern trust accounting software with automation for bills, reconciliation and disbursements. Not only will this make it far easier to document and track your trust account transactions and stay compliant, but it also saves you bucket loads of time. Stop fighting your clunky old software system and update from the spreadsheets you’ve been using!
Additional trust account resources
Different Australian states and territories have different rules and regulations when it comes to trust accounts. Be sure to check your state or territory’s consumer affairs website for more details:
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