Classify the beneficial owner before choosing the account
Trust funds
Value held for another person in licensed activity
Broker funds
Value beneficially belonging to the broker or brokerage
Mixed receipt
Value that must be separated under Regulation 2835
Trust funds are money or other things of value a broker or salesperson receives for another person while performing licensed activity. Broker funds belong beneficially to the broker, such as earned, undisputed compensation or operating money. Classify who owns the value at that moment before deciding where it belongs.
DRE, Broker Compliance Evaluation Manual trust-fund classificationOwnership, not possession, controls the answer
| Fact in the question | Does it classify the value? | Reason |
|---|---|---|
| The broker physically holds it | No | Custody does not create beneficial ownership |
| The check is payable to the broker | Not by itself | Purpose and entitlement still control |
| The funds sit in a trust account | No | An account label cannot turn broker money into client money or cure a wrong deposit |
| The broker has earned an undisputed fee | Yes | The beneficial entitlement has shifted to the broker |
Trust is a temporary ownership state
A buyer deposit can begin as trust funds and later be disbursed to escrow, returned to the buyer, applied under the agreement, or partly become earned broker compensation. Reclassify at the event that changes legal entitlement. Do not classify once and freeze the answer forever.
Eight common receipts classified
| Receipt | Beneficial owner or interest | Classification |
|---|---|---|
| Buyer deposit received in a licensed sale | Buyer or person entitled under the transaction instructions | Trust funds |
| Rent collected while managing an owner's property | Property owner, subject to authorized disbursements | Trust funds |
| Tenant security deposit received in licensed property management | Held for the beneficiary under the governing agreement and law | Trust funds |
| Advance fee received before brokerage services are completed | Principal until earned and accounted for under the applicable rules | Trust funds |
| Earned, undisputed commission | Broker | Broker funds |
| Rent from real property wholly owned by the broker | Broker as owner, not as agent for another | Broker funds |
| Broker operating capital for payroll or rent | Broker or brokerage | Broker funds |
| Uncashed deposit check held under valid instructions | Person entitled to the check or proceeds | Trust fund record item |
The last row matters because Commissioner's Regulation 2831 requires a broker's trust-fund record to include uncashed checks held under a principal's instructions. Cashing is not the event that first creates the broker's accounting responsibility.
DRE, 2026 Regulations 2831 through 2835Use a five-question classification test
- 01Why was the value received?Was it received while performing an act for which a real estate license is required?
- 02Who is beneficially entitled now?Ignore physical possession and the account label. Identify the person for whose benefit the value is held.
- 03Has the broker's right become earned and undisputed?A fee does not become broker money merely because the broker expects to earn it later.
- 04Does one receipt belong to both sides?If separation is not reasonably practicable, apply Regulation 2835's temporary mixed-fund rule and dispute boundary.
- 05Where may it be held?Once classified, apply the correct account, delivery, record, and disbursement rules.
A salesperson's receipt remains under the responsible broker
Business and Professions Code section 10145 requires a salesperson who accepts trust funds for the responsible broker to deliver them immediately to the broker or, when the broker directs, to the broker's principal, a neutral escrow depository, or the broker's trust account. The value does not become the salesperson's money and should not enter the salesperson's personal account.
A single receipt can contain principal and broker funds
Not reasonably practicable to separate
Regulation 2835 permits deposit of the combined receipt into the compliant trust account.
Broker share undisputed
The broker-owned portion must be disbursed no later than 25 days after deposit.
Broker share disputed
The disputed portion remains in the trust account until the dispute is finally settled.
Earned does not mean leave it indefinitely
Once compensation belongs to the broker and is not disputed, it is broker money. Regulation 2835 supplies a limited period for removing an inseparable broker share from the trust account. Keeping earned money there beyond the permitted situation can become commingling.
The $200 rule has one ordinary purpose
| Broker-owned amount in trust account | Purpose | Treatment |
|---|---|---|
| Reasonably sufficient, up to $200 | Bank service charges or fees levied on the account | Express Regulation 2835 allowance |
| General overdraft cushion | Protect against poor accounting or beneficiary shortage | Not the stated bank-charge purpose |
| Payroll, office rent, tax reserve, or operating cash | Brokerage business expense | Belongs in the broker's general account |
Do not memorize “$200 is the only exception.” Regulation 2835 also contains narrow provisions for receipts belonging partly to the principal and broker and for specified loan activities. The $200 figure is the ordinary bank-charge allowance tested in a simple fact pattern.
Keep three neighboring questions separate
Classification asks who is beneficially entitled to the value now
Commingling asks whether trust and broker funds were improperly mixed
Conversion asks whether trust value was used for an unauthorized purpose
Handling asks when and where trust funds must be delivered or deposited
Recordkeeping asks what the control and beneficiary records must show
Reconciliation compares the separate beneficiary records with the control record at least monthly, except a month with no bank-account activity
First establish whether the money belongs to the client or the broker. The commingling and conversion guide covers the full commingling-versus-conversion comparison, and the trust-account deadlines guide covers deposit, record, and reconciliation deadlines.
Eight classification mistakes
Calling money broker funds because the check names the broker
Calling money trust funds only after it is deposited
Treating an account label as proof of beneficial ownership
Calling an expected but unearned fee broker money
Forgetting that an uncashed check can require a trust-fund record
Treating rent from broker-owned property as client trust funds
Leaving an undisputed broker share in trust indefinitely
Memorizing the $200 bank-charge rule as Regulation 2835's only allowance
Apply the distinction inside the complete trust-account checklist
Classify first, then handle
Use the compliance checklist for lawful destinations, the three-business-day rule, account records, monthly reconciliation, withdrawal authority, and the current Regulation 2835 limits.
Frequently asked questions
What are trust funds in California real estate?
DRE defines trust funds as money or other things of value received by a broker or salesperson on behalf of a principal or another person and held for others while performing acts for which a real estate license is required. Buyer deposits, rents collected for owners, and advance fees are common examples.
What are broker funds?
Broker funds are money beneficially belonging to the broker or brokerage, such as operating capital, rent from property wholly owned by the broker, and compensation that has become earned and undisputed. The check's payee, physical holder, or account label does not decide ownership by itself.
Is a buyer's deposit a trust fund?
Yes, when a broker or salesperson receives it in a licensed purchase transaction for the benefit of the person entitled under the agreement and instructions. It remains trust value while held, even when it is an uncashed check subject to valid instructions.
Are rents collected by a property manager trust funds?
Yes, when a broker collects rent while managing property for an owner. The broker holds the money for the owner subject to authorized disbursements. Rent from real property wholly owned by the broker is different because the broker receives it as owner, not as agent for another.
When does a commission become broker funds?
When the broker becomes entitled to the compensation and the portion is undisputed, it is broker money. If a receipt belongs partly to the principal and partly to the broker and separation is not reasonably practicable, Regulation 2835 permits temporary trust-account handling and generally requires the broker share out within 25 days.
What happens if the principal disputes the broker's commission?
Regulation 2835 says the disputed broker portion must not be withdrawn from the trust account until the dispute is finally settled. A broker cannot resolve the ownership question by simply labeling the amount earned or transferring it to the general account.
Can a California broker keep $200 in a trust account?
A broker may maintain reasonably sufficient broker-owned funds, not exceeding $200, to pay bank service charges or fees levied on the trust account. It is not a general overdraft cushion or operating reserve. Regulation 2835 also contains other narrow mixed-fund provisions.
Are uncashed checks trust funds?
An uncashed deposit check held under valid instructions remains a thing of value held for another. Regulation 2831 requires the trust-fund record to include uncashed checks held pursuant to a principal's instructions. Accounting responsibility does not begin only when cash reaches the bank.
What question should I ask first in a trust-account exam scenario?
Ask who is beneficially entitled to the money or value at that moment and why it was received. Then determine whether the broker's right is earned and undisputed, whether one receipt belongs to both parties, and only after classification apply the account, delivery, record, and disbursement rules.
Keep going
Apply the complete California trust-account checklist
Continue with the related guide and practical next steps for this topic.
Review the trust-funds definition
Keep the short exam definition beside its nearest distinctions and handling rules.
Place trust funds inside the 25 percent content area
Connect classification with supervision, records, disclosures, discipline, and other Practice topics.
Test the distinction in California scenarios
Apply beneficial ownership, receipt, account, and disbursement facts under fresh wording.