California specifics
Trust fund handling checklist
Know where trust funds may go, when they must move, how the records connect and who may withdraw. The ordinary deadline is three business days, but a broker acting as escrow holder can face a next-business-day deadline.
Handle no later than three business days after receipt
Place the funds in the broker's trust account, into the hands of the owner, or into a neutral escrow depository unless a valid check-holding instruction applies. The clock begins when the broker or salesperson receives the funds.
Use the next-business-day rule when the broker acts as escrow holder
A broker who is not licensed under the Escrow Law and is acting as the escrow holder in a transaction requiring a real estate license must place the funds in a lawful destination no later than the next business day after receipt.
Never deposit trust funds into a personal or general account
That is commingling, and it is a violation even if not a dollar is spent. Using the money is conversion, which is far more serious.
A salesperson never holds trust funds in their own name
A salesperson must immediately deliver received trust funds to the broker or, if directed by the broker, to the broker's principal, a neutral escrow depository, or the broker's trust account.
The ordinary bank-charge allowance is capped at $200
A broker may maintain reasonably sufficient broker-owned funds, not exceeding $200, for service charges or fees. Regulation 2835 also contains narrow rules for mixed principal and broker funds and specified loan activities.
Keep a separate record for each beneficiary or transaction
Plus a control record covering every receipt and disbursement across the whole account. A single ledger cannot show whose money is whose.
Reconcile at least monthly, and keep the reconciliation
Regulation 2831.2 requires the control record and separate beneficiary or transaction records to be reconciled at least monthly, except in a month with no bank-account activity. Keep the reconciliation. Reconcile those records with the bank statement as well to identify outstanding items, errors, and shortages.
Never disburse below total trust liabilities without every affected owner's written consent
In a multiple-beneficiary account, the broker must obtain the written consent of every principal who owns funds in the account before a disbursement would reduce the balance below the broker's aggregate trust fund liability.
Retain records for three years
Running from the closing date, or from the listing date if there was no closing. Electronic storage is acceptable if legibly reproducible.
Only authorized persons may withdraw
The individual broker or qualifying corporate broker-officer may sign. Qualifying affiliated licensees need specific written authorization. An authorized unlicensed employee also needs the statutory fidelity bond or insurance coverage, including protection for any permitted deductible. The responsible broker remains liable for proper handling.
Apply the statutory safeguards before using an interest-bearing trust account
Business and Professions Code 10145(d) requires the prescribed request, disclosures, insurance, separation, and payment arrangement. Interest must not benefit the broker or a person licensed to that broker, directly or indirectly.
Check both the offeror instruction and notice to the offeree
Before acceptance, the broker may hold an offeror's check if it is not negotiable by the broker or the offeror instructs the hold in writing, and the offeree is informed before or when the offer is presented. After acceptance, continuing the hold requires the offeree's written authorization; otherwise apply the three-business-day placement rule.
Why this list matters beyond the exam
When the Consumer Recovery Account pays a claim, automatic suspension depends on the evidence standard under the rule effective January 1, 2026. A clear-and-convincing finding triggers automatic suspension until repayment with interest. Payment under the lower preponderance standard does not do so by itself. Conversion of trust funds remains one of the grounds a qualifying claim can rest on.
How this is calculated
Trust funds are money or anything of value a broker or salesperson receives on behalf of another person while performing an act that requires a real estate license. Classification follows beneficial ownership and purpose, not the name on the account or who physically holds the money.
Two violations are constantly confused. Commingling is mixing trust money with the broker's own, and it happens the moment client funds touch a general account, whether or not anything is spent. Conversion is spending or diverting it. Conversion can support a qualifying Consumer Recovery Account claim and can carry criminal consequences. Read the verb in any fact pattern: deposited versus used.
The full treatment, including the record-keeping regime and how it interacts with supervision duties, is in Practice of Real Estate and Disclosures.
Common questions
When must a California broker deposit trust funds?
Ordinarily, no later than three business days after receipt by the broker or salesperson, unless a valid check-holding instruction applies. A broker acting as an escrow holder in a licensed transaction who is not licensed under the Escrow Law must use the next-business-day deadline in Regulation 2832(e).
Can a broker keep their own money in a trust account?
Regulation 2835 permits reasonably sufficient broker-owned funds, not exceeding $200, to cover bank service charges or fees. It also contains narrow treatment for inseparable principal and broker funds and specified loan activities, so the $200 rule should not be described as the only exception.
What is the difference between commingling and conversion?
Commingling is mixing a client's trust funds with the broker's own money, and it is a violation even if none of it is spent. Conversion is using or diverting trust money for another purpose. It can support a qualifying Consumer Recovery Account claim and can carry criminal consequences.
Who can sign on a California trust account?
The broker may authorize withdrawals in writing by an employed salesperson, a broker retained under an agreement, or a qualifying unlicensed employee. An unlicensed employee must have the required fidelity bond or the insurance alternative allowed by Business and Professions Code section 10145. Coverage must meet the statutory conditions; written authorization alone is not enough.