Key Takeaways
- Principal brokers must maintain a trust account at a Hawaii financial institution for client funds
- All client funds (earnest money, security deposits, rent) must be deposited into the trust account
- Commingling broker funds with client funds is strictly prohibited
- Trust account records must be maintained for at least 3 years
- HIREC has authority to audit trust accounts at any time without notice
Hawaii Trust Account Requirements
Hawaii principal brokers must maintain trust accounts to hold client funds separate from their operating funds.
Trust Account Basics
What is a Trust Account?
A trust account (also called an escrow account) is a bank account where principal brokers hold funds belonging to others:
| Fund Type | Examples |
|---|---|
| Earnest money deposits | Buyer's good faith deposit |
| Security deposits | Tenant deposits on rentals |
| Rent collections | Collected on behalf of landlords |
| Other client funds | Closing proceeds pending disbursement |
Where to Open
Trust accounts must be at:
- A Hawaii-chartered bank or credit union
- A federally-insured institution with Hawaii branches
- Account must be designated as "trust" or "escrow" account
Key Requirement: The account name must clearly identify it as a trust account.
Who Must Maintain Trust Account
| Person | Trust Account Responsibility |
|---|---|
| Principal Broker | Required - maintains trust account |
| Associate Broker | Cannot maintain own trust account for brokerage |
| Salesperson | Cannot maintain trust account |
Critical Rule: Only the principal broker can maintain and control the trust account. Salespersons and associate brokers must immediately turn over all client funds to the principal broker.
Deposit Requirements
Timeline
| Situation | Deposit Deadline |
|---|---|
| Earnest money | Per contract terms (typically within 5 business days of acceptance) |
| Security deposits | Per lease agreement terms |
| Rent | Per management agreement |
Proper Deposits
All client funds must be deposited into the principal broker's trust account—not:
- Salesperson's personal account
- Broker's operating account
- Any other non-trust account
- Personal safe or drawer
Prohibited Practices
Commingling
Commingling is mixing client funds with broker's personal or business funds. It is strictly prohibited.
| Allowed | NOT Allowed |
|---|---|
| Client funds in trust account | Client funds in operating account |
| Small broker amount to maintain account | Large broker funds in trust account |
| Separate client ledgers | Mixing clients' funds without records |
Conversion
Conversion is using client funds for unauthorized purposes. It is a serious violation that can result in:
- Immediate license suspension
- License revocation
- Criminal charges (theft/embezzlement)
- Civil liability
- Payment from Recovery Fund
Common Trust Account Violations
| Violation | Description |
|---|---|
| Commingling | Mixing personal and client funds |
| Conversion | Unauthorized use of client funds |
| Late deposits | Not depositing within required time |
| Poor records | Inadequate documentation |
| Unauthorized disbursement | Releasing funds incorrectly |
Record Keeping
Required Records
Principal brokers must maintain:
| Record | Description |
|---|---|
| Bank statements | Monthly statements from financial institution |
| Deposit receipts | Documentation of each deposit |
| Check records | Documentation of each disbursement |
| Client ledgers | Individual records for each client |
| Bank reconciliation | Monthly reconciliation of account |
| Transaction records | All transaction documentation |
Retention Period
| Requirement | Duration |
|---|---|
| Trust account records | 3 years minimum |
| Transaction files | 3 years minimum |
| Listing agreements | 3 years after expiration |
HIREC Audits
HIREC has authority to:
- Audit trust accounts at any time without notice
- Review records during investigations
- Take immediate action if shortage discovered
- Suspend license if serious violations found
Common Audit Findings
| Issue | Consequence |
|---|---|
| Shortage of funds | Serious violation—immediate suspension |
| Poor record keeping | Warning to suspension |
| Late deposits | Warning to fine |
| Commingling | Fine to revocation |
| Conversion | Revocation and criminal referral |
Who is authorized to maintain a trust account for client funds in Hawaii?
How long must Hawaii principal brokers maintain trust account records?
What is commingling in real estate trust account management?