4.1 Alaska Trust Account Requirements
Key Takeaways
- Only the broker maintains the trust account; salespersons must deliver client funds to the broker, who deposits them in an FDIC-insured Alaska financial institution under AS 08.88.351.
- The account name must include the words 'trust account' or 'trustee account' and must be a demand account so funds can be withdrawn without delay.
- Commingling is prohibited: a broker may keep no more than $100 of personal/operating money in the trust account to cover bank fees.
- Trust-account and transaction records must be retained for at least 3 years and reconciled monthly against the bank statement.
- The Alaska Real Estate Commission (AREC) may audit a broker's trust account at any time; shortages and conversion are among the most serious violations.
Trust Account Fundamentals
Alaska brokers must hold money belonging to others in a trust account (also called an escrow or trustee account) that is completely separate from the broker's operating and personal funds. The governing statute is Alaska Statutes (AS) 08.88.351, supplemented by the Alaska Administrative Code 12 AAC 64.190. The exam tests this section heavily because mishandling client money is the single most common cause of license revocation in Alaska.
Who Holds the Money
This is a favorite trap. A salesperson (licensed associate) can receive a check from a buyer, but the salesperson may not hold it or deposit it into any personal account. The salesperson must promptly deliver the funds to the employing broker, who alone maintains the trust account. The chain is always: client → salesperson (briefly) → broker's trust account.
What Goes In
| Fund Type | Typical Source |
|---|---|
| Earnest money | Buyer's good-faith deposit on a purchase contract |
| Security deposits | Tenant deposits collected on managed rentals |
| Rent receipts | Monthly rent collected for landlord clients |
| Contingency / repair funds | Money held pending completion of a condition |
| Closing proceeds | Funds held briefly before disbursement |
Key Requirement: Under 12 AAC 64.190 the account name must literally contain the words "trust account" or "trustee account," and it must be a demand account — funds available without notice or penalty. A certificate of deposit or savings account that locks funds does not qualify.
Where, When, and the $100 Rule
Where to Open
The account must be at a bank, savings institution, or credit union that:
- Is doing business in Alaska, and
- Carries deposit insurance through the FDIC (or comparable insurance for a credit union).
Deposit Timeline
| Funds | Deadline |
|---|---|
| Earnest money | Promptly, per contract — Alaska practice and 12 AAC 64.190 expect deposit within the statutory window (commonly stated as a few banking days), never held indefinitely |
| Security deposits | Per the lease, then held in trust |
| Collected rent | Per the property-management agreement |
Worked example. A buyer hands a $10,000 earnest-money check to a salesperson on Monday. The salesperson delivers it to the broker that afternoon. The broker must deposit it into the firm trust account by the statutory deadline — not 'when the deal closes.' Holding the uncashed check in a desk drawer for two weeks while the inspection runs is a reportable violation even though no money was misused.
The $100 Commingling Cap
Commingling means mixing client money with the broker's own money. It is prohibited — with one narrow exception. A broker may keep no more than $100 of personal or operating funds in the trust account, solely to cover monthly bank service charges and keep the account open.
| Allowed | NOT Allowed |
|---|---|
| Up to $100 broker money to cover fees | $500 broker 'cushion' (over the $100 cap = commingling) |
| All earnest money / rent / deposits | Earnest money parked in the operating account |
| Interest handled per written agreement | Using client funds for office payroll (= conversion) |
Critical distinction: Commingling is mixing the funds. Conversion is actually spending client money for an unauthorized purpose — a far more serious offense that can trigger criminal charges in addition to revocation.
Records, Reconciliation, and AREC Audits
Required Records
The broker must keep a complete, auditable money trail. AREC investigators reconstruct exactly where each dollar came from and went.
| Record | Purpose |
|---|---|
| Monthly bank statements | Outside verification of the balance |
| Deposit slips / records | Proof each item was deposited on time |
| Disbursement records | Who was paid, when, and the authority for it |
| Individual client ledgers | A separate running balance per transaction/client |
| Transaction files | Contracts, receipts, and disbursement authorizations |
| Monthly reconciliations | Ledgers + bank balance + journal must agree |
The three-way reconciliation is the core control: the sum of all individual client ledger balances must equal the trust-account bank balance, which must equal the running journal total — every month. A mismatch signals a shortage.
Retention Period
| Item | Minimum Retention |
|---|---|
| Trust-account records | 3 years |
| Transaction / closed deal files | 3 years from closing |
| Reconciliation records | 3 years |
AREC Audit Authority
AREC may examine a broker's trust account and records at any time, not only after a complaint. Common audit findings and their typical outcomes:
| Finding | Likely Consequence |
|---|---|
| Shortage of funds | Most serious — investigation and potential revocation |
| Commingling over $100 | Fine through revocation depending on severity |
| Late or missed deposits | Warning to fine |
| No monthly reconciliation | Warning to fine |
| Missing or sloppy records | Warning to suspension |
Trap to remember: an honest broker who simply keeps poor records can still be disciplined. AREC does not need to prove theft — failing to reconcile or retain records is itself a violation, because those controls are what protect the public.
Who is authorized to maintain a real estate trust account for client funds in Alaska?
What is the maximum amount of the broker's own money that may remain in the trust account?
A broker keeps complete bank statements but has never performed a monthly reconciliation of client ledgers against the account balance. During an AREC audit, what is the most accurate result?