3.3 Arizona Trust Account Requirements
Key Takeaways
- Trust money not placed immediately in neutral escrow must be deposited in a trust account by the close of the third banking day after receipt (A.R.S. § 32-2151).
- The trust account must be in an Arizona depository, federally insured, and labeled as a trust or fiduciary account.
- Commingling client funds with broker funds is prohibited; conversion (using them personally) is a felony and grounds for revocation.
- Trust accounts must be reconciled at least monthly, and most transaction records must be kept for 5 years and open to ADRE audit.
- When the parties dispute the earnest money, the broker holds the funds (interpleader) until written agreement or a court order.
Trust Account Basics and the Deposit Deadline
Handling other people's money is where brokers get into the most trouble, so the state exam tests it precisely. Under A.R.S. § 32-2151, a broker who does not immediately place entrusted money in a neutral escrow depository must deposit it in a trust fund account by the close of the third banking day after receipt. "Banking day" excludes weekends and bank holidays, so a Friday receipt can permissibly land in the account the following Wednesday.
Account setup requirements
| Requirement | Specification |
|---|---|
| Location | A depository located in Arizona |
| Insurance | Federally insured (FDIC/NCUA) |
| Label | Designated as a "trust" or fiduciary account |
| Control | Designated broker is responsible; signers are authorized |
| Broker's own funds | Only enough to cover bank service charges may be left in |
Funds that belong in trust
| Fund type | Source |
|---|---|
| Earnest money | Buyer deposits on purchase contracts |
| Security deposits | Residential rental deposits held for owners |
| Rent collections | Property-management receipts |
| Other client money | Any funds held on behalf of another |
Exam trap: the deadline is three banking days, not three calendar days, and the clock starts when the broker receives the money — not when the contract is accepted. If funds go straight to a neutral escrow/title company, the trust-account deadline does not apply because the broker never held them.
Who is responsible
Responsibility for the trust account rests with the designated broker — the individual broker named to run the brokerage — not the salesperson. A salesperson who receives an earnest-money check must turn it over to the broker promptly so the broker can meet the three-banking-day deadline; a salesperson may never open or hold funds in a personal account. Property-management trust money is held under the same rules, and a broker who manages rentals typically maintains a separate property-management trust account distinct from the sales earnest-money account so the two are never blended.
Defining the key terms precisely
Clear definitions prevent most wrong answers here. Trust money is anything of value a broker receives on behalf of another party to a transaction. A neutral escrow depository is an independent escrow or title company that is not the broker; routing funds there immediately discharges the broker's holding duty. A fiduciary duty means the broker must place the client's interest in those funds above the broker's own at all times. And a subsidiary ledger is the per-client record that tracks exactly whose money makes up the pooled trust-account balance, which is what makes monthly reconciliation possible.
Prohibited Practices, Disputes, and Recordkeeping
Commingling vs. conversion
- Commingling is mixing client trust money with the broker's personal or operating funds — even briefly, even without spending it. The only permitted broker money in a trust account is a small reserve for bank fees.
- Conversion is the more serious act of using trust funds for the broker's own purposes. It is theft, a criminal offense, and an automatic basis for license revocation.
A broker may not disburse trust funds early. Earnest money can be released only when (1) the transaction closes, (2) all parties agree in writing, or (3) a court orders it.
Handling a disputed earnest deposit
If a buyer and seller fight over who gets the earnest money, the broker must not pick a side. The broker holds the funds and, if needed, files an interpleader action, depositing the money with the court so a judge decides. Releasing disputed funds without written authorization is itself a violation.
Reconciliation and records
| Task | Frequency / rule |
|---|---|
| Reconcile bank statement to ledger | At least monthly |
| Trial balance of individual ledgers | Monthly |
| Resolve discrepancies | Promptly |
| Retain transaction records | 5 years (open to ADRE inspection) |
The Arizona Department of Real Estate (ADRE) may audit a broker's trust account without warning. Required records include bank statements, deposit receipts, the check register, individual client subsidiary ledgers, and monthly reconciliation reports. Worked example: a property manager holding deposits for 20 rentals must keep a separate ledger per owner so the sum of all ledgers always equals the trust account balance after reconciliation. A shortage — the bank balance being less than the total owed to clients — is one of the fastest routes to disciplinary action and is treated as evidence of conversion.
Penalties and why this matters
Trust-account mishandling is consistently among the leading causes of ADRE disciplinary action. Depending on severity, the commissioner can impose civil penalties, suspend or revoke the license, and refer conversion to prosecutors as a felony. Because the harm falls on consumers who entrusted their money, regulators treat sloppy bookkeeping nearly as harshly as outright theft. The practical takeaway for the exam: deposit on time, keep client money completely separate, reconcile every month, document everything, and when a dispute arises, hold the funds and let a court decide rather than guessing.
These five habits answer the large majority of trust-account questions on the state portion.
By when must an Arizona broker deposit earnest money that is not placed immediately into neutral escrow?
A broker temporarily deposits a buyer's earnest money into the firm's operating account to 'keep it safe.' This is an example of:
How long must Arizona brokers retain trust account and transaction records for ADRE inspection?