4.1 Connecticut Trust Account Requirements

The Escrow Duty: Sec. 20-324k

A Connecticut broker who receives money belonging to others holds it as a fiduciary. Connecticut General Statutes (C.G.S.) Sec. 20-324k requires that any escrow or trust money — earnest money deposits, tenant security deposits, collected rent, and closing proceeds awaiting disbursement — be deposited into an account separate from the broker's own funds. The statute names the permitted depositories specifically.

Where the account must be held

The account must be designated as an escrow or trust account — not a generic personal or operating account. A common exam trap: a candidate picks "any FDIC-insured bank anywhere." The statute ties the depository to Connecticut, so an out-of-state-only institution does not satisfy Sec. 20-324k.

Who may hold the funds

Only the broker maintains the escrow account. A salesperson who receives a buyer's earnest-money check cannot deposit it into a personal account or hold it; the salesperson must promptly deliver it to the supervising broker, who deposits it into escrow. Picture a worked scenario: a salesperson takes a $10,000 deposit on Friday evening. The correct action is to turn that check over to the broker for deposit per office policy and contract terms — not to "hold it over the weekend" in a desk drawer or personal account.

Deposit Timing

Connecticut does not impose a single statewide "three-day" deadline by statute the way some states do; instead the contract controls the timing, and the broker must follow it. The widely used Connecticut purchase contract typically directs the deposit to be delivered to the holder named in the agreement.

Exam tip: If an answer choice cites a fixed "24 hours" or "3 business days" as a universal Connecticut statutory deadline for earnest money, treat it skeptically. The governing rule is that the broker deposits according to the agreement and does not unreasonably delay.

Disputed Deposits

Sec. 20-324k addresses what happens when the parties disagree about who is entitled to a held deposit. The broker may not pick a side and release funds unilaterally. Until the dispute is resolved, the broker holds the money in escrow and may:

• Obtain written instructions signed by both parties directing disbursement, or
• Wait for a court order, or
• File an interpleader action and pay the disputed funds into court.

Releasing a contested deposit to one party on the broker's own judgment exposes the broker to a conversion claim and discipline.

Commingling vs. Conversion

These two terms are frequently confused on the Connecticut state portion, and they are tested as separate violations.

Commingling is the lesser but still prohibited act of failing to keep funds separate; conversion is the more serious act of actually taking or using the money. A broker can commingle without converting (sloppy bookkeeping), but conversion almost always involves commingling first. Conversion can support license revocation and criminal prosecution, because it is effectively theft of a fiduciary's funds.

Connecticut does permit the broker to keep a small amount of the broker's own money in the escrow account solely to cover bank service charges or to keep the account open — this minimal cushion is not treated as prohibited commingling. Using the client's escrow to subsidize the broker's expenses, however, is conversion.

Required Records (Sec. 20-325m)

A broker must keep records that allow the Department of Consumer Protection (DCP) and the Commission to reconstruct exactly whose money is in the account and where every dollar went.

Retention period — exactly seven years

Under Sec. 20-325m, brokers must retain these records for not less than seven (7) years after the later of: the transaction closing, the date all escrowed funds are disbursed, or the expiration of the listing agreement. The "whichever is later" clause is the tested nuance — counting seven years from the wrong starting event is a common wrong answer. Records may be kept electronically as long as an accurate paper copy can be produced.

Commission and DCP Audits

Real estate licensing is administered by the DCP, with the Connecticut Real Estate Commission acting on policy and discipline. Investigators may audit escrow accounts and may demand the records above.

Self-audit habit: reconcile the escrow account monthly so the trust-ledger total always equals the bank balance minus the small permitted cushion. A persistent unexplained shortage is the single fastest path to revocation.