4.1 Idaho Trust Account Requirements

Handling other people's money is one of the most heavily regulated and most heavily tested areas of the Idaho Real Estate License Law (Title 54, Chapter 20, Idaho Code). A single trust-account error can cost a broker the license, so the state exam expects you to know exactly who may hold funds, where, for how long, and what records prove it.

What a Trust Account Is

A trust account (also called an escrow account) is a bank account a broker uses to hold money that belongs to other people — never the broker's own operating cash. Typical trust deposits include:

The defining principle is separation: client money must never be mixed with, or used as, the brokerage's business funds.

Who May Hold Trust Funds

This is a frequent exam trap. Only the designated broker may open and control the brokerage's trust account. A salesperson or associate broker may not hold client funds, open a trust account, or deposit earnest money into a personal or office account.

When a salesperson receives earnest money, the rule is simple: deliver it promptly to the designated broker, who then deposits it into the trust account. A salesperson who holds a buyer's check in a desk drawer over a weekend has already created a compliance problem if the brokerage's timeline is exceeded.

Where the Account Is Held

Idaho requires the trust account to be maintained at a federally insured financial institution located in Idaho. The account must be clearly designated — its title must identify it as a trust or escrow account so that, on its face, no one mistakes it for the broker's operating account.

Deposit Timing

Earnest money and other client funds must be deposited within the time frame required by the purchase agreement or IREC rules — a broker cannot sit on a deposit. The contract itself usually states when and where the earnest money is deposited (the brokerage trust account or a neutral escrow/title company). If the contract names a title company as the holder, the funds bypass the brokerage account entirely.

Exam tip: The contract controls where earnest money goes. Read the earnest-money clause before assuming it lands in the broker's trust account.

The Small Operating-Funds Exception

Idaho law recognizes that a bank may require a minimum balance or charge service fees. A broker is therefore permitted to keep a small amount of the broker's own money in the trust account — only enough to cover bank service charges or maintain the required minimum balance and avoid an overdraft. Anything beyond that reasonable cushion is treated as commingling.

Commingling vs. Conversion

These two terms are tested as opposites and students confuse them constantly:

Commingling is about mixing; conversion is about using. A broker who deposits a buyer's earnest money into the firm's operating account has commingled. A broker who then spends that money on office rent has converted it — theft of client funds, which can lead to criminal prosecution in addition to revocation.

Memory hook: Commingle = mix. Convert = spend it.

Records, Client Ledgers, and Reconciliation

A broker must keep records that let IREC trace every dollar in and out of the trust account. At a minimum:

• A journal or running record of all receipts and disbursements
• A separate client (sub) ledger for every transaction or beneficiary
• Copies of deposit slips, checks, and supporting documents
• A periodic reconciliation

Reconciliation means proving three numbers agree: the bank statement balance, the broker's running account balance, and the sum of all individual client ledger balances. If those three do not match, money is misplaced — the most common audit red flag.

Three-Year Retention

Idaho requires trust-account and transaction records to be retained for three (3) years following the year in which each transaction closed. (A common student error — and an error in older study guides — is to state five years; Idaho's period is three years.)

IREC Audits and Common Findings

IREC has authority to audit a broker's trust account and records as part of its oversight and complaint-investigation powers. Brokers cannot refuse an authorized examination. Auditors most often cite:

• A shortage — less money in the account than client ledgers require (a serious finding)
• Commingling — excess broker funds or business deposits in the trust account
• Failure to reconcile or missing client ledgers
• Late deposits of earnest money
• Disbursing disputed earnest money without written authorization or a court order

Scenario: Two parties dispute who gets the earnest money after a failed sale. The broker must hold the funds until the parties agree in writing or a court orders disbursement — the broker may not unilaterally hand it to either side.