4.1 Trust Account Requirements

Who Holds the Money

In Minnesota, the trust account (also called an escrow or client-funds account) is the legal responsibility of the broker, not the agent. A salesperson who receives earnest money, a deposit, or rent must deliver those funds to the broker, who deposits them. A salesperson who pockets a check, runs it through a personal account, or holds it "until closing" has violated license law even if every dollar is later returned.

The account must be:

Deposit Timing — The Exam Favorite

Minnesota Statute 82.75 requires trust funds to be deposited no later than the close of the next business day following the broker's receipt of the funds. Many study materials loosely say "within 3 business days" — on the Minnesota state exam, the correct safeguarding standard tied to the broker is the next business day after receipt. The purchase agreement may instruct that earnest money be held uncashed until acceptance; when that written direction exists, the broker follows it.

Worked scenario: A buyer's agent receives a $5,000 earnest-money check Friday afternoon. The broker's office is closed Saturday and Sunday. The broker must deposit it by the close of business Monday (the next business day), not the following Wednesday.

Interest-Bearing Accounts

A standard trust account earns no interest for the broker. A broker may place funds in an interest-bearing account only with the written agreement of all parties specifying who receives the interest. The broker may never keep trust-account interest by default.

Why Trust Rules Carry Outsized Weight on the Exam

Trust-fund mishandling is one of the most common reasons brokers lose their licenses, so Minnesota's exam treats this topic as a fiduciary cornerstone rather than mere bookkeeping. The underlying principle is that client money is never the broker's money, even for a single day. The broker holds it as a trustee, a heightened legal duty that demands exactness, separation, and prompt action. Whenever an exam scenario describes funds being handled, mentally ask three questions: Who received the money? Where did it go? Was it separated from the broker's own funds?

If a salesperson held it, if it touched an operating account, or if the broker delayed past the next business day, a violation has occurred.

A related distinction students miss: earnest money belongs to the parties to the transaction, not to the brokerage. Until closing or a written release, neither the buyer nor the seller has an automatic right to it, which is exactly why the broker stays neutral. The trust account is best pictured as a locked box the broker guards for others, opening it only on instructions everyone has agreed to in writing or that the contract spells out.

When in doubt about whether a disbursement is authorized, the safe and correct action is always to hold the funds and seek written direction or a court order rather than guess and risk a conversion charge.

Prohibited Practices

Commingling is mixing the broker's own money with client money in the trust account. It is prohibited at all times. The single narrow exception is a nominal broker balance (commonly $100–$200, or the amount a specific bank requires) left in the account solely to cover monthly service charges so client funds are never tapped for bank fees.

Conversion is the unauthorized use of client trust money for the broker's own purposes — paying office rent from escrow, "borrowing" a deposit, or applying one client's funds to another client's shortfall. Conversion is treated far more seriously than a bookkeeping slip:

Disbursement and Disputed Funds

The broker releases trust money only when entitled parties agree or the contract dictates it:

• At closing: disburse per the signed closing statement.
• On a clean cancellation: disburse per the parties' written agreement.
• On a dispute: the broker must hold the funds and may not unilaterally pick a side. If buyer and seller cannot agree on who gets the earnest money, the broker can file an interpleader action, depositing the disputed money with the court and letting a judge decide.

Trap: An agent who hands disputed earnest money to whichever party is angrier — or to the seller "because the buyer breached" — without written authorization has committed an unauthorized disbursement, a disciplinable act.

Records and Department Oversight

Brokers must keep a ledger for every transaction, perform a monthly three-way reconciliation (bank balance vs. book balance vs. sum of individual client ledgers), and retain records for at least six years under Minn. Stat. 82.72. The Minnesota Department of Commerce may audit or inspect the trust account at any time, without advance notice, and the broker must produce records on demand. Refusing access is itself a violation.