4.1 Montana Trust Account Requirements
Key Takeaways
Broker trust accounts must be held in an insured Montana financial institution and identified as a 'trust account' (ARM 24.210.426)
Only a broker (or property manager) maintains a trust account; a salesperson never holds client funds in their own name
Trust funds must be retained until the transaction closes or terminates, and disbursed only per contract or written agreement of the parties
Commingling (mixing client and personal funds) and conversion (using client funds for unauthorized purposes) are prohibited and disciplinable
Brokers must keep complete records — bank statements, deposit/disbursement records, client ledgers, and reconciliations — for the required retention period, subject to Board audit
Trust-account rules protect client money and are among the most heavily tested Montana topics. The governing rule is ARM 24.210.426, and the core idea is segregation: other people's money is held separately and accounted for at all times.
What Is a Trust Account?
A trust account (or escrow account) is a dedicated bank account where a broker holds funds belonging to others:
| Fund type | Example |
|---|---|
| Earnest money | A buyer's good-faith deposit |
| Security deposits | Tenant deposits on managed rentals |
| Rent collections | Rent held for owners |
| Other client funds | Proceeds pending disbursement |
Only a broker (or a property manager for managed funds) maintains the account. A salesperson never holds client funds in their own name — funds received are promptly delivered to the supervising broker.
Account Requirements (ARM 24.210.426)
| Requirement | Detail |
|---|---|
| Location | An insured financial institution located in Montana |
| Name | The account name must include "trust account" |
| Segregation | Client funds kept separate from the broker's operating funds |
| Accountability | The broker must account for the funds at all times |
| Availability | Records must be readily available for Board audit |
Key rule: The account must be clearly identified as a trust account at an insured Montana institution. A general business account, or an out-of-state account, does not satisfy the rule.
A broker may keep a small amount of the broker's own money in the trust account solely to cover bank service charges or maintain a minimum balance — that narrow exception is not commingling. Anything beyond that minimal cushion is prohibited.
Deposit, Retention, and Disbursement
Holding the funds
| Requirement | Detail |
|---|---|
| Deposit timing | Promptly, per the contract and Board rules |
| Retention | Hold until the transaction closes or terminates |
| Disbursement | Only per the contract terms or the written agreement of the parties |
Disputed funds
If the buyer and seller dispute who is entitled to the earnest money, the broker must not simply pick a side. The broker holds the funds until the parties agree in writing, a court orders disbursement, or the broker uses an authorized process (such as interpleader) to deposit the disputed funds with the court.
Dishonored-deposit protection
A broker is not disciplined for a negative balance that results solely from a deposit that was dishonored after the institution indicated the funds were available — i.e., a bounced check the broker reasonably relied on.
Prohibited Practices: Commingling and Conversion
Commingling
Commingling is mixing client funds with the broker's personal or business funds. It is prohibited — even if no client loses money.
| Allowed | NOT allowed |
|---|---|
| Client funds in the trust account | Client funds in the operating account |
| A small cushion for bank fees | Large broker funds parked in the trust account |
| Disbursing per agreement | Using client funds for business expenses |
Conversion
Conversion is using client funds for an unauthorized purpose — a far more serious violation that can lead to license revocation, criminal charges, and civil liability. Conversion is intentional misappropriation, not merely sloppy bookkeeping.
Exam point: Distinguish the two. Commingling = mixing funds (a violation by itself). Conversion = spending/using client funds without authorization (theft-level).
Recordkeeping and Board Audits
Brokers must maintain complete trust-account records:
| Record | Purpose |
|---|---|
| Bank statements | Monthly institution statements |
| Deposit records | Proof of each deposit |
| Disbursement records | Proof of each payment |
| Client ledgers | Per-transaction running balances |
| Reconciliations | Periodic (monthly) account reconciliation |
Records must be retained for the period the Board requires and produced on demand. The Board may audit trust accounts at any time and during any investigation.
Common audit findings
| Issue | Likely consequence |
|---|---|
| Shortage of funds | Serious — potential revocation |
| Commingling | Fine to revocation |
| Poor records / no reconciliation | Warning to suspension |
| Late deposits | Warning to fine |
| Missing "trust account" designation | Administrative violation |
Putting it together: The broker is personally responsible for the trust account, even for funds a salesperson mishandles before delivery. Sound recordkeeping and monthly reconciliation are the broker's best defense in an audit.
Reconciliation: The Three-Way Tie-Out
The gold standard the Board expects is a three-way reconciliation, performed regularly (monthly). It confirms that three numbers agree:
| Source | Should equal |
|---|---|
| Bank balance (reconciled to the statement) | = |
| Trust ledger / checkbook balance | = |
| Sum of all client sub-ledgers | (the total of every individual transaction balance) |
If the three do not tie out, there is a shortage or overage that must be investigated immediately. A shortage (less in the account than clients are owed) is the most serious finding — it suggests funds were used improperly. An overage (more than owed) often signals commingled broker money that should be removed (beyond the small service-fee cushion).
A Worked Trust Scenario
A broker holds $5,000 earnest money for the Smith deal and $3,000 for the Jones deal — the trust account should show $8,000 attributable to those two client ledgers. If the bank shows $7,500, there is a $500 shortage: a red-flag the Board treats as potential conversion until explained. If it shows $8,400 and the extra $400 is the broker's own money beyond a bank-fee cushion, that is commingling.
Exam tip: When a trust question gives you ledger figures, add the client sub-ledgers and compare to the bank balance. A mismatch is the violation — short = likely conversion; extra broker funds = commingling.
Under ARM 24.210.426, where must a Montana broker's trust account be held?
Any bank in the United States
An insured financial institution located in Montana, identified as a trust account
An offshore escrow account
The broker's personal savings account
What is the difference between commingling and conversion?
They are the same violation
Conversion is allowed with disclosure
Commingling is a criminal felony and conversion is minor
Commingling is mixing client and broker funds; conversion is using client funds for unauthorized purposes
Buyer and seller dispute who gets the earnest money. What should the broker do?
Release it to the buyer
Release it to the seller
Hold the funds until the parties agree in writing or a court directs disbursement
Keep it as a service fee
Sections you finish are checked off in the contents.