4.1 Montana Trust Account Requirements

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:

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)

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

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.

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:

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

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:

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.