3.3 Trust Account Management

The Designated Broker Owns the Trust Account

In Washington, a firm operates under a designated broker (DB) who is personally and legally accountable for the firm's handling of client money. The governing law is RCW 18.85 with detailed rules in WAC Title 308-124 (the Department of Licensing real estate rules). The exam tests these mechanics heavily because mishandled funds are the fastest route to license revocation.

Who Needs a Trust Account

Practice reality: In most Washington sales the closing/escrow agent holds earnest money, not the brokerage. But the moment a firm physically receives client funds, full trust-account rules attach.

Account Setup Rules

Deposit Timing — The Next-Banking-Day Rule

Washington requires trust funds to be deposited by the end of the first banking day following receipt. "Receipt" occurs when any firm affiliate takes the check, the wire is credited, or cash is handed over.

Banking days exclude weekends and federal/state holidays. A common alternative: the buyer's check is made payable to the closing agent, and the firm forwards it promptly — a check held undeposited and uncashed under the agreement is handled per the contract, but a firm may not simply sit on a negotiable check.

Worked example: A managing broker collects a $10,000 earnest-money check Friday at 4 p.m. With a Monday holiday, the deposit deadline becomes the end of Tuesday, the first banking day after receipt.

Pooled Trust Accounts and Property Management

A firm may keep one pooled trust account holding many clients' funds, but it must maintain a separate client ledger for each principal so the books always show whose money is whose. The total of all client ledgers must equal the bank balance (minus any documented service-charge cushion) at every reconciliation. For property management, security deposits and collected rents are trust funds too — a manager who deposits a tenant's damage deposit into the firm operating account has commingled, regardless of intent.

The exam may frame this as a property-management scenario rather than a sale, so recognize that the same RCW 18.85 / WAC 308-124 rules apply to rent and deposits exactly as they do to earnest money.

Prohibited Practices, Reconciliation, and Disputes

Commingling vs. Conversion

Commingling is mixing trust funds with the firm's operating or personal money — for example, depositing an earnest-money check into the firm's general account. It is prohibited. The narrow exception: the firm may keep a small, documented amount of its own money in the trust account solely to cover bank service charges.

Conversion is worse — actually using trust funds for the firm's or broker's benefit (paying office rent from the trust account). Conversion is:

• A serious license-law violation and grounds for revocation,
• Potentially a criminal theft offense,
• Treated by the exam as the cardinal sin of fund handling.

Premature disbursement is also barred: a firm cannot release trust funds until the transaction closes or terminates with a written disbursement agreement (or a court order).

Reconciliation and Recordkeeping

The DOL audits trust accounts randomly, on complaint, and during investigations. Failure to keep reconciled records is itself a violation, independent of whether any money is actually missing.

Earnest Money Disputes and Interpleader

When buyer and seller both claim the earnest money, the holder is squeezed:

1. Hold the funds — do not pick a side.
2. Demand a written mutual release signed by both parties before disbursing.
3. If they will not agree, file an interpleader action — the holder deposits the disputed funds with the court and lets a judge decide ownership.
4. Document every communication.

Exam trap: A broker holding disputed earnest money may not release it to the seller just because the buyer "breached." Without a signed release or court order, releasing funds is itself a violation, even if the broker is sure who is right.

Audit Readiness

Because the Department of Licensing (DOL) can demand records at any time, the designated broker should be able to produce, on short notice: the monthly bank statements, the monthly three-way reconciliation worksheets, the client ledger cards, and the deposit and disbursement records for at least the prior 3 years. A clean trust account is one where the math ties out to the penny each month and every dollar is traceable to a named client. Missing or sloppy records are sanctioned even when no money is actually misappropriated — the recordkeeping duty stands on its own.