4.1 Wisconsin Trust Account Requirements
Key Takeaways
- A firm must deposit real estate trust funds within 48 hours of receipt; if received the day before a bank holiday/closure, within the next 2 business days (REEB 18.09)
- Client funds (earnest money, down payments, option fees) must go into an Interest-Bearing Real Estate Trust Account (IBRETA); a non-interest or interest-bearing account is used for non-client trust funds
- IBRETA interest never goes to the buyer, seller, or broker — the depository remits it by February 1 to the Department of Administration for homeless-assistance programs
- Trust-account and transaction records must be kept at least 3 years from closing, or from the listing date if the deal never closes (REEB 15.04 / 18.033) — NOT 2 years
- Commingling and conversion are prohibited; only the firm (not an individual salesperson) holds trust funds, and DEHCR/DSPS may audit the account at any time
Trust Account Fundamentals
Under Wis. Stat. 452.13 and Chapter REEB 18 of the Wisconsin Administrative Code, a real estate firm that receives money belonging to others must hold it in a real estate trust account — a separate account at a depository institution from which withdrawals can be made without delay or penalty. The duty attaches to the firm, not the individual salesperson: an associated licensee who receives earnest money must deliver it to the firm, which then deposits it. Salespersons never maintain their own trust accounts.
Key Definitions
| Term | Wisconsin meaning |
|---|---|
| Real estate trust funds | Money received by a firm or licensee that belongs to others in a transaction |
| Client funds | Down payments, earnest money, and option fees related to a conveyance |
| Real estate trust account | A withdraw-without-delay account at a depository institution |
| IBRETA | Interest-Bearing Real Estate Trust Account — the required home for client funds |
Note a frequent trap: a promissory note tendered as earnest money is not yet "client funds" to be deposited — it is held per the offer until converted to cash. The buyer's offer dictates the form and timing of conversion.
Which Account Holds Which Money
Wisconsin recognizes three account categories. Matching the money to the right account is a common exam item.
| Account type | Holds | Interest goes to |
|---|---|---|
| Interest-Bearing Real Estate Trust Account (IBRETA) | Client funds (earnest money, down payments, option fees) | State of Wisconsin (DOA) |
| Non-interest-bearing trust account | Other trust funds (e.g., some property-management funds) | None earned |
| Interest-bearing account for specific trust funds | Funds where a party is contractually entitled to interest | The entitled party |
Worked example: A firm receives a $5,000 earnest-money check Tuesday at 4 p.m. Thanksgiving is Thursday and the bank is closed. Normal rule = deposit within 48 hours (by Thursday 4 p.m.). Because the bank is closed for the holiday, REEB 18.09 extends the deadline to the next 2 business days, so depositing by the following Monday is compliant. The $5,000 goes into the IBRETA — never the salesperson's pocket or the firm's operating account.
IBRETA: Interest Belongs to the State
Since the early 1990s, Wisconsin has required client funds to sit in an IBRETA. The account must earn interest at a rate no less than that paid on individual accounts of the same type, size, and duration at that institution. Crucially, the interest is not the broker's, buyer's, or seller's — the depository institution calculates it and remits it annually, no later than February 1, to the Department of Administration (DOA), which funds emergency-shelter and homeless-assistance programs through the Division of Energy, Housing and Community Resources (DEHCR). At no time may the broker or any party remove or use that interest.
Prohibited Practices
| Practice | Definition | Why it's banned |
|---|---|---|
| Commingling | Mixing client funds with the firm's personal/business money | Destroys the separation that protects consumers |
| Conversion | Using client funds for unauthorized purposes (e.g., payroll) | Theft of others' money; can be criminal |
| Salesperson holding funds | An individual licensee keeping earnest money | Only the firm may hold trust funds |
A narrow exception: a firm may deposit a small amount of its own money to open or maintain the account or cover service charges — that is not commingling. But parking large operating reserves in the trust account, or paying a vendor from it, is.
Record Keeping and Retention
The firm must keep a bank reconciliation, individual client ledgers, deposit receipts, disbursement records, and supporting documents so the trust account can be reconciled to the penny. Under REEB 15.04 / 18.033, records are retained at least 3 years — measured from the date of closing, or from the listing date if the transaction never closes. (Older study material sometimes says "2 years" — that is wrong on the current exam.)
| Record | Purpose |
|---|---|
| Monthly bank statements | Reconcile to ledger balances |
| Individual client ledgers | Track each party's funds separately |
| Deposit receipts / canceled checks | Prove timing and amount |
| Disbursement authorizations | Show funds released per contract |
Disputed and Abandoned Earnest Money
If buyer and seller dispute who gets the earnest money, the firm must not simply pick a side. It holds the funds and may, after a set notice period, disburse per a written agreement, a court order, or deposit the funds with a court (interpleader). If a party cannot be located, the firm documents reasonable attempts; funds unclaimed for the statutory dormancy period are reported to the Department of Revenue, Unclaimed Property unit. DSPS and DEHCR may audit the trust account at any time — incomplete records are themselves a violation.
Reconciliation and Common Exam Traps
The firm's designated broker must be able to reconcile the trust account so that the sum of every client's ledger balance equals the bank-statement balance at all times. A persistent shortage signals conversion; a persistent overage signals commingled firm money or an un-disbursed credit. Reconciliation is typically performed monthly when statements arrive.
| Trap on the exam | Correct rule |
|---|---|
| 'Deposit by the next business day' | The rule is 48 hours, extended to the next 2 business days only for holidays/closures |
| 'Interest helps the buyer's closing costs' | IBRETA interest goes to the state (DOA), never any transaction party |
| 'A salesperson may keep earnest money in a desk drawer' | Only the firm holds trust funds; deliver to the firm promptly |
| 'Records are kept 2 years' | 3 years from closing or listing date |
| 'The broker decides who wins a disputed deposit' | The firm stays neutral; disburse only by agreement, court order, or interpleader |
Finally, distinguish earnest money (buyer's good-faith deposit applied at closing) from the commission the firm earns. Commission is the firm's money and must not be drawn from the trust account until the transaction closes and the funds are properly earned and authorized for disbursement under the offer.
A firm receives an earnest-money check on the Wednesday before a Thursday bank holiday. When must it be deposited?
Where does the interest earned on a Wisconsin IBRETA go?
How long must a Wisconsin firm retain trust-account and transaction records?
Which action is a prohibited trust-account practice in Wisconsin?