What you didn’t know about trust accounting

Allison Disarro
| 5 min. read
Get the latest industry insights.

Published on August 20, 2019

Editor’s note: The following is a contributed article written by Allison Disarro, Senior Vice President of Seacoast Commerce Bank.

In today’s property management industry, brokers and property management company owners often keep their books organized as a standard business practice. This also has the added proactive benefit of being prepared for an audit, a process that happens more often than many would think.

Every business owner should follow property management accounting best practices—but that’s not the full picture. It’s good to scratch more than the surface with your knowledge of trust accounts since their setup can affect how they work (or don’t) for your business, regardless of whether or not you are being audited.

Are Your Trust Accounts Set Up Right?

Trust funds are defined as funds that do not belong to the company, which the company or broker is acting as a fiduciary agent to manage. It’s important to have legally-compliant trust accounts as they will protect your business from common risks, which occur more often than a failed audit. It is critical that they are treated accordingly so that they are safe from any negative effects on the company. 

Often times, a trust account is not actually set up correctly, unbeknownst to you and often to the auditor. If it’s listed as “trust” or “escrow,” the account may look right on paper—and an auditor can only verify what they see. Main takeaway: Just because your accounts may have passed an audit, doesn’t mean you have a legitimate trust account established at the bank.  

There are several procedures that the bank must perform in order to set these accounts up as they should be.

 The Most Common Risks of Incorrectly Set Up Trust Accounts

  • Lack of Sufficient FDIC Insurance on Trust Accounts: The standard FDIC Insurance for deposits at a bank (assuming that bank subscribes to FDIC) is $250,000 for all funds per entity/Tax ID #, no matter the amount of accounts held under that entity.  Do you know that a true, legally-compliant trust account should actually be insured up to $250,000 per beneficiary, in this case the property owner, within that trust account? In the event of a bank failure, this is critical, especially for those companies who manage more than $250,000 combined in their accounts at any given time.
  • Governing Entity Lien or Lawsuit/Judgement: In the event of a governing entity lien against the company from the IRS or FTB (or an unsuccessful lawsuit in which funds need to be garnished), the bank is required to freeze the necessary amount of assets held under the Corporate Tax ID# reference on the lien order. If the trust account is set up correctly at the bank, the bank should not consider the trust account as available funds, because even though they are held under the  company owner/broker TIN, the broker is acting as fiduciary agent meaning these funds explicitly do not belong to the company under review.
  • Loss of Broker’s License: If any of the events occur and you were in fact somehow able to recover the funds, you would still be at risk of losing your broker’s license after reporting the incident. 

Where Can You Trip Up?

Many banks may not be familiar with the property management industry, how property managers hold funds and the requirements for the type of bank account needed. When we hear the word “trust,” we often think of Irrevocable, revocable, payable upon death trusts, etc.—the types of trust accounts that an estate would form for their families, businesses or other assets. These types of trust accounts are often prepared by an attorney and come with several pieces of documentation such as notarized trust certification, estate rules, etc; None of which applies to a property management business! 

7 Habits of Highly Successful Property Managers Guide

You will discover creative ways to identify and eliminate routines that are no longer benefiting your business.


Many times when a trust account is not created correctly, it’s simply setup as a business account with the nickname of “trust.” 

As you might imagine, that detail is superficial. Having a nickname on the account provides no additional protection to the account than if it were called something else, such as “payroll.” This nickname can be changed at any time. 

If there is any question in your mind about whether or not your trust accounts are set up right, it is important to communicate with your banker about the requirements. Help your banker understand what type of account this is, what it is intended for, and reiterate that these funds do not belong to you or the company. 

Here are some suggested questions to make sure you have your accounts correctly structured as a trust:

  • How much is my trust account or trust accounts, insured for in total—separate from the other company accounts? 
  • If the bank were to receive a letter of intent to lien from the IRS, would the bank freeze the assets in my trust accounts?
  • Does the bank have a record of the beneficiaries whose funds I hold in my trust accounts?

Depending on the answers, these are usually telltale signs that the account is or is not structured correctly. If the answers are not clear, ask to speak to a compliance department agent for clarification or confirmation. If all else fails, ensure that you are protecting your clients’ funds and find a bank which specializes in and thoroughly understands these types of accounts.

Lastly, let’s cover some dos and don’ts as a takeaway for you to put these recommendations into action. While these are not necessarily safeguards that the bank needs to take for you, it is important that you stick to as many procedures as you can to ensure you are protecting your client’s funds. Doing so could be the difference between a successful year or not.


  1. Name all 3rd party accounts as trusts: A trust account is not just for security deposits. An account that accepts rents must be structured as a trust. This cannot be named just “operating” just because it is used as an “operating trust.”
  2. Monitor who signs: Ensure all signees are either broker, agent, or bonded employees.
  3. Keep your beneficiaries updated: Update your bank account every 6 months to 1 year with the beneficiary information for them to keep with depository records


  1. Allow ineligible users to have ACH, billpay, or wire access to the client funds: Giving this type of access to non-eligible or trusted employees is giving them permission to release funds from the accounts at any time. Remember, the broker is held liable for all trust activity!
  2. Facsimile stamps/electronic stamps: When signing a bank agreement to have a signature stamp be an accepted form of authorization, you are agreeing that any checks signed with this stamp are legal, authorized signatures. You cannot claim fraud if an employee or others use your stamp for unauthorized activity.
Read more on Accounting & Taxes
Allison Disarro
Allison Disarro

Allison DiSarro is the Senior Vice President of Property Management Banking at Seacoast Commerce Bank. She is the leading industry specialist who is well known and respected for her vast knowledge of Real Estate trust bank accounts. Allison banks hundreds of management companies and ensures their client trust funds are protected accordingly. She often teaches on this subject and has been a resource for management companies, auditors, consultants and bookkeepers. Allison has been with Seacoast Commerce Bank for over 9 years, banking ONLY Property Management companies and their affiliated companies.

Trending Stories For You
Marketing 7 property management marketing ideas to attract rental property owners
The word straight from Buildium’s 2021 Rental Owners’ Report: Volume 2 is that two in three small-business rental owners surveyed rely on a property manager…
Laurie Mega
| 7 min. read
Property Management Trends The 3 most common types of renters in single-family rentals & small multifamily properties
COVID-19 has upended the rental market as we knew it. Stay-at-home orders motivated some renters to invest in homes of their own, while others were…
Robin Young
| 21 min. read
Marketing Rental property marketing ideas to thrive this leasing season
When leasing season rolls around, your to-do list is so long that tidying up your marketing strategy likely didn’t even make the top ten. When…
Jillian Rodriguez
| 9 min. read

Be a more productive
property manager