Key Takeaways
- Washington designated brokers must maintain trust accounts at approved financial institutions
- Client funds must be deposited by the end of the next banking day following receipt
- Trust accounts must be reconciled at least monthly; records retained for 3 years
- Commingling (mixing personal and trust funds) is prohibited
- Escrow companies typically hold earnest money in Washington rather than brokerages
Trust Account Management in Washington
Proper handling of client funds is a critical responsibility for Washington real estate firms.
Trust Account Requirements
Who Must Have a Trust Account
| Firm Type | Trust Account Required? |
|---|---|
| Holding earnest money | Yes |
| Property management (rent collection) | Yes |
| Not holding client funds | May not be required |
Note: In Washington, earnest money is commonly held by escrow companies rather than real estate firms. However, if a firm holds client funds, trust account rules apply.
Account Setup
| Requirement | Specification |
|---|---|
| Account Type | Designated trust account |
| Location | Approved financial institution in Washington |
| Account Name | Must clearly identify as trust/escrow account |
| Signatory | Designated broker must have authority |
Types of Funds Held in Trust
| Fund Type | Description |
|---|---|
| Earnest Money | If firm is the holder (often escrow instead) |
| Security Deposits | Rental property deposits |
| Rent Collections | Property management funds |
| Client Advances | Prepaid expenses |
Deposit Timing
Washington Requirement
Trust funds must be deposited by the end of the next banking day following receipt.
| Receipt Day | Deposit By |
|---|---|
| Monday | Tuesday end of business |
| Friday | Monday end of business |
| Weekend | Monday end of business |
Banking Days: Monday-Friday, excluding federal and state holidays.
What Counts as Receipt
A firm "receives" funds when:
- Check is physically received by any firm affiliate
- Wire transfer is credited
- Cash is received (document carefully)
Prohibited Practices
Commingling
Commingling is mixing trust funds with personal or business operating funds. It is strictly prohibited.
Exceptions:
- Firm MAY keep minimal funds to cover bank service charges
- Amount should be documented and minimal
Conversion
Conversion is using trust funds for personal or business purposes. It is:
- A serious violation
- Potential criminal offense
- Grounds for license revocation
Premature Disbursement
Firms cannot disburse trust funds until:
- Transaction closes successfully, OR
- Transaction terminates with written agreement on distribution
Trust Account Maintenance
Reconciliation Requirements
| Task | Frequency |
|---|---|
| Bank statement reconciliation | Monthly (minimum) |
| Trial balance | Monthly |
| Record retention | 3 years minimum |
Reconciliation Process
- Compare bank statement to records
- Prepare trial balance
- Identify and resolve discrepancies
- Document findings
- Designated broker oversight
DOL Audits
DOL may audit firm trust accounts:
- Random compliance audits
- In response to complaints
- During investigation
Failure to maintain proper records is itself a violation.
Escrow Companies in Washington
Common Practice
In Washington, earnest money is commonly held by licensed escrow companies:
| Entity | Role |
|---|---|
| Escrow Company | Neutral third party holding funds |
| Title Company | Often provides escrow services |
| Real Estate Firm | May hold if designated in contract |
Escrow Holder Responsibilities
The escrow holder:
- Holds funds in trust
- Disburses per written instructions
- Maintains neutrality
- Files interpleader if disputed
Earnest Money Disputes
When parties dispute earnest money:
- Hold the funds until dispute is resolved
- Document all communications
- Do not disburse without written agreement
- Interpleader - May file with court if unresolved
- Court determines rightful owner
By when must a Washington real estate firm deposit trust funds into the trust account?
How often must a Washington firm reconcile their trust account?
In Washington, who commonly holds earnest money?