Property Management Trust Account Requirements by State: Complete Guide

What Is a Property Management Trust Account?

A property management trust account (sometimes called an escrow or client trust account) is a segregated bank account used to hold money that does not belong to the property management company.

Funds typically held in trust include:

• Tenant rent collected on behalf of owners
• Security deposits and pet deposits
• Prepaid or advance rent
• Owner reserve funds
• HOA dues and assessments (when managed by an agent)

Trust funds are held in a fiduciary capacity, meaning the property manager has a legal duty to protect the funds and use them only for their intended purpose.

Across all states, the underlying principle is consistent:
Client money must be kept separate, accurately recorded, and fully traceable at all times.

Why Trust Accounts Are a High-Risk Area for Property Managers

Trust accounts are one of the most frequently audited areas in property management because violations are easy to identify using bank records and accounting logs.

Regulatory enforcement actions commonly arise from:

• Commingling client funds with operating funds
• Late or undocumented deposits
• Missing tenant or owner ledgers
• Incomplete or skipped reconciliations
• Broker or principal oversight failures

California’s Department of Real Estate (DRE), for example, explicitly outlines how trust fund compliance is reviewed during audits and license renewals. Its public guidance reflects what regulators expect to see in practice, not theory.

Similar audit logic is used by state commissions nationwide.

The Universal Trust Account Framework (Applies in All States)

While statutes differ in wording, regulators across states examine the same core controls. Firms that build around these controls rarely fail audits, even in strict jurisdictions.

A. Segregation and Account Titling

Trust accounts must be separate from operating accounts. The account title should clearly identify it as a trust or escrow account, such as:

• “ABC Property Management Trust Account”
• “XYZ Realty Client Funds Account”

Some firms maintain multiple trust accounts (for rent, deposits, HOA funds), which is generally allowed as long as accounting records remain clear.

B. Deposit Timing

States vary in how they describe timing:

• Some specify exact deadlines (e.g., 3–5 business days)
• Others use language such as “promptly” or “without delay”

Regardless of phrasing, regulators expect deposits to occur quickly and consistently.

C. Three-Way Reconciliation (Critical Control)

At any given time, the following three balances must match:

1. Reconciled bank balance
2. Trust account liability balance in the general ledger
3. Sum of all individual tenant and owner ledgers

Three-way reconciliation formula:

Reconciled Bank Balance=Trust GL Balance=∑Individual Client Ledger BalancesReconciled Bank Balance=Trust GL Balance=∑Individual Client Ledger Balances

California publishes an official reconciliation worksheet reflecting this expectation.

D. Monthly Reconciliation and Retention

Most states expect reconciliations to be completed monthly and retained for several years (typically 3–6+, depending on jurisdiction). Missing reconciliations are among the fastest ways to trigger disciplinary action.

E. Commingling Rules

Commingling is broadly prohibited. Some states allow a small cushion of company funds in the trust account solely to cover bank charges or minimum balances. The permitted amount varies by state and must be documented.

F. Broker Responsibility

In most states, the qualifying broker or broker-in-charge remains legally responsible for trust account compliance, even if day-to-day work is delegated. Delegation does not transfer liability.

Where State Rules Differ (What Actually Changes Your Workflow)

Interest on Security Deposits

Some states require interest to be paid to tenants under certain conditions. Examples:

• Massachusetts: Security deposits must be held in interest-bearing accounts, with interest paid annually.
  
• New York: Buildings with six or more units must place deposits in interest-bearing accounts, with interest credited to tenants minus a small administrative fee.
  
• Florida: Allows three methods for handling deposits, including interest-bearing accounts or surety bonds.

Separate vs. Pooled Accounts

Most states allow pooled trust accounts as long as beneficiary ledgers are accurate. Some require separate handling of security deposits or additional disclosures.

Common Trust Account Violations (Seen Across States)

Regulators consistently cite the same failures:

• Ledger totals that do not match bank balances
• Missing documentation for disbursements
• Temporary “borrowing” from trust funds to cover expenses
• Broker not reviewing or certifying reconciliations
• Poor record retention

These failures often stem from fragmented systems and informal processes rather than intentional misuse.

Building an Audit-Ready Trust Accounting Workflow

Trust compliance is not a monthly accounting task; it is an operational system.

Minimum Monthly Compliance Pack

A defensible monthly trust pack includes:

• Bank statement
• Reconciliation worksheet
• Receipts journal
• Disbursements journal
• Individual tenant and owner ledgers

If these cannot be produced quickly and consistently, audit risk remains high.

Role Control and Documentation

Limiting who can initiate, approve, and export trust transactions reduces error and misuse. Centralized documentation prevents “rebuilding” records under pressure.

Platforms such as Propertese support structured trust workflows through features like role-based access control, document storage, and standardized reporting. Relevant capabilities include:

• Users, Roles & Access Management
  
• Document Management
  
• Streamlined Reporting

State-Specific FAQ 

Do all states require property managers to maintain trust accounts?
Most states require segregation of client funds when a manager collects money on behalf of others. Requirements may be enforced through real estate commissions, landlord-tenant statutes, or both.

Is three-way reconciliation required everywhere?
Not always by name, but regulators widely expect bank balances, books, and beneficiary ledgers to align. States such as California, North Carolina, Oregon, and Colorado explicitly enforce this structure.

Can property managers keep their own funds in trust accounts?
Some states allow a small amount solely for bank fees or minimum balances. Excess company funds in trust accounts are often treated as commingling.

How long must trust records be retained?
Retention periods vary, commonly between 3 and 6+ years. Multi-state operators often default to the longest applicable period.

Practical Takeaway for 2026

If your trust accounting system cannot prove compliance instantly, you are already exposed.

Audit-ready firms share three traits:

1. Segregated accounts with clear titles
2. Monthly three-way reconciliation without exceptions
3. Broker-level oversight supported by documentation

For property managers handling multiple properties, owners, or states, centralized systems reduce compliance risk by enforcing structure rather than relying on memory or manual checks.

If you want to evaluate whether your current workflow supports these controls, you can contact Propertese.