{"id":28091,"date":"2025-05-27T11:36:04","date_gmt":"2025-05-26T23:36:04","guid":{"rendered":"https:\/\/www.mrisoftware.com\/nz\/blog\/trust-accounts-101-getting-trust-accounting-right\/"},"modified":"2025-11-03T22:27:28","modified_gmt":"2025-11-03T09:27:28","slug":"trust-accounts-101-getting-trust-accounting-right","status":"publish","type":"post","link":"https:\/\/www.mrisoftware.com\/nz\/blog\/trust-accounts-101-getting-trust-accounting-right\/","title":{"rendered":"What is a trust account and how does it work?"},"content":{"rendered":"

If mathematics\u00a0was not your forte and you chose a career in property management to avoid crunching the numbers, we can imagine the shock when you learned you would be managing <\/strong>real estate trust accounts<\/a>. So let’s start at the start.<\/strong><\/p>\n

<\/p>\n

What is trust accounting?<\/strong><\/h2>\n

When a business has to hold onto other people\u2019s money, the law requires the money be kept in a particular type of bank account called a trust account<\/strong>.<\/p>\n

There are three closely-related, but unique terms that are key to this area:<\/p>\n

Trust account<\/strong> – This is a particular type of business bank account used for holding money that does not belong to your business.<\/p>\n

Trust accounting<\/strong> – This is the processes involved in bookkeeping, auditing and reporting so that your trust account remains compliant with the laws and regulations.<\/p>\n

Trust accountant<\/strong> – This is an accountant that specialises in overseeing trust accounts. Some property management companies have\u00a0a trust accountant on as full-time staff. However, more and more, property managers are using trust accounting software<\/a> to manage this part of their business.<\/p>\n

Why do property managers need trust accounts anyway?<\/strong><\/h2>\n

For a property management company, holding money for both property owners and tenants is a critical function of the business<\/strong>.<\/p>\n

Let’s imagine a worst-case scenario<\/strong>: Say a tenant puts down the first and last months\u00a0rent as a deposit for a security bond on a unit. With the best of intentions, the property manager puts the money under their mattress for safekeeping. Later, the property manager has a big unexpected bill come through, and they use the tenant\u2019s deposit to cover it. When the lease is up, the property manager has not been able to replace the money, and now they are not able to give the tenant their deposit back.<\/p>\n

You can probably guess that this type of situation has arisen in the past and this is the reason why there are laws and regulations to prevent such an unfortunate situation.<\/p>\n

Car dealers, attorneys, real estate companies and many other businesses are also required to have trust accounts. If you think about it, the real estate agency acts like a mini bank while holding funds<\/strong>, so it makes sense for the financial regulators to put these laws in place to protect all concerned.<\/p>\n

How do property managers open a trust account?<\/strong><\/h2>\n

For a property manager, trust accounting begins with a special business bank account<\/strong>. Each state has its own list of authorised deposit-taking institutions (see table below).<\/p>\n

Your situation may vary, but most likely, the only person who can open the account will be the owner or a director of your property management business.<\/p>\n

If you are going to open a trust account for your business, you must ensure you are meeting legal obligations for your state or territory. States and local governments vary in their regulations. It is best to find out what is required by your local government to make sure you are compliant.<\/p>\n

What kind of payments are held in a trust account?<\/strong><\/h2>\n

If you are the owner of a real estate business, you are responsible for ensuring the right funds go into the right accounts. All transactions will either be trust money<\/strong> that needs to be deposited into a trust account<\/strong>, or money that is not connected to a trust and therefore belongs in a general business account<\/strong>.<\/p>\n

 <\/p>\n

Here are the differences between the two types of accounts:\u00a0<\/strong><\/p>\n\n\n\n\n
\n
General Business Account<\/strong><\/div>\n<\/td>\n
\n
Trust Account<\/strong><\/div>\n<\/td>\n<\/tr>\n
\n
    \n
  1. Payments for real estate agency services that are not required to be deposited into a trust account<\/strong><\/strong>These include property management fees and commissions<\/li>\n
  2. Payments from trust accounts that the estate agent is entitled to receive:<\/strong><\/strong>These payments incorporate general business expenses, disbursements, commissions and property management fees.<\/li>\n<\/ol>\n<\/td>\n
\n
    \n
  1. Rental bonds or security deposits on: <\/strong><\/li>\n<\/ol>\n