What is Trust Accounting in Property Management?

Picture this: An owner calls asking about a $500 maintenance charge from three months ago. Your heart sinks as you realize you may have accidentally paid it from the wrong account. For property managers, this scenario isn't just stressful - it could signal serious trust accounting violations that put your business at risk.

Trust accounting is a crucial aspect of property management, ensuring that property owner funds are handled responsibly and in compliance with legal regulations. For property managers, improper trust accounting can lead to financial mismanagement, penalties, or even legal action.

This guide will break down the fundamentals of trust accounting, why it matters, common challenges property managers face, and how automation tools can simplify the process.

Understanding Trust Accounting

Trust accounting is a specialized form of accounting used by vacation rental property managers to handle funds belonging to owners and guests. It ensures financial transparency, compliance, and accountability in property management transactions.

What is Trust Accounting?

• A system for managing owner funds separately from business funds.
• Required by law in many states to prevent mismanagement and fraud.

Key Principles of Trust Accounting

• Fund Segregation: Keeping client funds separate from business accounts.
• Accurate Record-Keeping: Tracking deposits, withdrawals, and account balances.
• Regular Reconciliation: Ensuring records match actual account balances.
• Compliance with Regulations: Adhering to state and local trust accounting laws.

The stakes are high: One misallocation of funds could trigger an audit or even threaten legal action.

Consider this: A 50-property vacation rental manager, averaging $5,000 in bookings per property each month, handles $250,000 flowing through trust accounts monthly. That’s a significant amount of owner revenue and guest payments to track—accuracy is critical.

Why Trust Accounting is Essential for Property Managers

Legal & Financial Compliance

• Many states require trust accounts to handle owner funds.
• Non-compliance can lead to penalties, legal action, or business closure.

Maintaining Transparency & Trust

• Owners rely on accurate fund management.
• Clear financial records reduce disputes and build credibility.

Avoiding Financial Pitfalls

• Mismanagement can lead to the commingling of funds.
• Reduces risk of unintentional fraud or misallocation of funds.

Common Trust Accounting Challenges (And How to Solve Them)

Peak Season Complexity

During high season, trust accounts can grow with advance deposits and increased maintenance expenses. One Topkey customer managing 150+ properties shared: "Before automating trust accounting, we spent 3 days each month reconciling accounts during peak season."

Emergency Maintenance Handling

When a pipe bursts at 2 AM, your maintenance team needs to act fast. However paying emergency vendors from the wrong account can create compliance issues. Smart managers set up systems to handle urgent operational expenses while maintaining proper trust accounting.

Credit Card Reconciliation

Many managers struggle with credit card charges that need reimbursement from trust accounts. This gets especially complex when one purchase serves multiple properties.

State-by-State Requirements

Disclaimer: The information below provides a general overview of trust accounting requirements and regulations for short-term vacation rental property managers in ten different U.S. states.  However, the specific requirements that apply to your business may vary depending on factors such as your business structure, the types of properties you manage, and your specific agreements with property owners. This information should not be substituted for professional legal or accounting advice. Always verify the most current statutes and administrative rules and consult a qualified attorney or accountant for guidance tailored to your situation.

1. Florida

Governing Body: Florida Real Estate Commission (FREC), under the Florida Department of Business and Professional Regulation (DBPR).

Primary Statutes/Rules:

• Chapter 475, Florida Statutes (F.S.) – Real Estate License Law.
• Florida Administrative Code (F.A.C.) 61J2 – Rules of the Florida Real Estate Commission.

Key Requirements:

• Escrow Accounts: Property managers who handle rental income, security deposits, or advanced rents must maintain these funds in a trust (escrow) account in a Florida-based financial institution.
• Timely Deposits: Generally, funds must be deposited within a set timeframe (immediately, or no more than 3 days from receipt, depending on the type of funds).
• Recordkeeping: Must keep accurate books, including a journal and ledger, and reconcile accounts monthly.
• Commingling: Commingling personal funds with escrow funds is prohibited (except nominal amounts needed to maintain the account).
• Interest-Bearing Accounts: Permissible only if agreed upon in writing by all parties and the broker.

2. California

Governing Body: California Department of Real Estate (DRE)

Primary Statutes/Rules:

• California Business and Professions Code (BPC) § 10145 (Real Estate Law)
• California Code of Regulations (CCR), Title 10, § 2832 (Commissioner’s Regulations)

Key Requirements:

• Broker’s Trust Fund Account: Rental proceeds, security deposits, etc. must be placed in a trust account maintained in a federally insured financial institution in California.
• Timely Deposits: Funds must be deposited within 3 business days following receipt.
• Recordkeeping: Must maintain adequate, up-to-date records, including separate trust fund records with a clear audit trail.
• Trust Fund Handling: No commingling or personal use of trust funds. Brokers/property managers may only deposit broker funds for bank charges or to maintain a minimum balance required by the bank.
• Disbursement: Must follow the terms of the rental agreement or property management agreement (e.g., for returns of security deposits).

3. Hawaii

Governing Body: Hawaii Real Estate Commission (under the Department of Commerce and Consumer Affairs)

Primary Statutes/Rules:

• Hawaii Revised Statutes (HRS) Chapter 467 – Real Estate Brokers and Salespersons
• Hawaii Administrative Rules (HAR) § 16-99-4 (regarding trust accounts)

Key Requirements:

• Separate Trust Account: Licensees must maintain separate trust accounts for client funds (rent, security deposits).
• Timely Deposits: Usually, trust funds must be deposited within the next business day after receipt.
• Detailed Records: Must keep sufficient records, including receipts, disbursements, and monthly reconciliations.
• Commingling: Prohibited. A broker may maintain a small amount of personal funds in the trust account only to cover bank service charges.
• Periodic Accountings: Periodic and annual accounting to the property owner/client is often required (ensure compliance with the property management agreement).

4. Texas

Governing Body: Texas Real Estate Commission (TREC)

Primary Statutes/Rules:

• Texas Occupations Code § 1101 (Real Estate License Act)
• TREC Rules, specifically § 535.146 regarding trust accounts

Key Requirements:

• Trust/Escrow Account: Brokers and property managers must deposit client/tenant funds into a trust account in a Texas-based financial institution.
• Timeframe: Security deposits and rents generally must be deposited by the close of the second business day after receipt.
• Commingling: Prohibited; however, minimal amounts to open or maintain the account are allowed.
• Records: Maintain accurate records for at least four years. Must provide detailed records (ledgers, monthly reconciliations) upon request by TREC.
• Disbursements: Must comply with property management agreements and the Real Estate License Act’s disbursement rules.

5. South Carolina

Governing Body: South Carolina Real Estate Commission (SCREC)

Primary Statutes/Rules:

• South Carolina Code of Laws § 40-57-135 (Trust funds and trust accounts)
• SCREC Regulations (e.g., S.C. Code of Regulations R. 105-1, etc.)

Key Requirements:

• Trust Accounts: Property managers must maintain a separate account for money belonging to others.
• Deposit Deadlines: Generally, trust funds (security deposits, rental income) must be deposited within 48 hours (excluding weekends and bank holidays) from receipt.
• Commingling/Conversion: Strictly prohibited.
• Recordkeeping: Must maintain detailed accounting, including a journal, ledger, and monthly reconciliations. Keep records for five years.
• Notification: If the account is interest-bearing, the handling of interest must be in compliance with a written agreement between the broker and property owner/tenant.

6. North Carolina

Governing Body: North Carolina Real Estate Commission (NCREC)

Primary Statutes/Rules:

• North Carolina General Statutes (NCGS) § 93A
• NCREC Rules (e.g., Rule A.0107, A.0109, A.0118 related to trust accounts)

Key Requirements:

• Trust Account Location: Must be in a North Carolina-based insured bank or savings association.
• Timely Deposit: Rental proceeds and security deposits generally must be deposited within 3 banking days of receipt.
• Separate Accounts: Security deposits should often be held separately (or accounted for separately in a trust account) if required by law or contract.
• Commingling: Minimal personal funds allowed only to cover bank charges.
• Monthly Reconciliations: Required, with a documented and easily auditable trail. Records must be kept for at least three years.

7. Arizona

Governing Body: Arizona Department of Real Estate (ADRE)

Primary Statutes/Rules:

• Arizona Revised Statutes (A.R.S.) § 32-2174 (Property management accounts)
• Arizona Administrative Code (A.A.C.) R4-28-1101 through R4-28-1109

Key Requirements:

• Separate Trust Accounts: Must keep each owner’s funds separate or use a trust account with separate records for each owner.
• Timeframe: Deposit funds promptly (usually within three business days after receipt).
• Bank Requirements: Account must be at a federally insured depository located in Arizona unless the property owner instructs otherwise in writing.
• Commingling: Prohibited beyond the minimal amount needed to maintain the account.
• Recordkeeping: Must maintain records for at least five years, including all receipts, disbursements, and monthly reconciliations.

8. Colorado

Governing Body: Colorado Division of Real Estate (part of the Department of Regulatory Agencies), and the Colorado Real Estate Commission

Primary Statutes/Rules:

• Colorado Revised Statutes (C.R.S.) Title 12, Article 10 (Real Estate)
• Commission Rules (e.g., Rule E-1 through E-5 pertain to escrow accounting)

Key Requirements:

• Separate Accounts: Must maintain a trust account for each type of fund (e.g., rental receipts, security deposits) or maintain clear separation in a single account.
• Timely Deposit: Typically, within 5 business days after receipt.
• Recordkeeping: Detailed accounting system required (journal, ledgers) plus monthly reconciliation. Must retain records for 4 years.
• Commingling: Not allowed except nominal amounts for account fees.
• Audits: The Commission has the authority to audit trust accounts at any time.

9. Washington

Governing Body: Washington State Department of Licensing, Real Estate Program

Primary Statutes/Rules:

• Revised Code of Washington (RCW) 18.85 (Real Estate Brokers and Salespersons)
• Washington Administrative Code (WAC) 308-124E (Trust accounting and handling of client funds)

Key Requirements:

• Trust Accounts: Any funds received in the course of conducting property management must go into a separate trust account.
• Timely Deposit: Typically, within one business day of receipt.
• Account Location: Must be in a Washington State–based bank or recognized financial institution.
• Commingling: Disallowed, except a small amount for bank fees.
• Recordkeeping and Reconciliations: Must keep a bookkeeping system that shows receipts, disbursements, and daily balances. Monthly reconciliation is required.

10. Tennessee

Governing Body: Tennessee Real Estate Commission (TREC)

Primary Statutes/Rules:

• Tennessee Code Annotated (TCA), Title 62, Chapter 13 (Real Estate)
• TREC Rules, especially Chapter 1260-02 (Rules of Conduct)

Key Requirements:

• Trust Accounts: Must maintain an escrow or trust account for rental proceeds and security deposits.
• Timely Deposits: Typically within a “reasonable time” as defined by TREC rules—often no later than the next business day after receipt.
• Commingling: Prohibited beyond necessary bank charges.
• Recordkeeping: Must keep complete records of all receipts and disbursements for at least three years.
• Disbursement: Must be in accordance with the terms of any applicable property management or rental agreement.

Best Practices and General Considerations

1. Written Agreements: Ensure that your property management or brokerage agreement clearly spells out how trust funds are handled, including any conditions for refunds, interest-bearing accounts, or other special instructions.
2. Accounting Software: Using property management–specific accounting or trust accounting software can help ensure compliance with recordkeeping requirements and facilitate audits.
3. Frequent Reconciliation: While most states require monthly reconciliations at minimum, reconciling more frequently (weekly or biweekly) can help catch errors early.
4. Segregation of Duties: To reduce the risk of embezzlement or fraud, separate the responsibilities for handling and reconciling trust funds if possible.
5. Stay Current: Regulatory changes, especially concerning short-term rentals (which can have additional tax and licensing implications), evolve quickly. Monitoring state real estate commission bulletins, rule changes, or official guidance is essential.

Disclaimer - This summary is for informational purposes only, does not constitute legal advice, and may not reflect the most recent changes in law. Always consult the latest state statutes, administrative codes, and a qualified attorney or accountant to ensure compliance with all trust accounting regulations.

How to Implement Trust Accounting in Your Property Management Business

1. Open a Dedicated Trust Account - Choose a bank that understands property management compliance.‍
2. Implement a Robust Record-Keeping System - Use digital tracking tools and automated bookkeeping software.‍
3. Regularly Reconcile Accounts - Conduct monthly reconciliations and audits.‍
4. Leverage Automation to Reduce Errors - Automate categorization, fund tracking, and owner statements.

Best Practices for Modern Trust Accounting

Automate Transaction Categorization

• Use software that automatically tags expenses to properties
• Set up rules for recurring transactions
• Maintain digital receipt capture

Implement Real-Time Monitoring

• Track trust account balances daily
• Set up alerts for unusual activities
• Monitor compliance with state regulations

Maintain Clear Documentation

• Keep digital copies of all receipts
• Document reason for every transfer
• Maintain audit trails for all transactions

The ROI of Automated Trust Accounting

Property managers using modern trust accounting solutions typically see:

• 75% reduction in reconciliation time
• Reduced compliance violations
• Additional revenue if allowed to earn yield on accounts
• Improved owner satisfaction through accurate, timely financials

Trust Accounting Audit Checklist

Prepare for audits by regularly reviewing:

• Bank statements match internal records
• Owner balances reconcile with trust account totals
• All transfers have proper documentation
• Security deposits are properly segregated
• Trust account interest is properly handled

Common Trust Accounting Violations to Avoid

Commingling Funds

• Mixing operating and trust money
• Using trust funds for business expenses
• Failing to separate security deposits

Poor Record Keeping

• Missing receipt documentation
• Unclear transaction purposes
• Delayed recording of transactions

Reconciliation Failures

• Skipping monthly reconciliation
• Unresolved discrepancies
• Incomplete documentation

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Frequently Asked Questions About Trust Accounting:

1. Do I Need a Separate Trust Account for Short-Term Vacation Rental Funds, or Can I Use My Business Checking Account?

In many cases, short-term rental (STR) property managers must use a separate trust account for owner funds rather than commingling them with their business checking account. Whether this is a legal requirement depends on your state’s property management laws, but even if not mandated, maintaining a separate trust account is a best practice for financial transparency, compliance, and risk management. Please check with your CPA an state regulations for details.

Why Use a Separate Trust Account?

1. Legal Compliance – Many states require property managers to hold owner funds in a designated trust or escrow account to protect against misuse. Failing to do so can lead to penalties, fines, or even license revocation.
2. Financial Clarity – Keeping owner funds separate from operating expenses ensures clear record-keeping, simplifies reconciliations and prevents accidental overspending.
3. Trust & Credibility – Owners expect their funds to be handled with care. A trust account provides transparency, making it easy to track payouts, security deposits, and other transactions.
4. Better Accounting – A dedicated trust account makes it easier to manage owner statements, vendor payments, and tax reporting, reducing the risk of financial mismanagement.

2. What are the typical timelines for depositing short-term rental funds into a trust account?

Answer: The specific deposit timelines vary by state. Some require deposits within one business day, while others allow up to three or five days. You should check your state’s regulations or licensing board rules for exact requirements. As a rule of thumb, deposit all client funds as soon as possible—this not only meets legal requirements but also promotes clear financial tracking. Please check with your CPA for details.

3. How do I handle refunds of security deposits or cancellation fees from a trust account?

Answer: Refunds must be made strictly in accordance with the terms of the rental or property management agreement and within the statutory deadlines imposed by state law. Many states have specific rules for how quickly you must return a security deposit or other refundable fees once a rental ends or is canceled. Always document these transactions carefully—keep a paper or digital trail of the request and disbursement (including receipts, bank records, and any corresponding ledger entries). Please check with your CPA for details.

4. Do I have to maintain separate ledgers for each property or owner?

Answer: Yes. Most state laws and real estate commission rules require that you maintain accurate, detailed accounting records for each owner or property. Even if you hold all client funds in one trust account, you must be able to produce a clear audit trail showing each deposit, disbursement, and running balance for every individual owner, property, or short-term rental transaction. Proper bookkeeping ensures transparency and helps avoid misappropriation allegations.

5. Can I keep the trust account interest earned, or does it belong to the property owner?

Answer: This depends on state law and the agreement with the property owner. In many states, you may only deposit trust funds into an interest-bearing account if you have written consent from all parties (including the owner and sometimes tenants). Even then, your agreement should specify how any interest earned is to be allocated (e.g., to the property owner, to you as the broker/manager, or used for charitable purposes). Absent a specific written agreement, you generally must credit the interest to the owner who provided the funds. In other states, there are unclear or no guidelines around this. Please speak with a CPA and an attorney familiar with laws and regulations in your state to confirm.

‍Looking Ahead: The Future of Trust Accounting

The property management industry is moving toward fully automated trust accounting solutions that:

• Integrate directly with banking systems
• Provide real-time compliance monitoring
• Automate owner statements and reconciliation
• Maximize interest earnings on trust accounts

Conclusion

Proper trust accounting isn't just about compliance - it's about building a sustainable, professional property management operation. With modern tools and proper processes, you can turn this crucial responsibility from a burden into a competitive advantage.

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Additional Resources:

General Trust Accounting & Property Management Resources:

• NAR (National Association of Realtors): Often has resources and articles related to best practices in real estate, including property management.
• IREM (Institute of Real Estate Management): Focuses specifically on property management and offers certifications, education, and resources. They are likely to have more detailed information on trust accounting.

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*Topkey is a financial technology company and is not a bank. Banking services provided by Thread Bank; Member FDIC.

This article is not intended to provide legal or financial advice and readers should consult with qualified professionals.

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