In my last post about trust accounting for property managers, I discussed what trust accounts are and why you should use them. In this post, I am going to give you some tips that well help you stay out of trouble with the Real Estate Commission and some general record-keeping tips for maintaining your trust accounts.
Staying Out of Trouble
A few tips to keep you in the good graces of your Real Estate Commission when it comes to trust accounts:
- Be sure to deposit all funds in a timely manner. Your state commission can provide you with their time requirements for depositing trust funds, but a good habit to get into is depositing them within 48 hours of a fully executed lease. If you use software solutions that allow for online payment of rent and other funds, this usually isn’t a problem if you require your tenants to pay their security deposits within 48 hours of their lease being fully executed.
- If you plan on running rents and property expenses through a trust account, be sure not to include security deposits in this same account. Maintain a separate account for holding security deposits so they aren’t co-mingled with rent and expense accounts.
- Make sure you keep all of your trust accounts reconciled on a monthly basis. If there are any discrepancies within the account, resolve them immediately.
Make it a strict company policy to never: pay bills using security deposit funds; co-mingle funds between clients; or use trust account funds to pay your own company expenses.
To make the entire process of trust accounting easier, use a property management software solution that incorporates trust accounting to help keep you in compliance. This software system should offer detailed reporting on trust account balances for each of your properties.
Record Keeping Tips for Trust Accounts
Each state commission has different requirements of the type of record keeping the want to accompany your trust accounts. Always check with your state-specific Real Estate Commission for their record keeping requirements.
A few of the things you might want to keep in mind when setting up your trust account records are:
- having a copy of the management agreement for all of your properties/clients
- having a copy of the lease agreements for all tenants you manage
- maintain a record of all checkbooks or check registers for each trust account
- maintain a listing of all checks issued from each trust account, including cancelled and voided checks
- maintain bank statements for each trust account, as well as your bank reconciliation
- maintain bank deposit slips for each trust account you keep
- have copies of all financial and management reports that you provide to the property owners
- have copies of all invoices that have been paid from your trust accounts
- keep correspondence concerning security deposit refunds or forfeits from your trust accounts
When it comes to your Real Estate Commission, and especially in the case of an audit, it’s always best to have too much information than not enough.