What type of account is a trust account in a real estate brokerage typically used for?

A trust account in a real estate brokerage is primarily established to hold client funds before closing. This includes earnest money deposits, tenant security deposits, and other funds meant for the benefit of clients in real estate transactions.

By law, these funds must be kept separate from the brokerage's operating funds to ensure that they are safeguarded and not mixed with the company's general finances. This separation protects the interests of clients and ensures that funds are properly managed and accounted for until they are either applied to the transaction, returned to clients, or otherwise disbursed according to the agreements made.

In contrast, using a trust account to hold all agency operating funds would violate fiduciary responsibilities, as those funds are not owned by the clients. Similarly, while it is important for brokerages to keep commission funds separate from personal funds, this separation pertains more to general business practices rather than the specific purpose of a trust account. Finally, a trust account isn’t generally intended for storing funds for future transactions, as its primary focus is on managing funds related to current transactions and their associated client obligations.