Trust Fund Handling Chapter 11

Questions and Answers

What types of assets can trust funds include?

Only cash

Only personal property

Only notes

Any of the above (correct)

Why must a broker designate a trust account as a trust account?

To facilitate automatic disbursement of funds

To ensure quick access for depositors

To protect the funds from creditors of the broker (correct)

To avoid income tax on the funds

Which of the following is allowed for handling funds from multiple beneficiaries?

Combining all funds in a single interest-bearing account

Either A or B (correct)

Using a single non-interest-bearing account for all beneficiaries

Creating separate accounts for each beneficiary

Which statement is true regarding interest-bearing trust accounts?

The broker is entitled to the interest earned Signup and view all the answers

Trust accounts that are required to bear interest include:

Funds collected for taxes and insurance Signup and view all the answers

What must a broker deposit into a trust account?

Both advance fees and impound account collections Signup and view all the answers

What is required of a broker when acting as an escrow holder?

They must provide a detailed financial statement to principals Signup and view all the answers

What is one reason a broker might keep personal funds in a trust account?

To cover bank charges Signup and view all the answers

Commingling refers to which of the following?

Depositing all funds into a single account without designation Signup and view all the answers

What is one consequence of a broker not designating a trust account properly?

The trust funds could become subject to the broker's personal creditors. Signup and view all the answers

Study Notes

Trust Funds Overview

Trust funds can include cash, notes, and personal property.
Proper designation of a trust account protects funds from the broker's creditors.

Trust Account Designation

Trust accounts must be labeled as such to ensure legal protection and proper fund management.
Designation prevents brokers from facing tax liabilities on deposited funds.

Handling of Beneficiary Funds

Brokers can place funds from multiple beneficiaries in either an interest-bearing or non-interest-bearing account.
It's acceptable to choose between those options based on circumstances.

Interest-Bearing Accounts Regulations

Brokers cannot personally benefit from interest earned on trust accounts.
Trust accounts holding funds must be insured by FDIC.
Separate interest-bearing accounts for each beneficiary are not required.

Mandatory Interest-Bearing Trust Accounts

Accounts with loan repayments received before due dates are deemed as trust accounts.
Purchase deposits for one-to-four residential units require interest-bearing trust accounts.
Impound account funds for taxes and insurance also necessitate interest-bearing status.

Deposit Requirements

Advance fees and impound account collections require deposits into trust accounts.
Brokers must ensure compliance with regulations regarding fund handling.

Escrow Duties of Brokers

Brokers acting as escrow must deposit received funds in a trust account.
Disbursement of funds requires written instructions from the depositing party.
Brokers are obligated to provide detailed written statements for all receipts and disbursements.

Personal Funds in Trust Accounts

Keeping personal funds in a trust account may be necessary to cover bank fees.
Maintaining personal funds helps brokers avoid commingling, which is illegal.

Understanding Commingling

Commingling occurs when trust funds are mixed with personal funds or used for personal expenses.
Acceptable practices exclude both holding cash deposits personally and mixing trust funds with personal accounts.

Authorized Withdrawals

Withdrawals from a broker's trust account can be conducted by licensed personnel.
Unlicensed employees can withdraw funds if they are specifically authorized and bonded.