Understanding Trust Monies
Instead, they are legally required to be held in a trust account a protected financial account governed by strict state regulations.
When you pay rent, a security deposit, application fees, or other housing-related funds, those payments don't immediately become the property manager's money.
Understanding trust monies helps clarify that funds are being handled transparently, securely, and according to North Carolina real estate law.
Frequently Asked Questions
What are trust monies?
Funds belonging to someone else, typically a tenant or rental owner, that a property manager holds temporarily.
Why can't the property manager use trust funds like normal money?
Because trust funds are legally protected and must be held separately for the benefit of the tenant or owner.
Where are trust funds kept?
In an approved, insured trust (escrow) account at a bank.
Do trust monies earn interest?
Not usually, unless your lease or state law specifies otherwise.
Who regulates trust accounts in North Carolina?
The NC Real Estate Commission (NCREC).
What happens if trust money is misused?
Severe penalties, including fines, license suspension, or revocation.
What Counts as "Trust Monies"?
Trust monies include any funds the property manager holds that don't belong to them. Examples:
- Security deposits
- Rent payments before being transferred to the property owner
- Pet deposits (if applicable)
- Prepaid rent (like last month's rent)
- Owner reserves
- HOA reimbursements
- Application fees (in some states)
- Maintenance reimbursements
- Move-in or move-out fees before they are disbursed
Each of these must be accounted for and protected.
Why Trust Accounts Exist
Trust accounts protect both tenants and owners.
1. They Prevent Misuse of Other People's Money
Property managers cannot spend trust money on business expenses, delay depositing funds, or mix trust money with operating funds. This keeps all transactions transparent and auditable.
2. They Create a Clear Paper Trail
Every dollar can be traced, must be assigned to a specific tenant or owner, must match the ledger, and must remain available for withdrawal or refund. This is crucial during audits by the NCREC.
3. They Ensure Legal Compliance
North Carolina requires trust funds to be deposited within three banking days, accurate itemized records, monthly reconciliations, and separation from business accounts. Violations are taken extremely seriously.
How Trust Monies Flow Through a Rental Account
Here's the lifecycle of trust money in a typical rental scenario:
1. Tenant Pays Rent → Money Goes Into Trust
The funds remain in the trust account until ledger entries are created, management fees and expenses are calculated, and owner distributions are scheduled.
2. Property Manager Reconciles Accounts
Each month, the trust account must be reconciled: bank balance, ledger balance, and owner/tenant sub-ledgers. All three must match.
3. Disbursements Are Made to Owners
Once reconciled, funds are released to the rental owner, used to pay vendor invoices, applied to maintenance charges, or held for future expenses (owner reserves).
4. Security Deposits Stay Put
These remain untouched until the tenant moves out, deductions are itemized, and the balance is refunded. They must stay in trust the entire time.
Why Some Ledger Entries Are Delayed or Scheduled
Because trust accounting is heavily regulated, certain transactions happen on a schedule, not instantly.
Examples:
- Rent may show "scheduled" until reconciliation
- Owner payments go out only after reconciliation
- Deposits may take several days to clear into trust accounts
- Vendor payments wait until funds are verified in trust
This ensures absolute accuracy and compliance.
Important Things to Know About Trust Money
- Rent goes into a legally regulated trust account, not directly to the property manager
- Security deposits stay protected until move-out
- Refunds can only come from trust accounts, not operating accounts
- Returned payments must be corrected before trust money can be disbursed
- All trust funds are audited and traceable
- Income is paid only from verified trust funds
- Monthly reconciliation ensures accuracy
- Management fees are deducted only after funds are in trust
Well-managed trust accounting ensures healthy, transparent property management, and trust accounting exists to protect everyone involved.