Trust funds: handling deposits, trust accounts, and commingling

Correct answer: It belongs to someone other than the broker.

Trust status follows ownership: the broker holds another person's money. Receipt and bank clearance do not turn it into compensation.

Correct answer: Immediately deliver it to the responsible broker.

California requires immediate delivery to the broker, or delivery to an authorized destination as the broker directs. The broker's placement rule does not grant the salesperson a holding period.

Correct answer: The salesperson's receipt on the broker's behalf.

Section 2832 measures the general placement period from receipt by the broker or the broker's salesperson. An internal handoff cannot restart it.

Correct answer: A bank trust account titled in the broker's name as trustee.

California permits placement in a properly titled broker trust account. Labeling entries in an operating or personal account does not make that account a trust account.

Correct answer: The holding conditions are unmet because timely notice to the offeree is also required.

The check restriction or written instruction is one condition; notice to the offeree before or at presentation is another. Both parts must be satisfied.

Correct answer: Yes, because nonnegotiability and timely notice satisfy the conditions.

Nonnegotiability by the broker is an alternative to the offeror's written holding instruction. Timely offeree notice remains necessary and is present here.

Correct answer: The offeree.

Following acceptance, section 2832(d) permits continued holding upon written authorization from the offeree. This differs from the offeror's preacceptance holding instruction.

Correct answer: Express written provision by both offeror and offeree.

Direct delivery of a previously held check to the offeree requires the offeror and offeree expressly to provide for it in writing. Acceptance alone is not that authorization.

Correct answer: Not later than three business days following receipt by the broker or salesperson.

The general rule is three business days following receipt by the broker or salesperson. Acceptance-based timing applies to a qualifying held offer check, not every receipt.

Correct answer: Not later than the next business day following receipt by the broker or salesperson.

Section 2832(e) applies a next-business-day deadline to this broker acting as escrow holder. The general three-business-day period does not govern this situation.

Correct answer: Tuesday delivery violates the immediate-delivery duty; the general placement deadline remains Thursday.

The salesperson must deliver immediately. For placement, count three business days following Monday receipt: Tuesday one, Wednesday two, Thursday three. Tuesday's handoff does not reset the period.

Correct answer: Upon receipt, even though it remains uncashed.

California's receipt-record requirement includes uncashed checks held pursuant to the principal's instructions. Recordkeeping does not wait for clearance or closing.

Correct answer: The identity of the other depository and the date the funds were forwarded.

For funds not deposited into an account by the broker, section 2831 requires identification of the other depository and the date forwarded. Forwarding does not remove the receipt from the records.

Correct answer: It preserves required record elements in a format that readily enables tracing and reconciliation.

Automated systems may comply if they contain required elements and enable tracing and reconciliation. Electronic format does not excuse missing transaction details or held checks.

Correct answer: It remains with the broker despite the authorized delegation.

California permits specified written withdrawal authority but expressly preserves the broker's responsibility and liability for trust funds in the broker's custody.

Correct answer: The broker's specific written authorization to make withdrawals.

A salesperson licensed to the broker may sign withdrawals when specifically authorized in writing by the broker. Oral permission does not meet that condition.

Correct answer: Reasonably sufficient funds, not exceeding $200, for bank service charges or fees against the account.

The exception is limited by both purpose and amount: reasonably sufficient funds up to $200 for account service charges or fees. It is not a general operating or shortage reserve.

Correct answer: The exception does not apply because office utilities are not bank service charges or fees against the trust account.

A small amount alone does not satisfy section 2835(a). The permitted purpose is paying bank charges or fees against the account, not office utilities.

Correct answer: No later than twenty-five days after deposit.

The mixed-payment exception requires the undisputed broker portion to be disbursed not later than twenty-five days after deposit. The rule does not say business days for this period.

Correct answer: Do not withdraw the disputed portion until the dispute is finally settled.

Section 2835(b) expressly requires disputed broker funds to stay until final settlement. The removal period for an undisputed broker portion does not authorize withdrawal of disputed funds.

Correct answer: The deposit must remain in authorized trust custody until disbursement under instructions from the person entitled to it.

Client trust funds are not temporary operating capital. California requires funds deposited in trust to remain there until properly disbursed on the entitled person's instructions.

Correct answer: Commingling mixes client and broker money; conversion uses another person's money without authority.

The distinction is mixing versus unauthorized use. The terms do not depend on the payment instrument or simply describe delays.

Correct answer: The salesperson licensed to that broker, as a reward for handling the account.

Interest under section 10145(d) may not benefit the broker or a person licensed to the broker, directly or indirectly. Calling it a reward does not avoid the prohibition.

Correct answer: Required account disclosures include service-charge responsibility and possible withdrawal notice requirements or penalties.

Section 10145(d)(4) requires disclosures about account nature, interest, service charges and who pays them, and possible withdrawal notice requirements or penalties.

Correct answer: The owner's rent remains trust money while held for the owner.

Collecting money for an owner gives the manager custody, not ownership. The owner's rental proceeds are distinct from compensation the manager may be entitled to receive.

Correct answer: An unexplained $1,000 excess that needs investigation.

Client liabilities total $7,000 + $6,000 + $4,000 = $17,000. The adjusted bank balance exceeds that total by $18,000 − $17,000 = $1,000. The difference must be traced, not assumed to be income.

Correct answer: The aggregate balance conceals an unauthorized use of Client B's funds.

An adequate aggregate bank balance does not establish that each beneficiary's money is intact. One client's funds cannot be treated as an unauthorized reserve for another client's shortfall.

Correct answer: Tuesday, the third business day following acceptance.

Count business days following acceptance: Friday is one, Monday is two, and Tuesday is three. The acceptance day and nonbusiness weekend days are not counted.

Correct answer: No; the negotiable check needs the offeror's written holding instructions.

For a check negotiable by the broker, the offeror's instruction to hold must be written. Timely offeree notice satisfies a different condition and does not cure the missing writing.

Correct answer: Instructions from the person entitled to the funds.

Section 10145(a)(1) requires trust funds to remain in the account until disbursed in accordance with instructions from the person entitled to them. Deposit alone is not unrestricted spending authority.

Correct answer: The daily balance of the account.

Section 2831(a)(7) includes the daily account balance among required record elements. Transaction volume alone does not show what remains held.

Correct answer: $0.

The entire $800 broker claim is disputed, so $800 − $800 = $0 of that claimed portion is undisputed and available under this rule. The bank-charge exception does not authorize taking disputed funds.

Correct answer: The permitted amount must be reasonably sufficient for charges; $200 is a ceiling, not an automatic allowance.

Section 2835(a) permits reasonably sufficient funds, not exceeding $200. The ceiling does not erase the requirement that the amount be reasonably sufficient for account charges.

Correct answer: The funds are already separated, so separation before deposit is reasonably practicable.

Section 2835(b) addresses funds that cannot reasonably practicably be separated before deposit. Two already separate payments do not satisfy that condition merely because they arise from one transaction.

Correct answer: The broker as trustee for the designated beneficiary or principal.

Section 10145(d)(1) requires the account to be in the broker's name as trustee for the designated beneficiary or principal. Private notes do not replace proper account capacity.

Correct answer: The provision requires all funds in the account to be covered by federal agency insurance.

Section 10145(d)(2) requires all funds in the account to be covered by insurance provided by a United States agency. An interest return or broker promise does not substitute for that condition.

Correct answer: No, the broker may decline by advising the requesting party that the funds will not be so placed.

Section 10145(e) does not obligate the broker to establish the account when the broker advises the requesting party that the funds will not be placed in an interest-bearing account.

Correct answer: Delivery to the owner is an authorized placement route under the general rule.

Section 2832(a) recognizes placement into the owner's hands, neutral escrow, or a properly titled broker trust account. The broker's account is not a mandatory intermediate stop for every receipt.

Correct answer: Authority to sign does not supply authority to use the buyer's money for the brokerage's bill.

Signer authorization and authority for a particular disbursement are separate. Trust funds still must be disbursed according to instructions from the person entitled to them, and the broker remains responsible.

Correct answer: The holding conditions are met, but the uncashed check remains a trust item requiring controlled custody and accounting.

A properly held uncashed check remains another person's trust item. Permission to delay deposit does not remove the broker's custody responsibility, and California expressly includes held checks in trust receipt records.