Disbursement of Trust Funds Vs. Property
It is part of normal business for real estate brokers and salespersons to receive trust funds in the course of doing real estate transactions. It is also normal for other types of property to be purchased through a trust. Because a trust is a legal identity, it can transact any business approved by the trust indenture. In purchasing property, the agent or broker is has a fiduciary responsibility to the trust funds’ owners.
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Fiduciary Duties
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In all financial transactions involving the disbursal of funds in return for ownership of property, agents and brokers must account for funds received and paid out, particularly in the case of trust funds because they generally have strict legal requirements. There are established legal standards for fiduciaries handling trust accounts, or any client money. Non-compliance with these standards can result in serious legal consequences such as revocation or suspension of licenses, financial liability for damages incurred by clients and, in some cases, incarceration.
Trust Fund Purposes
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Trust funds are legal containers that are created to hold money and property for the benefit of the beneficiaries of the trust. Each trust fund is a legal entity that can transact business in much the same way an individual would transact business. The trust fund may have an administrator or trustee, such as a portfolio manager or attorney, or it may be administered by the owner of the trust fund. A typical trust is a living trust or family trust set up to facilitate estate transfer without probate.
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Transacting Business
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If the trust fund indenture allows the purchase or sale of property, which is normally the case, the administrator of the trust signs all legal documents for the trust. All accounts, including bank and brokerage accounts, are in the exact name of the trust. All property bought into or sold out of the trust must be registered or held in the exact name of the trust. When money is paid out to purchase property, it is paid out of the trust's bank account using a check with the name of the trust and signed by the trust administrator. If a cashier's check is required, that check is ordered out by the administrator and is drawn on the trust's bank account.
Requirements
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When trust funds are disbursed, the money must be deposited in an escrow account or other trust account set up to hold funds for benefit of the trust fund owner. The money may also be remitted to the owner, but any disbursement must take place within a certain number of days after receipt. Three days is a standard time, but your state may have different requirements. The only people entitled to benefit from funds in a trust are the trust owners, who may direct the disposition of the trust assets either as owners or administrators.
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References
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