Trust accounting for Estate Agents
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What is Trust monies?
Trust accounts are bank accounts specifically designated to hold funds that belong to others. Trust money is money entrusted to an estate agent and retained in trust until the estate agent is lawfully entitled to it; or instructed to make payment therefrom to any person. Estate agents are required to maintain separate trust accounts and be in possession of valid Fidelity Fund Certificate.
The EAAB defines, Trust monies as any monies received and/or collected by the estate agency with respects to any immovable property. Trust monies include rental, electricity, deposit, etc. Therefore, it is a requirement for an estate agency to open one or more trust accounts. Generally, it is suggested that a rental trust account is opened (this is where tenants make payment of rental monies including deposits, water, electricity, etc.) and a separate trust account is opened for the holding deposit. However, it is not uncommon for estate agencies to have one trust account for both the rental monies and holding deposits.
Currently the EAAB requires that an agency hold at least three bank accounts, namely:
1. Rental Trust account
2. Deposit Trust account (damage deposits) or Investment Account
3. Business Account (business operational account)
Trust Accounts & Investment of Trust monies by Estate Agents
Section 32 obliges Estate Agents to open a trust account or accounts with a bank. All monies received on behalf of clients must be deposited into such current account or accounts forthwith. Only after the monies have been deposited into this (subsection (1)) current account may it be transferred to a (subsection (2)) savings or interest-bearing account (as in the case of tenants’ deposits). Both the above-mentioned accounts must be in the name of the Estate Agents and must bear reference to section 32(1) or (2) (as the case may be) of the Act. Every account must be reconciled every 30 days.
The legal requirement for someone to be able to act as an estate agency is to hold a valid Fidelity Fund Certificate, which is only issued annually if an agency is registered with the Estate Agency Affairs Board (EAAB), fees paid to date, all agents are registered and their training and Continuous Professional Development (CPD) points are up to date and if within four months of financial year end, a favourable audit report was submitted to the council, both the Trust Account as well as the books of the general business account itself.
The Trust Account is a section 32 account, where all monies received from clients are kept separate from the agency’s own funds. Funds are held in the agency’s interest-bearing trust account or client’s interest-bearing savings account. Obligations of owners etc. are paid from the Trust Account (such as rental payments, council rates, levies, deposit refunds), on instruction of the owner and funds may not be used for any other purpose.
During an annual audit, the following aspects are looked at:
– Compliance with Section 32 of the Estate Agency Affairs act, 1976.
– Whether the Trust Account is liquid in other words is there at all times enough money in the bank to pay clients’ deposits, credit balances, creditors and savings.
– Is interest on Trust Moneys paid to the EAAB or to the client when refunding deposits, where it is stipulated in the contract?
– Are sufficient financial records kept by the agency?
– That the financial statements of the business itself is not materially misrepresented and that the company is solvent.
– That the business complies with all FICA requirements and reporting.
Therefore, the Trust Account and General business Account are managed separately. The table below show the differences between the types of accounts.
– Trust account
– General business account
– Rental or security deposits on, residential, commercial, industrial or storage land, buildings, etc.
– Payments from trust accounts where the estate agency is entitled to receive them, such as: commission, management fees & disbursements and general expenses
– Rent on residential, commercial, industrial or storage leased land, buildings, etc.
– Payments for estate agency services where these payments are not required to be deposited in a trust account; for example, commission or management fees of sales properties.
– Costs and utilities (for example, council rates, water, electricity, payments to contractors, insurance) relating to land, buildings for lease
– Costs and utilities (for example, agents salaries, office rental, water, electricity, payments to tax, insurance) relating to the operation of the estate agency