Colorado Trust Accounts and Record Keeping

First identify the owner of the money

Earnest money, rents collected for owners, tenant security deposits, and certain advance payments are not the brokerage's operating revenue merely because they passed through the broker's hands. Ask who owns the money, why it was paid, who is authorized to hold it, and what event permits disbursement. A check written to the brokerage can still contain someone else's funds.

Colorado's trust rules address account identification, control, deposits, disbursements, records, and reconciliations. A firm that never receives money belonging to others need not create an otherwise unnecessary escrowEscrow Holding funds or documents subject to authorized conditions. See Chapter 17. Glossary account, but it must actually avoid holding those funds and still document proper delivery to the authorized holder. An associate does not open an informal personal account as a substitute for the firm's system. CO06

Account structure and authority

Trust accounts must be properly identified as trust or escrowEscrow Holding funds or documents subject to authorized conditions. See Chapter 17. Glossary accounts and maintained in the permitted depository arrangement. The employing or independent brokerIndependent broker A broker qualified for independent practice; independent status alone is not the same as employing-broker authority. Glossary has withdrawal authority and retains responsibility, even where another person is an authorized signer. Delegating bookkeeping does not delegate away regulatory accountability.

Property management requires separation between the rental-receipts escrow account and the security-deposit escrow account. A beneficiaryBeneficiary In deed-of-trust terminology, commonly the lender; in trusts generally, a person entitled to benefits. See Chapter 4, Chapter 15. Glossary ledger identifies each owner's or tenant's funds within the appropriate account; it does not replace the required account separation. Do not confuse an account at the bank with an individual ledger inside the accounting system. CO06

Example. A firm manages ten rentals. A separate ledger for each owner is necessary to identify balances. That does not mean the firm necessarily needs ten rental-receipt bank accounts, and it does not authorize mixing all security deposits into an operating account. There are two levels of separation: bank-account purpose and beneficiary ownership.

The three-business-day and five-business-day rules

Rule 5.7 distinguishes two categories. Money received in connection with property management is deposited no later than five business days after receipt or mutual execution of the lease, whichever is later. Other covered money is deposited no later than three business days after receipt or mutual execution of the contract, whichever is later. Always distinguish the triggering event, the category of funds, and the business-day unit. CO06

This does not excuse failure to deliver earnest money by the purchase contract's deadline. There can be a contractual delivery obligation, a duty to place funds promptly in the employing brokerEmploying broker A broker shown in Commission records as employing or engaging another broker and subject to applicable supervisory qualifications and duties. Glossary's custody, and a trust-deposit deadline. They answer different questions.

Worked example. Assume no holidays. A firm receives purchase earnest money on Monday, and the contract is mutually executed Wednesday. Using the later event and beginning the count after it, the three business days are Thursday, Friday, and Monday. The deposit deadline under that stated rule is Monday. If the contract separately required delivery to the titleTitle The legal ownership interest or rights in property, distinct from the deed documenting transfer. See Chapter 7. Glossary company Wednesday, keeping it at the brokerage until Monday is not justified by this calculation.

Property-management comparison. Assume the firm receives a rental deposit Tuesday but the lease is not mutually executed until Thursday. With no holidays, count Friday, Monday, Tuesday, Wednesday, Thursday: five business days after the later event. Do not answer using the purchase-contract three-day rule.

Earnest money held by someone else

Deliver earnest money to the holder designated in the contract and obtain the required dated receipt. Retain proof whether the holder is the brokerage, a titleTitle The legal ownership interest or rights in property, distinct from the deed documenting transfer. See Chapter 7. Glossary company, or an attorney. A photocopy of an unsigned check is not proof that the authorized holder received collected funds.

If the earnest money is a promissory note rather than cash, disclose the arrangement appropriately, track the due date, and address nonpayment promptly. The holder's receipt of a note is not the same economic event as receipt of cash. Never represent an uncollected or dishonored check as cleared money. CO06

Commingling, conversion, and earned fees

ComminglingCommingling Improper mixing of trust funds with personal or business funds. See Chapter 19. Glossary is improper mixing. ConversionConversion Unauthorized use or appropriation of another person's funds or property. See Chapter 19. Glossary is unauthorized use. Borrowing $500 from ClientClient A represented principal in a brokerage relationship. See Chapter 8. Glossary A to cover Client B's refund is improper even if the total bank balance remains positive and the money is replaced tomorrow. A broker's good intentions are not an ownership interest in a client's funds.

The narrow handling of documented bank-service-charge funds is not permission for an arbitrary operating reserve in escrowEscrow Holding funds or documents subject to authorized conditions. See Chapter 17. Glossary. Earned brokerage money should be removed according to the rule and agreement; unearned advances are not simply labeled earned to repair a shortage. A fee, markup, or vendor relationship requires the appropriate authority and disclosures. CO06

Application. A manager collects $2,000 rent for an owner and anticipates a $200 management fee. The agreement and completed services determine whether and when the fee can be paid. The manager should not withdraw the owner's entire balance because another property needs repairs.

Monthly three-way reconciliation

The ordinary trust reconciliation compares:

Adjusted bank balance = cash journal or control balance = total beneficiary-ledger balances.

Adjust for outstanding checks and deposits in transit. Investigate discrepancies; do not make a fictitious entry merely to force equality. Review individual ledgers as well as the total. A negative clientClient A represented principal in a brokerage relationship. See Chapter 8. Glossary ledger can reveal conversionConversion Unauthorized use or appropriation of another person's funds or property. See Chapter 19. Glossary even when the three totals agree. Colorado requires monthly reconciliation of covered trust accounts. CO06

Worked example. The bank statement shows $23,350. A $1,000 deposit is in transit and an $850 check is outstanding. The adjusted bank balance is $23,500. The cash journal and the sum of beneficiaryBeneficiary In deed-of-trust terminology, commonly the lender; in trusts generally, a person entitled to benefits. See Chapter 4, Chapter 15. Glossary ledgers must each equal $23,500 after legitimate reconciling entries. If the journal says $24,000, the missing $500 must be explained, not charged to the next owner's rent.

Second test. Owner A's ledger is negative $300, Owner B's ledger is $8,000, and the total is $7,700. A matching $7,700 bank balance does not make A's unauthorized overdraft acceptable. B's money is supporting A.

Security deposits, transfer, and reporting

A management agreement and lease should identify who holds security deposits and who has responsibility for return. A transfer to an owner or successor manager must comply with the applicable authorization, notice, documentation, and transfer requirements. Do not assume the departing broker is free of responsibility merely because someone verbally promised to take over.

Colorado's landlord security-deposit law changed in 2026 and is covered in Chapter 29. Its tenant-return and successor-landlord rules are not the same as the broker's initial five-business-day deposit rule. A question using “return,” “transfer,” or “deposit” may deliberately test that distinction. CO06 CO14

Four-year records and practical controls

Both the broker and brokerage firm have transaction-record duties. Colorado uses a four-year retention requirement for the prescribed records; apply Rule 6.20 to the relevant closing or unconsummated listing and retain longer where another legal obligation or dispute requires it. Moving to a new firm does not erase the old transaction history. CO07 CO20

A usable file explains what happened: agreements, disclosures, versions, signatures, notices and delivery evidence, money receipts, closing statements, correspondence, and the required accounting. Electronic storage must preserve accessibility and integrity. “It was on my old phone” is not an accounting system.