California Trust Funds and Trust Accounts
exam 2026 questions and rationales answers
1. What is a trust fund in California real estate?
A. Money belonging to the broker
B. Money received on behalf of another person in connection with a real estate transaction
C. Money earned as commission
D. Money deposited into a personal account
Rationale: Trust funds are money received or held by a broker for others in connection with
licensed real estate activities.
2. Which account is generally used to hold client trust funds?
A. Operating account
B. Personal account
C. Trust account
D. Payroll account
Rationale: Client funds must generally be kept separate from the broker’s personal or business
operating funds.
3. A broker receives an earnest money deposit from a buyer. What should the broker do?
A. Deposit it into the broker's personal account
B. Keep it in cash
C. Handle it according to the transaction instructions and applicable trust-fund requirements
D. Immediately treat it as commission
Rationale: Earnest money is generally trust money until properly disbursed.
4. Who is ultimately responsible for trust fund handling in a real estate brokerage?
A. The salesperson
B. The escrow officer
C. The broker
D. The buyer
Rationale: The employing broker has responsibility for proper handling and accounting of trust
funds.
5. Which of the following is an example of commingling?
,A. Keeping trust funds in a properly designated trust account
B. Mixing a client's money with the broker's personal funds
C. Providing a trust account statement
D. Recording a deposit
Rationale: Commingling occurs when trust funds are mixed with the broker's own money.
6. A broker may place personal funds into a trust account under certain circumstances
primarily to:
A. Earn interest
B. Increase commissions
C. Pay bank charges or maintain the account as permitted by law
D. Make personal investments
Rationale: Limited broker-owned funds may be permitted for legitimate trust-account purposes,
subject to California law.
7. Which practice is prohibited?
A. Maintaining accurate trust records
B. Reconciling the trust account
C. Using a client's trust funds to pay the broker's personal expenses
D. Depositing funds into the proper account
Rationale: Trust funds belong to the parties entitled to them and cannot be used for the broker's
personal expenses.
8. A salesperson receives trust funds payable to the broker. What should the salesperson
generally do?
A. Keep the money until closing
B. Deposit it into a personal account
C. Promptly deliver the funds to the broker
D. Give it to the buyer
Rationale: Salespersons must promptly deliver trust funds received in connection with licensed
activities to the broker.
9. What is the main purpose of a trust account?
A. To increase brokerage profits
B. To safeguard money belonging to others
, C. To pay employee salaries
D. To pay advertising expenses
Rationale: Trust accounts protect funds held by the broker for clients or other parties.
10. Which party may authorize the disbursement of trust funds?
A. Any employee
B. Any salesperson
C. A person legally entitled to authorize the disbursement under the transaction and
applicable law
D. The bank teller
Rationale: Trust funds may only be disbursed according to lawful instructions and applicable
contractual or statutory authority.
11. What is a broker's duty when maintaining trust funds?
A. Treat them as brokerage income
B. Account for and safeguard them properly
C. Invest them in stocks
D. Loan them to clients
Rationale: Proper accounting, safeguarding, and disbursement are fundamental trust-fund
duties.
12. Which of the following is most likely to be trust money?
A. Brokerage commission already earned
B. Office rent
C. A buyer's deposit held pending completion of a transaction
D. Broker's personal savings
Rationale: A deposit held for a transaction generally constitutes trust funds.
13. What does "conversion" of trust funds generally mean?
A. Transferring funds between two trust accounts properly
B. Wrongfully using trust funds for one's own benefit
C. Reconciling an account
D. Depositing a check
Rationale: Conversion involves wrongful appropriation or use of money belonging to another.
14. Why is commingling dangerous?
exam 2026 questions and rationales answers
1. What is a trust fund in California real estate?
A. Money belonging to the broker
B. Money received on behalf of another person in connection with a real estate transaction
C. Money earned as commission
D. Money deposited into a personal account
Rationale: Trust funds are money received or held by a broker for others in connection with
licensed real estate activities.
2. Which account is generally used to hold client trust funds?
A. Operating account
B. Personal account
C. Trust account
D. Payroll account
Rationale: Client funds must generally be kept separate from the broker’s personal or business
operating funds.
3. A broker receives an earnest money deposit from a buyer. What should the broker do?
A. Deposit it into the broker's personal account
B. Keep it in cash
C. Handle it according to the transaction instructions and applicable trust-fund requirements
D. Immediately treat it as commission
Rationale: Earnest money is generally trust money until properly disbursed.
4. Who is ultimately responsible for trust fund handling in a real estate brokerage?
A. The salesperson
B. The escrow officer
C. The broker
D. The buyer
Rationale: The employing broker has responsibility for proper handling and accounting of trust
funds.
5. Which of the following is an example of commingling?
,A. Keeping trust funds in a properly designated trust account
B. Mixing a client's money with the broker's personal funds
C. Providing a trust account statement
D. Recording a deposit
Rationale: Commingling occurs when trust funds are mixed with the broker's own money.
6. A broker may place personal funds into a trust account under certain circumstances
primarily to:
A. Earn interest
B. Increase commissions
C. Pay bank charges or maintain the account as permitted by law
D. Make personal investments
Rationale: Limited broker-owned funds may be permitted for legitimate trust-account purposes,
subject to California law.
7. Which practice is prohibited?
A. Maintaining accurate trust records
B. Reconciling the trust account
C. Using a client's trust funds to pay the broker's personal expenses
D. Depositing funds into the proper account
Rationale: Trust funds belong to the parties entitled to them and cannot be used for the broker's
personal expenses.
8. A salesperson receives trust funds payable to the broker. What should the salesperson
generally do?
A. Keep the money until closing
B. Deposit it into a personal account
C. Promptly deliver the funds to the broker
D. Give it to the buyer
Rationale: Salespersons must promptly deliver trust funds received in connection with licensed
activities to the broker.
9. What is the main purpose of a trust account?
A. To increase brokerage profits
B. To safeguard money belonging to others
, C. To pay employee salaries
D. To pay advertising expenses
Rationale: Trust accounts protect funds held by the broker for clients or other parties.
10. Which party may authorize the disbursement of trust funds?
A. Any employee
B. Any salesperson
C. A person legally entitled to authorize the disbursement under the transaction and
applicable law
D. The bank teller
Rationale: Trust funds may only be disbursed according to lawful instructions and applicable
contractual or statutory authority.
11. What is a broker's duty when maintaining trust funds?
A. Treat them as brokerage income
B. Account for and safeguard them properly
C. Invest them in stocks
D. Loan them to clients
Rationale: Proper accounting, safeguarding, and disbursement are fundamental trust-fund
duties.
12. Which of the following is most likely to be trust money?
A. Brokerage commission already earned
B. Office rent
C. A buyer's deposit held pending completion of a transaction
D. Broker's personal savings
Rationale: A deposit held for a transaction generally constitutes trust funds.
13. What does "conversion" of trust funds generally mean?
A. Transferring funds between two trust accounts properly
B. Wrongfully using trust funds for one's own benefit
C. Reconciling an account
D. Depositing a check
Rationale: Conversion involves wrongful appropriation or use of money belonging to another.
14. Why is commingling dangerous?
