A broker's trust account, which holds multiple clients' earnest money deposits, earns monthly interest from the bank. According to standard trust account handling rules, what should the broker do with this interest?
- AHandle the interest according to state regulations, which typically require it be paid to the client, remitted to an IOLTA program, or otherwise not retained personally by the broker
- BDivide the interest equally between the buyer and seller regardless of state rules
- CTransfer the interest to the brokerage's operating account to cover overhead costs
- DKeep the interest as compensation for maintaining the account
Show answer & explanationAnswer & explanation
Correct answer: A. Handle the interest according to state regulations, which typically require it be paid to the client, remitted to an IOLTA program, or otherwise not retained personally by the broker
Brokers generally cannot personally profit from interest earned on client trust funds. Depending on the state, interest is either paid to the client, remitted to an IOLTA (Interest on Lawyers'/Lawyer Trust Accounts-style) program that funds public interest programs, or handled per specific state trust account statutes — but never simply kept by the broker as personal income.
Why the other options are wrong
- B. There's no standard rule requiring an automatic 50/50 split; disposition depends on state-specific trust account law.
- C. Diverting client-generated interest to the operating account would constitute an unauthorized use of trust funds.
- D. A broker keeping interest earned on client funds would be an improper personal benefit from trust funds.
Trust Account Interest Disposition
Interest earned on client trust account funds does not belong to the broker; state law typically directs it to the client or to an IOLTA-style public interest fund.
- Brokers may not personally retain trust account interest
- Many states use IOLTA programs to fund legal aid or housing programs
- Improper use of trust interest can be treated similarly to commingling or conversion
Memory trick: Interest on client money is never the broker's money.