California Trust Funds
Practice Questions & Answers (2026)
Trust Funds is a tested subject on the California real estate exam, and the California Department of Real Estate (DRE) focuses specifically on how trust funds principles apply under California law. While some of these concepts appear in national study materials, the CA state exam tests California-specific rules, timelines, and requirements that are unique to this state. Study each answer explanation carefully — the details that trip up candidates are usually the California-specific provisions, not the general concepts.
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California Trust Funds — Practice Questions & Answers
78 questions on Trust Funds from the California real estate question bank. First 10 are free — sign up to unlock all 78.
Q1. A broker must deposit a buyer's earnest money deposit into a trust account within:
Explanation
California law requires brokers to deposit trust funds (including earnest money) into a trust account within 3 business days of receipt.
Q2. Commingling in real estate refers to:
Explanation
Commingling is the illegal practice of mixing client trust funds with a broker's personal or business funds. It is a serious violation that can result in license revocation.
Q3. What is 'conversion' in the context of trust funds?
Explanation
Conversion is the illegal use of client trust funds for the broker's own personal use or business expenses. It is a criminal offense and grounds for license revocation.
Q4. A broker's trust fund account must be reconciled:
Explanation
California law requires brokers to reconcile their trust fund accounts monthly — comparing the bank statement balance with the trust fund liability (what is owed to clients).
Q5. Can a broker keep their own money in a client trust account?
Explanation
A broker may keep a small amount of their own funds in the trust account to cover bank fees (typically up to $200). Keeping more than necessary constitutes commingling.
Q6. If a buyer's offer is rejected and they had deposited earnest money, the broker must:
Explanation
If an offer is rejected and no contract is formed, there is no basis for keeping the earnest money. The broker must promptly return the deposit to the buyer.
Q7. Under California law, a real estate broker must deposit trust funds received into a neutral escrow or into the broker's trust fund account no later than:
Explanation
California Business and Professions Code §10145 requires that trust funds (such as earnest money deposits) be deposited into a trust fund account or neutral escrow within three business days of receipt by the broker.
Q8. A broker's trust fund account must be maintained at:
Explanation
California law requires broker trust fund accounts to be maintained in a bank or savings institution in California that is insured by the FDIC or NCUA, ensuring protection of client funds.
Q9. Which of the following is considered 'commingling' of trust funds?
Explanation
Commingling is the illegal mixing of a client's trust funds with the broker's own money. Funds from multiple clients may share the same trust account, but they must never be combined with the broker's personal or business funds.
Q10. The illegal use of client trust funds for the broker's personal benefit is called:
Explanation
Conversion is the unauthorized use of trust funds belonging to a client for the broker's own purposes. It is a serious violation of California law and DRE regulations that can result in license revocation, civil liability, and criminal prosecution.
Q11. A salesperson collects an earnest money deposit from a buyer. What must the salesperson do with these funds?
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