Renters' Security Deposit Trust Accounts

Question:

What can you tell me about a trust account, similar to an IOLTA account, that is used by real estate or property management companies to hold renters' security deposits. The funds in this account cannot be commingled with operating funds and my understanding is that they can be interest bearing. My concerns lie in the account titling and what happens to the interest.

Answer:

Landlords rarely establish such accounts unless required by law. The applicable law is often referred to as the Uniform Residential Landlord Tenant Act. It can be a state statute or a city ordinance so you need to check both as the terms can vary between jurisdictions.

As for the account title for individual accounts: Jane Doe, Tenant Escrow Account, by Simon Legree (You need Jane's certified SSN, the landlord will need to bring you a W-9 equivalent for every one of these he opens.)

For commingled funds (may not work in some jurisdictions) "Living Well Apartments, Tenant Escrow Account." You would use the apartment complex EIN and they would be responsible for any 1099INT reporting to the tenant.

First published on BankersOnline.com 3/10/03