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Real Estate Diploma > Trust Account Deck > Flashcards

Trust Account Deck Flashcards

1
Q

What should you be familiar with regarding trust accounts?

A

Regulations that govern trust accounts

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2
Q

6 Operations that are used with trust accounts?

A
  1. Opening a Trust Account
  2. Operating a Trust Account
  3. Monitoring a Trust Account
  4. Closing a Trust Account
  5. Delegation of Authority
  6. Security & Data Management of a Trust Account
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3
Q

What is a trust account?

A

A fiduciary relationship formed between the trustor and the trustee

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4
Q

Why are trust accounts used?

A
  1. Provide the trustor’s assets with legal protection
  2. Ensure the assets are distributed as stated by the trustor’s wishes
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5
Q

What are the benefits of using a trust?

A
  1. Often minimise paperwork
  2. Save time
  3. Potentially reduce or avoid inheritance / estate taxes
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6
Q

What else can trusts be useful for?

A
  1. Reducing or avoiding taxes and probates
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7
Q

Trust accounts can protect assets from?

A
  1. Creditors &
  2. Establish the terms of inheritance for any beneficiaries of the trust
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8
Q

How far does the concept of a trust date back?

A
  1. Since the Middle Ages

They can be useful tools to protect one’s assets and to ensure they are distributed into the right hands in the future. A trust is a legal entity that is used to hold assets, money, or property, to ensure the assets are protected from misuse.

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9
Q

How does having a trust account benefit individuals and groups for tax planning?

A

Using trusts for tax purposes are lower than other alternatives

Because of this, trusts are fairly common in tax planning for both individuals as well as larger groups such as corporations.

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10
Q

When are you not required to deposit money into a trust account ?

A

Acting as an estate agent only in relation to letting residential property for periods of 90 days or fewer.

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11
Q

Who do children require for trust assets?

A

A Trustee,

Children under the legal age will need a trustee to maintain control of the assets until the children reach adulthood

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12
Q

Why is it important to hold two separate trust accounts when running a real estate agency?

A
  1. Better accuracy.
    - Providing client end of month reconciliation reports.
  2. Improved performance tracking.
    - simple tracking for transactional disputes
    - viewing property performance
  3. More accurate audit trails.
    - reduce the chances of commingle funds
    - make the process easier and clearer
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13
Q

What is the requirements to setup a real estate trust account?

A
  1. Provide a copy of the agents license no.
  2. Personal information, name, address.
  3. Name of the account and A/C details.
  4. Names and signatory of the account.
  5. Tax file number.
  6. Unique identifying number.

Since 23 March 2020, it is now a requirement under NSW law, that sale and rental monies are operated through separate trust accounts.

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14
Q

Under the National Credit Act, a trust account must be maintained if

A
  1. You hold a credit license.
  2. Your organisation receives money on behalf of another individual or group.
  • Collecting application fees on behalf of a credit provider.
  • Collecting funds from a customer to cover valuation fees payable to a credit provider or valuation company.
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15
Q

Who are approved institutions that can be used to open a property agency trust account?

A
  1. Australia & New Zealand Banking Corp.
  2. Bank of Queensland Limited.
  3. Bank of Western Australia.
  4. Bendigo Bank Limited.
  5. Capricornia Credit Union.
  6. Macquarie Bank Limited.
  7. National Australian Bank.

Criminal and civil penalties may apply if trust money is withdrawn for any purpose other than for which it was gathered in accordance with the National Credit Act.

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16
Q

Who maintains and upholds a single national consumer credit regime under the National Consumer Credit Protection Act 2009 or the National Credit Act?

A

Australian Securities & Investment Commission (ASIC).

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17
Q

What is the National Consumer Credit Protection Act 2009 / National Credit Act?

A

National Credit Act applies and sets standards and regulations of Australian Credit license holders.

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18
Q

What are you required to do if you receive trust money?

A
  1. Keep a trust account with an Australian authority deposit-taking institution. Or ADI .
  • An ADI must be an Australian ADI per the Corporations Act 2001.
  1. Only withdraw money from the trust account in order to pay the individual or group who is entitled to that money by law.
  2. Pay into the trust and money that has been received by yourself or a representative of yourself on behalf of another individual or group in your capacity as a credit license.
  3. Designate the trust accounts title as your trust account.
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19
Q

What is required to be submitted to ASIC for every financial year that a trust account is operated?

A
  1. Form CL70 Australian Credit License - Trust account statement.
  2. Form CL71 Australian Credit License - Trust account audit report
  • Must be prepared by an eligible auditor.
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20
Q

As it happens in stages, what is the process of lodging the audit forms?

A
  1. Complete and sign part 1 of CL70 including the details of your trust account for the financial year and then give this document to your eligible auditor.
  • Following the auditing of Part 1 of Form CL70, the auditor then should return to you the complete and signed Form CL71.
  1. Once Form CL71 has been received from your auditor, you may then complete and sign Part 2 of CL70 and then lodge these two forms with the ASIC.
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21
Q

What is commingle funds?

A

When personal and business funds are mixed together.

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22
Q

When should the audit forms be lodged to ASIC?

A
  1. With three months of your financial year-end if you are a body corporate.
  2. By 30th September if you are not a body corporate.
23
Q

is there a fee to lodge the audit forms?

A

No, as the fees are included in the ongoing recovery levies. If it is a late audit or if it’s a physical lodgment, then a fee will be incurred.

24
Q

When are you required to appoint an auditor when a trust account is established for your organisation?

A

Within 3 months.

25
Q

You are required to notify ASIC of your new appointed auditor within?

A

14 days.

26
Q

In terms of trust accounts, who is permitted to open and operate the account? Principal agents may include?

A
  1. Collection Agents
  2. Licensed individual agents who operate a business.
  3. Licensed corporations so long as they intend to trade in their own name.
27
Q

If you have multiple licenses, do you need multiple trust accounts?

A

No,

Monies can be kept all in the one trust account as it is not required to have a trust account for each license.

28
Q

If you received a new license, when should you provide the new license to the institution that opened your initial trust account?

A

Within 7 Days.

29
Q

If a collection authority is issued to an individual, it is required that the trust account be opened in?

A

The individuals name.

30
Q

In cases where the license is issued to a corporate, it is required that the trust account is opened in?

A

The company’s name.

Not the name of the director, CEO, or any other individual, corporation or entity.

31
Q

What are some approved institutions who allow opening a trust account?

A
  1. Bank
  2. Building Society
  3. Credit Union
  4. Any other deposit-taking institutions that has been approved by a consumer protection agency for holding agents trust money.
32
Q

What is required to do when you open a trust account?

A
  1. Licensees to notify the authorised deposit-taking institution in writing that their account is a ‘trust account’.
  • Should the account be held by a corporation the account must be in the name of that corporation, not an individual or other entity.
  • Should the account not be held by a corporation, the account must be in the name of the licensee themselves or in the name of the firm.
  • The licensee’s firm’s or corporation’s name will need to appear as a prefix of the account name, followed by any other required identifiers of the trust account.
  1. The words ‘Trust Account’ is required to be included in the name of the trust account and on any cheques drawn on that trust account.

By law, both collecting agents and the principal licensee are permitted to open trust accounts.

33
Q

Are agents required to notify the relevant consumer protection agency of their state or territory in the case they wish to close a trust account?

A

Yes.

Notifications must be made within 2 months after closing the account.

34
Q

Who are the relevant consumer protection agency’s:

  1. Australian Capital Territory.
  2. New South Wales.
  3. Northern Territory.
  4. Queensland.
  5. South Australia.
  6. Victoria.
  7. Western Australia.
  8. Tasmania.
A
  1. Access Canberra.
  2. NSW Fair Trading.
  3. NT Consumer Affairs.
  4. Office of Fair Trading Queensland.
  5. SA Office of Consumer and Business Services.
  6. Consumer Affairs Victoria.
  7. WA Consumer Protection - Department of Mines, Industry Regulation and Safety.
  8. Tasmania Consumer, Building and Occupational Services.

Under specific circumstances, and with each involved party agreeing, agents may be permitted to invest trust money into a special trust account.

35
Q

What are special trust accounts used for?

A
  1. Transacting the sale of real property.
  2. Receive an amount for a sale, and settlement of the sale will occur more then 60 days after the amount is received.
  3. Have a written request from all parties that the agent invests the trust money.

In any other situation, agents are required to use general trust accounts instead.

Otherwise with the exception that the words ‘Special Trust Account’ must be used in the account name.

36
Q

What are 3 major risk categories associated with the operation of real estate trust accounts?

A
  1. Market Risk
    - Changes in equity price.
    - Changes in commodity prices.
    - Moving interest rates.
    - Foreign exchange fluctuations.
  2. Liquidity Risk
    - Being unable to meet short-term debt.
    - Unable to meet funding goals or deadlines.
    - Rise in material cost.
  3. Legal Risk
    - Trust account fraud.
    - Illegal trust account withdrawals.
    - Account mismanagement due to issues with inappropriate accounting software.
37
Q

Who is responsible of managing a trust and ensuring legislation is complied with?

A

Licensee in Charge.

38
Q

What is involved in maintaining compliance for a trust account?

A
  1. Making sure the trust is reconciled.
  2. Properly balanced in a timely manner.
  3. Proper controls are in place.

This ensures trust accounting compliance during each monthly period.

39
Q

What questions should you ask when changing your trust account to another institution?

A
  1. What to do with any uncleared funds?
  2. What needs to be done with unpresented payments, deposits or unreconciled items.

If you are splitting a trust account into multiple accounts, and how well your accounting software will manage these changes?

40
Q

Why are risk assessments important?

A

It allows firms, companies, organisations, governments, and individuals to assess the chance that a risk may negatively affect a business, the economy, an investment, an event or a project.

41
Q

What are two types of risk assessents?

A
  1. Quantitative Analysis
  • Quantitative analysis of risk focuses on creating risk simulations and models that allow the user to assign a number value to potential risks for easier comparison.
  1. Qualitative Analysis.
  • Qualitative analysis of risk is an analytical method that uses subjective judgement and knowledge to create models of risk for any given scenario or situation, rather than numerical or mathematical analysis.

Note: Combining both Quantitative & Qualitative analysis can be extremely beneficial to providing a clearer view of any company’s potential as an investment.

42
Q

There are a number of methods and strategies that may be employed in order to monitor and control risks associated with operating a trust account, what are they?

A
  1. Separate systems for reconciling.
  2. Lenient management of matter ledgers.
  3. Generic systems to track trust transactions.
43
Q

When controlling a trust account, what are some ways to manage fraudulent activity?

A
  1. Providing staff with limited access to the bank.
  2. Deal in bonds and bank drafts instead of cash.
  3. Offer relevant training to staff regarding compliance with legislation.
44
Q

What does successful internal controls include?

A
  1. Information and communication.
  2. Risk assessment.
  3. Environment control.
  4. Activity control.
  5. Monitoring.
45
Q

What are some preventative controls?

A
  1. Performing background investigation on new employees.
  2. Training relevant employees in anti-fraud activities.
  3. Rewarding and compensating employees.
  4. Limiting the authority of employees by their level of responsibility.
  5. Reviewing procedures regarding third-party transactions.
  6. Conducting risk assessments on the organisations current fraud prevention strategies.
46
Q

What are detective controls?

A
  1. Anonymous hotlines or avenues for individuals to report fraud.
  2. Process controls such as
    - reconciliations.
    - independent reviews.
    - Audits
    - inspections
  3. Data analysis.
  4. Data analytics.
  5. Computer-aided audits, monitoring, data mining and data analysis.
47
Q

What should you establish for trust accounts?

A
  1. Systems
  2. Policies.
  3. Procedures.
  4. Checklists.
  5. Controls.
48
Q

Once per year each trust accounts should be audited

A

End 30th June, each financial year.

49
Q

What is selective testing?

A

An auditing technique commonly employed to investigate an entity’s financial information when there is a large volume of information present.

50
Q

What do auditors have to take into consideration when auditing?

A
  1. What the agents business is about and the field they operate in.
  2. The workings of trust accounts.
  3. Legislation regarding trust accounts in their state or territory.
  4. Legislation governing agents in respect of the matters being audited.
  5. Reporting requirements and obligations regarding trust accounts.
51
Q

What is the objective for an audit?

A

To determine if an agent is in compliance with their legislative responsibilities.

52
Q

What are irregularities to a trust account?

A
  1. Overdrawn accounts .
  2. Dishonoured payments.
  3. Incorrect deposits.
  4. Incorrect payments.
53
Q

Auditors need to be registered with who?

A
  1. CPA Australia (Using the letters CPA or FCPA.
  2. The institute of Chartered Accountants of Australia (Using the letters CA or FCA.
  3. The institute of Public Accounts (Using the letters MIPA or FIPA).

Real Estate Diploma (4 decks)

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