Broker Diane in Hackensack maintains a pooled escrow trust account for multiple clients. At the end of the month, her individual client ledgers show total client balances of $47,000, but the actual bank balance in the trust account is $47,200. The extra $200 is from bank interest credited to the account. Diane has not allocated this interest to any specific client or withdrawn it. Under New Jersey regulations, which of the following best describes Diane's situation?
Correct Answer
A) Diane is in violation because the trust account balance must equal the total client ledger balances exactly, and the unallocated interest constitutes commingling
Under New Jersey trust account regulations, the bank balance of the trust account must reconcile exactly with the total of all individual client ledger balances. Any unallocated funds in the trust account — including interest credited by the bank — constitute funds that do not belong to any identified client and therefore represent an overage that creates a commingling issue. Diane must either allocate the interest to the appropriate client ledgers (if the account is interest-bearing for specific clients' benefit) or promptly withdraw the unallocated interest to a separate account. An unreconciled overage, even if beneficial, is a record-keeping violation under N.J.A.C. 11:5-2.4.
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