How should trust funds such as earnest money be handled in Colorado?

• A. Earnest money may be kept in the broker's personal account temporarily.
• B. Funds may be kept in the buyer's personal account until closing.
• C. Trust funds must be deposited into a licensed escrow/trust account promptly, kept separate from personal funds, and accounted for.
• D. Trust funds are not required to be deposited until after closing.

Answer: (C)

Handling earnest money in Colorado centers on fiduciary duty: the broker must protect client funds by keeping them in a licensed escrow or trust account, separate from the broker’s own funds, and with clear accounting. This ensures the money is safeguarded, traceable, and not comingled with personal or business funds, which protects both the client and the broker from financial and legal risk. The correct approach is to deposit earnest money promptly into a licensed escrow/trust account and maintain proper records of deposits, disbursements, and balances.

Keeping funds in the broker’s personal account would mix client money with personal funds, which is not allowed and undermines the fiduciary relationship. Holding funds in the buyer’s personal account is also inappropriate because the broker is the custodian of the earnest money, not the buyer, and such a setup would fail to provide the required protection and accounting. Waiting to deposit until after closing defeats the purpose of earnest money, which is to demonstrate the buyer’s serious intent and to be available for contingencies or contract-specific terms during the transaction.