What is the difference between an escrow and a trust account?

What is the difference between an escrow and a trust account?

• A. An escrow is the process or arrangement; a trust account is a bank account holding funds during the transaction.
• B. An escrow is the bank account used to hold funds; a trust account is the process.
• C. An escrow is used for mortgage payments only; a trust account is not.
• D. A trust account is a personal savings account of the broker.

Answer: (A)

Escrow is the arrangement in a real estate transaction where a neutral third party holds funds or documents until conditions are met. A trust account is the actual bank account that the broker uses to hold those funds on behalf of clients during the transaction. So, escrow is the mechanism and process; a trust account is the specific place (the bank account) where the funds are stored. This setup protects clients’ money and ensures it’s handled only as authorized, separate from the broker’s own funds. In practice, earnest money might be placed into an escrow arrangement or deposited into the broker’s trust account, depending on the agreement.

Escrow is the arrangement in a real estate transaction where a neutral third party holds funds or documents until conditions are met. A trust account is the actual bank account that the broker uses to hold those funds on behalf of clients during the transaction. So, escrow is the mechanism and process; a trust account is the specific place (the bank account) where the funds are stored. This setup protects clients’ money and ensures it’s handled only as authorized, separate from the broker’s own funds. In practice, earnest money might be placed into an escrow arrangement or deposited into the broker’s trust account, depending on the agreement.