A broker must retain trust fund records for three years for all client transactions.

Trust funds aren’t a side gig in real estate. They’re a fiduciary duty—the money belongs to clients, not the broker. In Alabama, the rules around trust fund records are crystal clear: brokers must keep records of trust funds for three years for all transactions involving clients. Yes, all of them. No exceptions. Let me unpack what that means in practical, everyday terms.

Trust funds: what we’re talking about

First, a quick grounding. Trust funds are money held on behalf of someone else. Think earnest money, security deposits, rents, proceeds from closings that sit in a trust account, and any other funds you’re holding “in trust” for a client. It’s not your money, even if it’s in your business bank account for a moment. The principle is simple: the client’s funds deserve careful handling, and the records that track those funds deserve careful keeping too.

And when does the three-year rule apply?

Here’s the heart of it: the three-year retention applies to all transactions involving clients. The “all” is deliberate. It isn’t limited to large sums, or active transactions, or a particular type of client. If a broker touches trust funds for a client—whether a small earnest deposit, a deposit that later changes hands, or a disbursement to a third party—the related records should be kept for three years. That clarity avoids gray areas and supports transparency.

Why three years? Why not less, or more?

Three years serves several practical purposes. First, it creates a reliable audit trail. If a question ever arises about where funds went or who authorized a payment, you can trace the path clearly. Second, it protects both sides—the broker and the client. When disputes pop up, or regulators take a look, solid records reduce ambiguity and show you’re handling money with care. Third, it helps with investigations. If an inquiry happens months or years down the road, the files you kept can save time and confusion.

It’s not about the amount or the pace of a transaction; it’s about accountability across the board

People sometimes assume that only big sums or long-running deals require careful records. Not so. The rule is universal for client transactions. Even if the funds are modest or the deal closes quickly, the documentation matters. You’ll often hear stories about disputes that hinge on a missing receipt, an unclear ledger entry, or a bank statement that wasn’t kept. Don’t be that broker. Build a habit of thorough documentation from day one.

What should you actually keep?

Here’s a practical checklist you can use as a baseline. It’s not a mysterious mystery box; it’s the kind of paperwork you’ll already be handling, just in a more organized way.

• Trust account ledgers and reconciliations: the spine of your records. Track deposits, withdrawals, and balances by client and transaction.

• Bank statements and deposit slips: keep the monthly paper trail that confirms where funds sat and when.

• Copies of checks and wire transfer records: these show who received funds and when.

• Settlement statements and closing documents: these explain how funds moved at closing and who was paid.

• Earnest money receipts and disbursement authorizations: documents that show client intent and authorization trails.

• Correspondence with clients and third parties about trust funds: emails, letters, and even text threads that relate to funds.

• Escrow instructions and authorization forms: the roadmaps that determine how funds should be handled.

• Any other documents that reflect interaction with trust funds: receipts, audit notes, or internal reconciliations.

If you’re working digitally, think about backups and a consistent file structure. A well-organized digital system can be faster and more reliable than a heap of loose papers. The goal is clarity: anyone stepping into your files should be able to follow the money without guesswork.

How to put a rock-solid record-keeping system in place

Organizing for three-year retention isn’t a one-off task. It’s a system. Here are a few practical moves that keep you compliant without turning your day into a paperwork marathon:

• Separate accounts, separate duties: make sure trust funds sit in a dedicated trust account, separate from your operating funds. Clear separation reduces confusion and the risk of commingling.

• Use a reliable trust accounting method: whether you prefer software, a ledger, or a hybrid approach, consistency is king. Regular reconciliations matter, as does documenting those reconciliations.

• Create a simple naming and filing scheme: consistent file names, folders by client, and a clear retention tag (e.g., “ClientName_TransactionDate_TrustDocs”) make audits painless.

• Schedule periodic reviews: a monthly or quarterly quick check helps catch gaps before they become problems.

• Back up, then back up again: store copies in the cloud and on an external drive. An old proverb says better safe than sorry—that’s true for funds and for records.

• Establish clear internal policies: who approves disbursements, who signs off on transfers, and what the minimum documentation looks like for each step.

What are the consequences of not keeping good records?

In practice, lax record-keeping invites risk. Missing documents can trigger disputes, erode trust, and invite regulatory scrutiny. In worst-case scenarios, it could expose a broker to penalties or disciplinary action. The three-year rule isn’t a bureaucratic ornament; it’s a practical shield that helps you defend your client’s interests and your own reputation.

A few common misunderstandings, cleared up

• Misunderstanding: only large trust funds require records. Reality: every client transaction with trust funds calls for records. Size isn’t the point; accountability is.

• Misunderstanding: a quick email confirms everything. Reality: written records in the proper format, with receipts and bank statements, carry more weight in audits or disputes.

• Misunderstanding: digital records aren’t as reliable as paper. Reality: a robust digital system with backups can be more verifiable and easier to organize, as long as you keep it secure and compliant.

A quick analogy to anchor the idea

Think of trust fund records like the receipt trail you’d leave if you lent a friend money and you wanted to show exactly where every dollar went. If you later needed to explain why a payment happened or how funds were allocated, you’d pull the receipts, the ledger, and the bank statements. The three-year rule is simply a built-in reminder to keep those receipts for a long enough period to resolve questions that might arise later.

A few cross-cutting themes to keep in mind

• Transparency isn’t a buzzword here; it’s a standard. Keeping complete records signals to clients that you respect their money and their time.

• Compliance isn’t a one-person job. It’s a team effort—your office policies, your software, and your daily habits all play a role.

• The goal is practical simplicity. You don’t need a mountain of forms. You need a reliable, repeatable process you can sustain.

Bringing it back to daily practice

So, yes—three years for all client-related trust fund transactions is the rule. It’s not just about ticking a box; it’s about building a culture of trust and accountability in every deal you handle. It’s about making it easier to answer a client’s question tomorrow, or to respond quickly if something comes under review.

If you’re setting up or refining your bookkeeping routines, start with a clean baseline: confirm you’re separating trust funds from operating funds, establish a standard set of record-keeping documents for every client transaction, and implement a retention timeline that clearly covers three years. Then layer in a simple audit-friendly workflow: monthly reconciliations, routine backups, and a straightforward naming convention that makes a search painless.

Final thought: the integrity ripple

When you commit to keeping meticulous records for every client transaction, you’re doing more than staying on the right side of the rulebook. You’re creating trust—quiet, steady trust that clients can feel. It’s the kind of trust that doesn’t shout; it just sits there, quietly protecting both sides as deals move forward and funds change hands. In real estate, that’s gold.

If you’d like, I can tailor a lightweight record-keeping checklist for your practice, or help map out a simple three-year retention plan that fits your workflow. The objective is clear: ready, organized, and compliant records that make sense in the moment and still make sense years down the road.