Trust Account vs Escrow: What to Choose
October 24th, 2025
When buying or selling property, there’s always a moment when large sums of money need to sit somewhere safe before the deal officially closes. Buyers want their deposits protected. Sellers want reassurance that money is really available. Agents want a clear, compliant paper trail. To make that possible, real estate relies on two main tools: the trust account and the escrow account.
Both sound like they do the same thing - hold money until conditions are met. But once you look closer, the differences between escrow vs trust account explain why some states use one more often than the other, and why certain transactions almost always lean toward one option.
Escrow vs Trust Account: What They Really Are
Before comparing, it helps to understand the basics.
Trust Account Definition
A trust account is a financial account used to hold money on someone else’s behalf. In real estate, this usually means a broker or attorney holds a buyer’s deposit until it’s needed at closing. The person in charge of the account - called the trustee - has a legal duty to protect the funds and make sure they’re only used as the contract allows.
Think of it as a “safe pocket” where your money sits until the deal moves forward. It’s not mixed with anyone else’s money, and it’s carefully tracked so there’s a record of where every dollar goes.
Types of Trust Accounts
Trust accounts aren’t one-size-fits-all. A few common examples include:
- Revocable trusts: can be changed or canceled at any time by the person who set it up.
- Irrevocable trusts: once created, these can’t be undone.
- Testamentary trusts: created through a will and activated after someone passes away.
- Charitable trusts: set up to benefit a charitable cause.
In everyday property deals, you’ll mostly run into broker or attorney trust accounts that hold deposits. The other types matter more in estate planning or long-term asset management, but they all share the same basic purpose—keeping money separate and safe.
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Escrow Account Definition
An escrow account also holds money safely, but the key difference is who manages it. Instead of a broker or attorney tied to one party, the account is run by a neutral third party called an escrow officer or agent. Their only job is to follow the written instructions in the escrow agreement. The money won’t move until every condition is satisfied.
In real estate, that usually means a buyer’s earnest money sits in escrow until the inspection is done, the title is clear, and the lender has approved the loan. Once everything lines up, the escrow officer releases the funds to close the deal.
Types of Escrow Accounts
Escrow is common in property sales, but it shows up in plenty of other transactions too:
- Real estate escrow: holds funds during a property purchase.
- Business escrow: used for buying or selling a business, or in mergers and acquisitions.
- High-value item escrow: for big-ticket items like jewelry or artwork.
- Construction escrow: holds funds for a building project, released in stages as work is completed.
The pattern is the same across all these examples: escrow is neutral, rule-based, and designed to protect both sides until the job is finished.
How They Differ in Real Estate Transactions
Even though both trust and escrow accounts exist to keep money safe during a property deal, the way they operate is different enough that those differences can affect your choice. Let’s break it down into the main areas where they don’t quite line up.
Who Controls the Funds
In a trust account, the money is under the control of a fiduciary - a broker or attorney. They are personally responsible for depositing it promptly, keeping accurate ledgers, and releasing it only when the contract allows. Their license, and in many cases their career, depends on handling it correctly.
In an escrow account, the control belongs to a neutral party. Neither buyer nor seller can touch the money. The escrow officer acts like a referee, following instructions to the letter. This impartial role makes escrow appealing when trust in a single party’s representative might feel risky.
Costs and Fees
Trust accounts don’t usually come with a separate bill for clients. Brokers and attorneys are legally required to maintain them, and while they may pay small bank fees, clients don’t. Handing your earnest money to a broker’s trust account is part of the service.
Escrow accounts, however, are part of paid escrow services. Managing funds, coordinating documents, and disbursing everything at closing comes at a price - often 1-2% of the purchase price. These fees are usually split between buyer and seller and appear as part of closing costs. The fee isn’t just for the account; it covers the structured, neutral process the escrow holder manages.
How Funds Are Released
Woth a trust account, the fiduciary releases money once the contract says it’s time. If the sale closes, the money moves to the seller or closing table. If the deal falls apart, the fiduciary may refund the deposit, but usually only with signed releases from both parties. Disputes can leave funds frozen until everyone agrees or a court decides.
With an escrow account, money doesn’t move without every condition met. The escrow agent won’t pay out until the inspection clears, the title is clean, and the lender has wired funds. If there’s a dispute, the money stays in escrow until both parties sign a release or a judge steps in.
Scope of Use
A trust account is ongoing. One account may hold deposits from dozens of transactions, tracked separately. It’s also used outside sales - for rental security deposits, or even Testamentary trusts related to estates.
An escrow account is temporary. It’s open for one deal and closed once the deal ends. That’s why escrow is common for construction escrow holdbacks, mortgage escrow for property taxes and insurance, and one-time events like business acquisitions or mergers and acquisitions.
In those cases, the neutral, instruction-driven nature of escrow provides the level of asset protection everyone needs.
How to Open and Use Each One
From the outside, both options are simple, but the setup works differently.
Opening a trust account is something brokers and attorneys do once with their bank. It’s labeled as a “trust account” and stays open for ongoing use.
Clients don’t open it themselves - they just deposit into it when instructed. For example, if you’re a buyer, your broker will tell you where to send your earnest money. It goes into the trust account, where it’s recorded against your property until the contract says it can move.
Opening an escrow account happens with every new deal. After the purchase agreement is signed, the parties select an escrow company or attorney. The escrow officer opens a file, sets up the account, and provides wiring instructions. The buyer deposits the money directly, and the account only closes once the transaction does.
So, “how to open a trust account” is more about how fiduciaries set up their business, while “how to open an escrow account” is about a step every buyer and seller walks through as part of the closing process.
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Choosing Between Escrow and Trust Account
Now, deciding between these two isn’t always black and white. The best option depends on where the deal takes place, who’s already holding the money, and how comfortable both sides feel with the level of independence in the process.
Here are some things to consider.
Follow Local Practice
In some places, you don’t really get a choice. If you’re buying in California, Nevada, or Arizona, almost every deal runs through an escrow account managed by a title or escrow company. That’s just how the market works. In New York, New Jersey, or Georgia, closings are typically handled by attorneys, and those attorneys hold deposits in their trust accounts.
Why follow the crowd? Because local lenders, agents, and even inspectors are set up to work with the system that’s standard in that state. Going against the grain can slow things down or cause unnecessary confusion.
Think About Neutrality
Sometimes the deciding factor is about trust between the parties. If both sides prefer a neutral “referee” to hold the money, an escrow account is the better choice. The escrow officer doesn’t represent the buyer or seller; they simply hold the funds and release them when the contract conditions are satisfied.
This can be especially reassuring in big or complicated deals - think business acquisitions, mergers, or construction escrow arrangements. In these cases, having an impartial third party in charge gives everyone confidence that no one is getting an unfair advantage.
Leverage Existing Fiduciaries
If you’re already working with a broker or attorney who collects deposits, it often makes sense to use their trust account. These professionals are legally required to keep money separate from their own and to follow strict Trust Accounting rules.
For everyday property sales, this can be the simplest route. It avoids extra steps, and it usually doesn’t add to your costs since maintaining a trust account is part of a broker’s or attorney’s duties. If both sides are comfortable with that setup, it’s a straightforward and reliable choice.
Special Uses
Not every transaction looks the same, and sometimes one option is better suited to the situation. Trust accounts are useful for money that needs to be held over time - like rental security deposits or estate-related funds such as Testamentary trusts. They’re built to handle ongoing balances across many clients.
Escrow accounts, on the other hand, shine when money is tied to specific conditions. A repair escrow might hold back funds until a project is finished. A mortgage escrow through a lender collects money monthly to pay property taxes and insurance. These are short-term, instruction-based situations where escrow is designed to keep things fair and simple.
Pros and Cons at a Glance
After breaking down the details, it helps to look at the trade-offs side by side. Both trust accounts and escrow accounts have strong advantages, but they also come with limitations that can influence your choice.
Trust Account
Trust accounts are often the simpler option when you’re already working with a broker or attorney. They don’t usually cost clients extra, and they’re designed for holding money securely over longer periods. Still, they’re not perfect.
Pros:
- Simple if you’re already working with a broker or attorney
- No extra fees for clients
- Works well for deposits that may need to be held longer (like rentals or estate funds)
Cons:
- Controlled by one party’s representative, not neutral
- Can cause delays if there’s a dispute over release
So, a trust account is straightforward and cost-effective, but you have to be comfortable with the fiduciary holding the funds.
Escrow Account
Escrow accounts are built for fairness and structure. With a neutral party managing the funds, both sides know the money won’t move until every agreed condition is satisfied. This makes escrow especially valuable in more complex or high-value deals. But that structure also means added costs and a new setup each time.
Pros:
- Neutral third party keeps things fair
- Gives confidence in complex or high-value transactions
- Funds move only when all conditions are met
Cons:
- Comes with service fees
- Must be opened fresh for every transaction
Escrow accounts provide peace of mind and neutrality, but that assurance comes with a price and a little more paperwork.
Example Scenarios Where Each One Fits
It’s easier to see the difference between escrow and trust accounts when you look at real examples. Here’s what that can look like in practice:
- Standard home sale: In escrow states, the buyer’s deposit goes into an escrow account, and the escrow officer releases it at closing or returns it if the contract falls through.
- Attorney-led closing: In attorney states, the deposit is placed in the lawyer’s trust account, tracked carefully until the deal closes.
- Repair holdback: When money needs to be held until work is done, it often sits in a short-term construction escrow, released only once repairs are verified.
- Rental deposits: Landlords and property managers use trust accounts to hold security deposits separately from their own money.
- Business deals: In high-value transactions like business acquisitions or mergers and acquisitions, escrow is the standard. The neutral setup ensures no money changes hands until all legal documents are signed.
These examples make it clear that each option has its place. A trust account fits everyday needs like holding deposits in a home sale or keeping rental money separate. Escrow accounts are the better choice for situations that demand a neutral party, such as repair funds after closing or complex, high-value deals.
The goal is simple: use the setup that keeps the money safest and the process easiest for everyone involved.
Which One Will You Choose?
You’ve seen how trust accounts and escrow accounts work, and the role each plays in real estate transactions. The decision now depends on what kind of protection and process your deal calls for.
At Lightspeed Escrow, we’re here to guide you through every step and make sure your escrow experience is simple, quick, and secure. No matter the size or type of transaction, you can rely on our team for clear communication, professional handling of funds, and timely closings.
Contact us today and let us help you move your deal forward with confidence.
