Home>Levelset Community>Legal Help>I was given information from my lawyer to set up a construction account. I read your blog on the construction trust account. I need to set it up correctly but here is the question. Who needs to do that ? In other words does it need to be set up by a lawyer or a CPA because no one seems to know. I did set up an account at the bank and labeled it construction account but not sure if that is sufficient?
I was given information from my lawyer to set up a construction account. I read your blog on the construction trust account. I need to set it up correctly but here is the question. Who needs to do that ? In other words does it need to be set up by a lawyer or a CPA because no one seems to know. I did set up an account at the bank and labeled it construction account but not sure if that is sufficient?
The Texas Construction Trust Fund Act is relatively confusing. The purpose is to treat payments made to a GC (parts of which must be distributed downstream) as trusts for the benefit of the lower-tiered parties to make sure identifiable money exists from which they can get paid.
There are many requirements and exceptions in the statute, and while placing the funds into a "construction account" (with certain requirements) is required on residential homesteads projects, not much guidance is given to the practical set up of the account.
There is no specific requirement that the "construction account" be set up by a lawyer or CPA. The rules for a construction account are simply:
1. The account must be in a financial institution
2. The statements from the financial institution must refer to the account as a “construction account.”
3. Only trust funds can be placed into or maintained within the account;
4. The contractor must maintain an account record for the account that tracks:
a. information relating to the source and amount of the funds in the account;
b. the date the funds were deposited;
c. the date and amount of each disbursement;
d. the person to whom the funds were disbursed; and,
e. the current balance of the account.
Additionally, there are requirements for keeping records of the each project related to the project costs, invoices, and supporting information related to the project funds.
While there are a lot of specific requirements, the practical method of creation of the account does not appear to be one. Provided the account is in a financial institution, is noted on statements as a "construction account," an account record is kept, and only appropriate funds are contained therein, the account itself would appear to meet the requirements. The treatment of the funds is another matter, and if there is some claim against you that you mishandled the trust funds in some way, you should talk to a lawyer you can review all the documentation to give a more detailed response.