Michigan Construction Trust Funds: Segregation and Control

This article provides general information, not legal advice. Michigan trust- fund obligations depend on the project, contracts, payments, and parties involved. Consult qualified Michigan counsel about your circumstances.

Construction's version of robbing Peter to pay Paul is easy to start and hard to stop: a contractor uses the newest owner's payment to catch up an older project, then needs the next payment to refill the hole. The projects can be busy and the company can look healthy right up until two jobs need the same dollar.

Michigan's Building Contract Fund Act—commonly called the Michigan Builders' Trust Fund Act—exists to prevent that kind of pyramiding. It treats money paid to a contractor or subcontractor for building construction as a trust fund. The contractor or subcontractor receiving the money becomes its trustee.

The trust benefits the person making the payment as well as contractors, laborers, subcontractors, and material suppliers. Michigan courts describe the Act's civil remedy as an additional protection for participants in private construction projects, separate from construction-lien rights.

That responsibility calls for a different skill than building the work. A GC can be excellent at schedules, procurement, and field execution and still lack a simple system for administering fiduciary money across several projects. The rule is unforgiving: project funds cannot be appropriated to another purpose before laborers, subcontractors, and material suppliers engaged for that improvement are paid. Under MCL 570.153, using the money before amounts due or to become due are paid is evidence of intent to defraud. Violations can support civil claims, and the Act also provides criminal penalties.

Does Michigan require a separate bank account?

No—but “not required” is a poor reason to make the trustee's job harder. The three-section Act does not prescribe a special form of accounting or expressly require a separate trust account for each project. As Simon PLC explains, commingling construction receipts in one bank account is not automatically a violation.

That does not make commingling safe. The obligation remains tied to the specific improvement even when the cash shares an account with money from other jobs. Michigan courts have explained that the Act was designed to stop contractors from paying obligations on older projects with funds received for new ones.

If a laborer, subcontractor, or supplier remains unpaid, the contractor may need to prove how the project's receipts were used. A pooled operating account can expose transactions from across the business to scrutiny and make that proof much harder. Separate accounts are not the statutory test, but they are the simplest, most reliable starting point. They keep one project's cash from looking available to every other project and give each job its own bank record.

The bank record is not enough by itself. A long project can produce hundreds—or, on some Buildplus projects, more than 1,000—transactions. Without contemporaneous project accounting, a contractor under scrutiny may have to reconstruct years of deposits and withdrawals from bank statements, invoices, emails, and memory.

How Buildplus supports segregation and proof

Buildplus gives a general contractor both halves of the solution: a dedicated bank account for each project and an accounting record organized around that same project. A separate company operating account gives earned business money somewhere else to go. The accounts are opened in the contractor's business name, so the GC keeps control of routine payments without placing an outside fund-control company between the project and its trades.

That structure supports Michigan trust-fund discipline in four practical ways:

• Project receipts stay identifiable. Owner payments and construction draws land in the account assigned to the improvement that generated them.
• Project obligations stay visible. Budgets, subcontracts, invoices, expenses, and payments live in one project record.
• Payments carry their context. Money sent from the project account is recorded in the project ledger, while transactions from connected cards and outside bank accounts can be classified to the correct job.
• Company cash stays distinct. A separate operating account helps prevent project funds from quietly covering another job or an unrelated business expense.

Michigan may not mandate this banking structure, but the combination of dedicated accounts and project-linked records is a direct way to honor the law's purpose while keeping the GC in control. It makes it easier to answer the question that matters when a payment dispute arises: what happened to the money received for this project?

The best defense is a record made before the dispute

Good records protect more than beneficiaries. They help an honest contractor show that project money paid project obligations and that legitimate company money was transferred appropriately. That is a much stronger position than trying to explain a pooled balance after a trade goes unpaid.

Buildplus does not determine whether a receipt is covered by the Act, whether a claimant is a protected beneficiary, or whether a particular payment is legally permitted. It also does not decide when a contractor's fee or profit may be transferred out of a project account. Those questions depend on the statute, the contract, the project's obligations, and the facts.

The contractor remains the trustee and must classify transactions correctly, complete the records its circumstances require, preserve supporting documents, and pay protected project participants. Buildplus cannot make those legal decisions. It can give a Michigan GC a cleaner operating system—separate project accounts, project-linked records, and a reviewable transaction history—so responsible fund handling is easier to practice and far easier to prove, long before two jobs ever need the same dollar.

Sources

• Michigan Building Contract Fund Act, MCL 570.151–570.153
• Simon PLC: “Do Contractors Need to Open a Separate Account?”
• DiPonio Construction Co. v. Rosati Masonry Co.
• Livonia Building Materials Co. v. Harrison Construction Co.