Texas Construction Trust Funds: Accounts and Control

This article provides general information, not legal advice. Texas trust- fund obligations depend on the property, contract, payments, beneficiaries, and timing involved. Consult qualified Texas counsel about your circumstances.

Construction trust-fund laws address construction's version of robbing Peter to pay Paul: using today's owner draw to cover yesterday's shortfall on another job—or treating project money as the contractor's personal cash. An owner paid for one improvement, not another project, an unrelated company bill, or a family trip.

That sounds simple. Running it is not. Building well and administering fiduciary funds are different skills, especially when a general contractor has several projects moving at once. Texas law gives the contractor control of the money, but it also makes the contractor responsible for knowing whose money it is, which obligations remain, and why every dollar left the project.

Under Chapter 162 of the Texas Property Code, payments made to a contractor or subcontractor under a contract to improve specific Texas real property are generally trust funds. Certain construction-loan proceeds secured by the property are trust funds too.

A contractor, subcontractor, owner, officer, director, or agent who receives or controls those funds may be a trustee. Protected beneficiaries include the artisans, laborers, contractors, subcontractors, and material suppliers who provide labor or materials for the improvement. A property owner is also a beneficiary in connection with a residential construction contract.

The practical rule is blunt: receiving project money does not make it general working capital. The records need to preserve that distinction long after the payment is made.

Does Texas require a separate construction account?

Not for every project—but “not required” is not the same as “not useful.” Texas draws a sharp line between funds subject to the statutory trust and projects carrying a specific bank-account requirement.

Under Property Code §162.006, a contractor who enters into a written contract exceeding $5,000 to improve a residential homestead must deposit the trust funds into a construction account at a financial institution. The institution's periodic statement must refer to it as a “construction account.”

Outside that rule, commingling does not by itself defeat the statutory trust. But pooled funds are neither unrestricted nor easy to defend. The trust follows the covered money, and the contractor may still need to show that project beneficiaries and legitimate project expenses were handled correctly.

A dedicated account for every project is the simplest operating default even when §162.006 does not expressly require one. It makes the source, balance, and use of each project's money visible and makes accidental cross-project spending far harder. Separate accounts do not satisfy every duty on their own, but they remove the hardest first question: which project did this cash belong to?

Residential homestead projects require detailed records

For a contractor required to maintain a construction account, §162.007 also requires an account record showing:

• the source and amount of each deposit and the date received;
• the date and amount of each disbursement and its recipient; and
• the account's current balance.

The contractor must keep a record for each project identifying the direct and indirect costs charged to the owner, retain supporting invoices and documents, and connect deposit and disbursement documentation to the construction account. Required information cannot be destroyed before the first anniversary of the project's completion.

The bank account is only one part of compliance. The transaction history and supporting documents must explain what happened inside it. Reconstructing that story after the fact is slow, expensive work. A two-year project can generate hundreds—or, on some Buildplus projects, more than 1,000—transactions. The time to connect each payment to its project, counterparty, budget, and supporting document is when it happens, not when a dispute begins.

Project costs and contractor fees are different

The Act does not prohibit every payment before subcontractors and suppliers are fully paid. §162.031 recognizes an affirmative defense when funds were used for the trustee's actual expenses directly related to the improvement, along with certain other specified circumstances. That is not a license to treat the project balance as company cash; the expense still needs a direct connection to the work.

Texas law also distinguishes an earned contractor fee from project costs. Under §162.001(c), a reasonable fee is not treated as trust funds when a written contract was entered before construction, the contract provides for the owner to pay construction costs and a specified reasonable contractor fee, and the fee is earned and paid as the contract provides.

That distinction is especially useful on cost-plus work. A clear contract and project-level accounting help show which receipts remain committed to project costs and which earned fee belongs to the contractor's business.

How Buildplus turns the rule into a daily workflow

Buildplus combines the two controls a Texas contractor needs: separation of cash and project-level accounting. Each project gets a dedicated bank account, and the company gets a separate operating account. 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 Texas 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 the same project record instead of separate spreadsheets and inboxes.
• 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.
• Earned company money has a destination. A separate operating account helps distinguish contractor revenue and fees from cash still committed to project obligations.

The account and the accounting reinforce each other. Dedicated accounts reduce the tracing problem created by commingling; the linked project record explains what each receipt and payment meant. Together, they make it much easier to answer the question that matters when a payment dispute arises: what happened to the money received for this project?

Good records protect the contractor too

The worst time to build a project ledger is after an owner, unpaid trade, lawyer, or investigator asks for it. A clean account and contemporaneous project record let a contractor respond with evidence instead of memory, a stack of statements, and weeks of reconciliation. That protects the owner's money, but it also helps the GC show that legitimate project costs and earned fees were handled correctly.

Buildplus does not decide whether a receipt is a trust asset, whether a claimant is a beneficiary, whether a cost is permitted, or when a contractor fee has been earned. If §162.006 applies, the contractor must also confirm with counsel and the financial institution that the account and its periodic statements satisfy the statute's specific “construction account” requirements.

The contractor remains responsible for classifying transactions, completing any records the statute requires, preserving supporting documents, and paying protected project participants. That matters because knowingly or intentionally misapplying trust funds can create personal, civil, and criminal exposure; §162.032 also establishes criminal penalties for specified violations.

Software cannot make the legal decisions for the trustee. It can make the right behavior the easy behavior. Buildplus gives a Texas GC dedicated project accounts, project-linked records, and a transaction history that is far easier to review than a pooled bank statement reconstructed years later.

Sources

• Texas Property Code Chapter 162: Construction Payments, Loan Receipts, and Misapplication of Trust Funds
• Texas Property Code §162.006: Construction Account Required in Certain Circumstances
• Texas Property Code §162.007: Management of Construction Accounts
• Texas Property Code §162.031: Misapplication of Trust Funds
• Rosenblatt Law Firm: “The Texas Construction Trust Fund Act: What You Need to Know”