New York construction trustees must be able to explain the receipts, obligations and payments of each statutory trust. Accurate project records support a documented response to a beneficiary’s demand and help counsel assess a claim or defense before accounting gaps become a litigation issue.
Identify the trust before setting up the records
Lien Law § 70 defines the funds and certain rights to payment that become trust assets. Owner, contractor and subcontractor trusts have different statutory definitions. The correct project and contract tier must be identified; not every asset of a construction business is automatically a trust asset.
Section 71 identifies permitted trust purposes and beneficiaries. A qualifying trust claim may concern project work, materials, labor, taxes, benefits, insurance or other authorized expenditures. An ordinary unpaid invoice does not, by itself, prove diversion.
Does every project need a separate bank account?
Section 75 does not generally require a separate bank account for each trust. If funds from separate trusts share an account, the trustee’s books must clearly allocate deposits and withdrawals to each trust. When trust funds are deposited, the statute requires the deposit to be in the trustee’s name.
A shared account is not automatically a diversion. The records must nevertheless show what belongs to each trust and why funds were applied. Home-improvement advances require separate attention: § 71-a includes escrow or permitted security requirements that cannot be replaced by a general reference to shared-account bookkeeping.
What the books and records must cover
The detailed requirements of § 75 include the following categories. A summary ledger should be supported by the underlying contracts, invoices and transaction records.
- Trust assets receivable: identify those who owe funds, the transaction or contract, amounts due or earned, and relevant dates.
- Trust accounts payable: identify beneficiaries and obligations, including the amounts and when they became payable.
- Funds received: record the source, form, date and amount of each receipt, including applicable direct payments and deposit information.
- Payments made: record the recipient, date, amount, method and trust purpose, with the contract and project details required by the statute.
- Certain advances and transfers: retain the records required for transfers securing or repaying advances under a Notice of Lending.
Preserve bank statements, canceled checks, wire and ACH confirmations, job-cost reports, payroll and tax records, insurance documentation, payment approvals and accounting exports. Reconcile the project ledger to the bank activity and identify the source of any later reconstruction.
A project-payment illustration
Hypothetical: A contractor receives $100,000 in qualifying trust funds for Project X and uses $75,000 to pay properly documented trust claims on that project. Whether the remaining $25,000 is available for another purpose depends on the trust’s outstanding obligations and the governing rules.
If a Project X beneficiary remains unpaid and the contractor instead uses the remaining trust assets to buy materials for unrelated Project Z, that transfer presents a diversion issue under § 72. The actual claim, assets, timing, purpose and evidence still require review. This example is not a firm case or result.
What happens when required records are missing?
Section 75(4) makes failure to keep the required books or records presumptive evidence of the trustee’s application, or consent to application, of funds actually received for non-trust purposes. That presumption matters, but it is not an automatic judgment. Counsel should evaluate the available proof and any responsive evidence.
Personal liability requires analysis of the individual’s participation in the alleged diversion; a corporate title alone does not decide it. Civil trust claims and criminal exposure have separate requirements. Section 79-a has specific conditions and protections, and a civil accusation does not establish a crime. Fees, punitive relief and other consequences should not be assumed.
Prepare for a Section 76 demand
A qualifying beneficiary may request inspection and copying or a verified statement under § 76. Eligibility, service, verification and timing matter. See our Section 76 response guide for the distinction between inspection and verified-statement requirements.
If you are reviewing your records, investigating unpaid project funds or responding to a demand, our New York Article 3-A claims and defense practice can assess the records, potential exposure and related payment remedies. Identify the parties, project and immediate dates in an initial inquiry; detailed financial records can be addressed after intake.
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