New Trust Account Rules in 2023

Jan 18, 2023

Can The State Bar Trust Your Trust Account?

By Carl Mueller

As a result of the California State Bar’s investigation into the Girardi Scandal, new reporting and management requirements for trust accounts have been implemented and are prerequisites for all lawyers to renew their licenses in 2023.

First and foremost, if you are managing a client trust account as a solo practitioner or for your firm, it is absolutely necessary that you acquaint yourself with the applicable rules. The State Bar provides a helpful digital handbook to review those rules:

Second, the most prominent changes in trust account management appear in Cal. Rules of Professional Conduct, Rule 1.15. Subsection (d)(1) now requires a lawyer to inform clients of the receipt into trust of funds or other property “which the lawyer knows or reasonably should know the client or other person has an interest” within 15 days. Additionally, Subsection (d)(7)’s requirement for prompt distribution of client property from an attorney trust account has been modified by subsections (f) and (g). Under subsections (f) and (g) it is now a presumed violation of subsection (d)(7) if an attorney retains client property in their trust account for 45 days without one of (A) good cause, (B) signed consent, or (C) a legitimate dispute over the ownership of the property in the trust account.

Third, all lawyers, regardless of whether you manage a trust account, will be affected by Cal. Rules of Court (“CRC”) 9.8.5, which created the Client Trust Account Protection Program (“CTAPP”). Most lawyers will encounter CTAPP when they seek to renew their licenses via the State Bar website. All lawyers are now required to answer a series of questions relating to their use of a trust account as part of the annual renewal process. Importantly, CTAPP requires lawyers to report all existing trust accounts to the State Bar and confirm their role in relation to the management of that account.

Fourth, and finally, the CRC 9.8.5(2) and the CTAPP program allow the State Bar to select individual licensees for a “Compliance Review.” This review requires the attorney to submit to a trust account review by a CPA at the attorney’s expense. Further, the State Bar is impowered to take “Additional Actions” based on the results of a that review, including an “investigative audit, a notice of mandatory corrective action, and a referral for disciplinary action.”

Whether these measures will prevent another scandal is unlikely. However, the changes will hopefully result in most of our colleagues becoming more educated about and therefore more responsible with their trust accounts. Further, the changes may make it easier for the State Bar to punish those attorneys who abuse their positions of trust and steal from clients. Whatever the effect of this policy change generally, on an individual level it is always a good idea to properly manage your trust account and ensure that you are up to date on all rules related thereto.

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