Understanding California’s New Trust Account Requirements

Trust Account Bookkeeping
November 15, 2023

Navigating the complexities of trust account bookkeeping rules can be difficult. For California attorneys, in particular, the introduction of new trust account requirements by the State Bar presents new challenges and potentially serious implications for their practices. 

This article reviews these complex reporting standards and offers guidance on how firms can implement operations that will strengthen compliance.

california state house

Overview of California’s Rule 1.15

Attorneys are bound by statutory and ethical obligations to safeguard funds they hold in trust for their clients and are required to keep those assets separate from their business and personal accounts. In California, the State Bar has relied primarily on Rule 1.15, Safekeeping Funds and Property of Clients and Other Persons, to ensure attorneys fulfill these client trust accounting duties. 

Among the mandates it sets for handling client monies and property, attorneys are required to open and maintain at least one client trust account removed from all other accounts used for personal or business purposes. Any funds held or received for the benefit of clients are then deposited immediately into that trust account, and the attorney must update clients – as well as the State Bar – about the account’s activities within specific timeframes.

The following provides a summary of Rule 1.15:

Annual Self-Assessment

Attorneys are required to review their own practices annually under CTAPP requirements.

Separate Bank Accounts

Attorneys must hold separate bank accounts labeled as “Trust Account” for holding clients' monies separately from their firm’s (or any third party’s) accounts. This condition applies to any settlement funds or advance fees received from clients that have not yet been earned by providing legal services.

Proper Financial Management

Attorneys cannot mix – or commingle – personal or business expenses with clients’ trust accounts.

Details of Client Trust Account Protection Program (CTAPP)

In response to recent high-profile scandals, the California Supreme Court approved additional requirements – detailed in Rule 2.5. of Rules of the State Bar of California –late last year to prevent further instances of gross mishandling of client funds..

Rule 2.5 – also known as the Client Trust Account Protection Program (CTAPP) – works in tandem with Rule 1.15 and comprises the framework of the new requirements concerning client trust accounts:

Annual Trust Account Certification

Attorneys must certify with the State Bar that they understand and comply with the responsibilities and prohibitions applicable to the safekeeping of clients’ funds and property.

Annual Trust Account Registration

Attorneys must register their client trust accounts (including IOLTA) with the State Bar every year.

Annual Self-Assessment

Attorneys – individually or through their firm – must complete an assessment of their client trust account management practices every year.

These self-assessment protocols are quite extensive:

The impact of these changes shouldn’t be underestimated; they’re not yet another minor bureaucratic adjustment. Rather, CTAPP represents a fundamental shift to compel transparency and accountability. It establishes stricter controls and reporting requirements on attorneys, and those who fail to comply can be enrolled as inactive, rendering them ineligible to practice law.1

In essence, CTAPP addresses attorneys’ critical responsibilities when handling client property. It clearly defines requirements to guarantee the safekeeping, separation, and appropriate management of client funds, securities, or other assets, thereby upholding the trust placed in attorneys and the legal profession throughout California.

Non-Compliance with New Trust Account Requirements

Should an attorney fail to comply with the trust account bookkeeping requirements established by the CA State Bar through Rule 1.15 and CTAPP, the consequences can be severe:

Administrative Fines

All fees – including one for reinstatement from inactive status – are set forth in the State Bar’s Schedule of Charges and Deadlines. Cumulatively, these penalties can run into the thousands.

Suspension of Law License

Any licensed attorney who neglects their obligations upon receipt of a notice of CTAPP reporting noncompliance will be enrolled as inactive, rendering them ineligible to practice law. This designation requires no hearing, as it’s considered administrative.

Additional Disciplinary Action

Enrollment to inactive status can lead to further investigation of – and possible prosecution for – other violations of the State Bar Act, the Rules of Professional Conduct, or similar applicable laws.

A less direct consequence – one not imposed by the State Bar of California – poses an even greater risk. The reputational damage and loss of credibility resulting from suspension could prove devastating, if not irreparable. Prospective and current clients as well as colleagues would understandably lack confidence in any attorney whose license is suspended, threatening the practice’s long-term viability. 

Attorneys who work on contingency, e.g., those who specialize in personal injury and employment law, are especially vulnerable. They may hold fewer clients’ funds upfront – receiving payment only after settlements are received – but their practices are likely to be among those most highly scrutinized by the State Bar, as the sheer volume of cases involved in contingency suits represents the largest target for enforcement actions, including audits. 

Because personal injury and employment law are disproportionately impacted by Rule 1.15 and CTAPP, attorneys practicing in these specializations are advised to take precautions to remain in compliance. Bookkeepers versed in the State Bar of California’s updated client trust account reporting requirements can provide that much-needed support.

Orange County Bookkeepers Help Ensure Compliance with New Trust Account Requirements

Attorneys are trained in the law, not accounting. Rule 1.15 and CTAPP, however, require them to keep detailed, up-to-date financial records, which can be confusing as well as burdensome. Bookkeepers experienced with these new trust account policies can bridge that divide and offer invaluable assistance:

Expert Guidance

Bookkeepers understand the nuances of trust accounts’ three-way reconciliation requirements.

Proper Accounting Systems

Bookkeepers establish accounting systems that adhere to the specific requirements of Rule 1.15 and CTAPP, ensuring client funds are appropriately separated from attorneys’ funds.

Risk Management

Bookkeepers maintain timely financial records, identify unclaimed funds / uncashed checks, and avoid inadvertent commingling of a firm’s operation and trust accounts.


Bookkeepers conduct monthly three-way reconciliation of trust accounts, so that client funds are accurately recorded.


Bookkeepers perform regular audits of client trust accounts, ideally reconciling them every month to proactively identify potential issues.


Bookkeepers prepare timely reports to comply with annual certification and self-assessment requirements.

Continuing Education

Bookkeepers stay abreast of amendments to Rule 1.15 and / or CTAPP requirements, incorporating them into their practices.


Bookkeepers can train the firm’s staff on best practices for handling client funds, reinforcing adherence to Rule 1.15 and CTAPP.

SmartBean® – through our Trust Account Bookkeeping (TAB) service – offers each of these benefits for an affordable, flat monthly rate. Our team is uniquely experienced in navigating the intricate bookkeeping and reporting requirements mandated by Rule 1.15 and CTAPP, ensuring attorneys meet their fiduciary responsibilities to their clients as well as their ethical obligations to the State Bar of California.

So, schedule your free consultation with us today, because, at SmartBean®, we’re not just bean counters; we’re the Beans you can count on!

1  see Rule 2.5 Client Trust Account Protection Program Annual Reporting, Account Registration and Self-Assessment Completion Requirements (Rule Adopted by the Board of Trustees, Effective January 1, 2023): “An attorney who fails to satisfy the requirements of the CTAPP and its associated rules by the deadline will be assessed a noncompliance penalty. If the attorney still does not comply, they will be enrolled as an inactive licensee of the State Bar under the rules adopted by the Board of Trustees of the State Bar. Inactive enrollment imposed for noncompliance with the requirements of this program is cumulative and does not preclude a disciplinary proceeding or other actions for violations of the State Bar Act, the Rules of Professional Conduct, or other applicable laws.”

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