California Supreme Court Approves Client Trust Account Protection Program

The California Supreme Court has approved a State Bar of California proposal to establish the Client Trust Account Protection Program, effective Jan. 1, 2023. 

The court went beyond the State Bar’s original proposal by requiring that several obligations be met. The original proposal only authorized the State Bar to impose such requirements.

Under this program (adding new California Rule of Court, rule 9.8.5), every licensed California attorney will be required to:

1. Report whether they are responsible for managing a client trust account; 
2. If so, attest they are knowledgeable about and compliant with the applicable rules; and
3. Provide the State Bar with the account numbers and the financial institutions for all such accounts.

The new rule also authorizes the State Bar to require licensed attorneys to complete an annual self-assessment and to select attorneys each year to submit to a compliance audit by a certified public accountant.

The State Bar will also develop and distribute new continuing legal education materials focused on promoting ethical management and distribution practices and launch a public education campaign to raise awareness of clients' rights with respect to client trust accounts opened on their behalf.

The court also approved amendments to rules 1.15 and 1.4 of the Rules of Professional Conduct:

• Under the revised Rule 1.15, a lawyer must notify a client within 14 days after receiving funds or property on their behalf. A new comment to rule 1.4 was added to underscore that receipt of client funds is ordinarily considered a “significant development” that an attorney must promptly communicate to their client under that rule.  
   
• Rule 1.15 was amended to compel an attorney to disburse any entrusted funds or property within 45 days after their client’s interest in them becomes undisputed. Failing to meet that deadline will result in a presumption that the attorney violated rule 1.15, which the attorney can only rebut with evidence showing good cause.