Nothing triggers a State Bar audit faster than mishandling your client trust account. For solo and small firm lawyers, the trust account (IOLTA) is often the most neglected part of their practice. It’s viewed as a bureaucratic nuisance instead of what it really is: a fiduciary duty.
Rule 1.15 of the California Rules of Professional Conduct is explicit about how lawyers must handle client funds. You are a fiduciary. That means no commingling, no borrowing, and no sloppiness. Nothing less than perfection is required.
Here are some of the most common mistakes I see:
- Misappropriation – unauthorized handling of client funds (failure to deposit, improper withdrawals, etc.)
- Failing to keep a ledger – not tracking whose money is in the trust account and in what amounts.
- Delaying disbursements – holding onto settlement proceeds longer than necessary.
- Overdrawing the account – even accidentally, this can lead to a Bar inquiry.
- Poor communication – not explaining trust procedures to clients or not responding to client inquiries about their funds.
- Commingling – putting earned fees in the trust account or client funds in your operating account.
What’s worse is that many lawyers don’t realize how strict the rules are. You’re required to keep records for five years. You must reconcile the trust account monthly. You must notify the client when funds are received, and you must distribute funds promptly.
And here’s a chilling fact: you can be disciplined even if no client is harmed. The appearance of mismanagement is often enough to trigger a formal investigation.
Want to know what will buy you peace of mind? A trust account audit before the State Bar comes knocking. I regularly conduct preventive audits and create trust account protocols for law firms. We set up checklists, templates, and training for staff so the rules are followed consistently.
If your trust account feels like a black hole, don’t wait for a bounced check or client complaint. Fix it now. Your license depends on it.