I want to ensure that I don't expose myself to unnecessary liability by commingling funds. 

Note there is a difference between taking unnecessary risks and taking calculated risks.

Big picture thinkers and leaders don't waste time on unnecessary details, they hire people like you to do that for them.

Account Closed well if you have the space to run the duckwork or eventually put a forced air in unit to avoid unnecessary runs of duct work from basement then fine.

This can be costly for your property manager, and you may end up having to pay for their insurance policy, which can add unnecessary expenses to your budget.It strengthens your relationship with your property manager.Adding your property manager as an additional insured is a gesture of good faith that shows you are committed to protecting their interests.

Are there circumstances where it is unnecessary to register the entity here in CA? 

When you deviate, you only bring unnecessary drama and stress to your life...

I paid up front $20,000 (which is a third of the costs) and I felt this was unnecessary due to no work being done but that was the GC's contract that he sent me.

The first pillar is avoiding unnecessary and risky activities (don't drink and drive, insurance generally won’t cover your poor decisions) and take good care of your investments(maintain your property, etc) - these simple steps will help you prevent lawsuits before they even occur.

My worries are liability, their ability to pay rent ( since they are not employed and I think they are anticipating income from this business) and their lack of prior experience ( which I think would lead to potential unnecessary issues if any).