When requested to prepare fiduciary accountings, I would first ask the following questions:
  1. What will the fiduciary accountings be used for?
  2. Are they going to be filed in court?
  3. What is the time period of account?
The answer to questions 1 and 2, would determine the level of detail required of the accountings. There are formal and informal accountings, in which each has its pros and cons. I would recommend formal accountings just in case trust issues arise in the future. Formal accountings are usually in a format that meet the standards of probate court. Using the court accounting standards should provide adequate information on the financial state of the trust and indicate the property and liabilities the fiduciary is responsible to the following parties:
  • Other fiduciaries
  • Beneficiaries
  • Attorneys
  • Accountants
  • Probate courts
Informal accountings are similar to formal accountings, however they are in a more summarized report that omits the details for certain types of transactions. Regardless of the type of accountings, the records are the same. The answer to question 3, would determine the beginning and ending of the accounting period. The beginning of the accounting could be the date of a specific event, such as:
  • Date of when the fiduciary was first appointed
  • Date of death of the settlor (original owner of the trust’s assets)
  • Date of when the settlor becomes incapacitated
  • Last day of the last accounting period
Once the period of account has been determined, an inventory of assets and liabilities should be taken at the beginning and ending of the accounting period. Examples of records that are helpful to determining value of the beginning and ending balances of property and liabilities in a trust, along with the activity in between are as follows:
  • Trust documents
  • Income tax return
  • Bank Statements
  • Brokerage Statements
  • Closing statements for real estate purchase and sales
  • Retirement account statements
  • Loan documents
  • Credit card statements
  • Invoices or other bills received
  • Check register
  • Copies of cancelled checks
  • Receipts for payments made and Receipts for funds received
  • Pay stubs for cash or checks received
  • Deposit records including the payer, the purpose or nature of the deposit, the amount and date
  • Appraisals/Business valuations
  • Mileage log for trustee
For the statements issued by financial institutions, the statement for the month before the date of the accounting is needed to verify the beginning balances of the accounting period matches the ending balances of the prior accounting period. Simply providing the records to beneficiaries or other interested parties is not considered an accounting. Each of the records provides information to prepare an accounting, however they do not provide the trusts’ aggregated totals in the following areas:
  • Property on hand at beginning of account
  • Additional property
  • Receipts
  • Gains on sale or other dispositions
  • Net loss from trade or business
  • Distributions to beneficiaries
  • Property on hand at close of account
There are also additional schedules that may be required detailing each individual transaction. Preparing an accounting without the proper records can require a significant amount of cost and effort. A fiduciary may hire a professional to perform the accountings. There are fiduciaries, bookkeepers, and certified public accountants that provide this service. When hiring a professional, be mindful of the format of the accountings as they vary by state and by local courts. If a fiduciary has prepared a different method of accounting, it may be used as a starting point to prepare fiduciary accounts. For instance, there are some fiduciaries who use an accounting software, such as QuickBooks to record the nature of each transaction. Each cash or liabilities account should be reconciled to a bank statement. Having preliminary accountings could be a great cost savings when converting it to a proper fiduciary accounting if the accounting system records are complete. As a recap on fiduciary accountings:
  • Know how the fiduciary accountings will be used
  • Know the time period of the accountings
  • Keep detailed and prudent records
  • Financial records are not financial reports
  • Having an accounting system is a great tool
  • Hire a professional sooner rather than later to reduce potential and costly re-work
For more information on what trustees are required to report to beneficiaries, you may refer to Probate §§16063. Detailed requirements of a probate accountings, you may refer to Probate Code §§1060-1064. Onisko & Scholz, LLP has extensive experience in fiduciary accountings for trusts, probate, conservatorships, and guardianships. Should you have any questions and would like assistance in preparing your accountings or estate and trust tax filings, please do not hesitate to contact us. If you would like some information on why fiduciary accountings are important, see my Blog titled “WHAT IS THE PURPOSE OF FIDUCIARY ACCOUNTINGS AND WHY IS ONE NEEDED?” for details. By: Natalie Keam, CPA Supervisor, Onisko & Scholz [/fusion_text][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]
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