Every Trustee Should Know the Importance of an Accounting in Probate

Scott Grossman

Scott Grossman

Attorney

The Grossman Law Firm, APC · 525 B Street, Suite 1500, San Diego, CA 92101 · (951) 523-8307

Serving the role of trustee is not an easy task. There are many responsibilities that come with the job, and failing to follow through on those obligations can result in costly litigation. One of the most important tasks any trustee will have is to prepare an accounting of the trust assets, income, and expenses. Most trustees should seek guidance from an experienced attorney to ensure that they are preparing the accounting properly. Keep on reading to learn more about accounting in probate.

The Trustee’s Duty to Manage Accounting in Probate:

By law, and typically within the terms of the trust itself, trustees have a duty to provide an account to the beneficiaries. The accounting documents the actions taken by the trustee with regard to the trust assets during a given time period. The account helps to keep the beneficiaries informed and also helps to hold trustees accountable. Clearly, the beneficiaries are entitled to receive a copy of the accounting. Other parties may be entitled to a copy as well. For example, a trustee can seek an accounting from a co-trustee, and the estate of the person who created the trust can seek a copy of the accounting from the trustee as well.

Under the terms of the trust, you may be required to prepare the accounting on an annual basis, a semi-annual basis, or at some other interval. Each account must include a significant amount of information to the beneficiaries of the trust and other interested parties. The following are ten examples of information that must be included in an account:

What to Include in an Accounting in Probate?

  1. All cash transactions during the accounting period. This could range from small purchases such as photocopies to larger expenses such as insurance policies.
  2. All property transactions during the accounting period. For example, real estate may be sold during this period and this must be reported. Depending on the transaction, additional information may be necessary.
  3. All compensation paid to the trustees during the period. The amount of this compensation may be outlined in the trust instrument.
  4. All capital gains and losses realized during the account period.
  5. All receipts of income during the period. This may include dividends, rental income, or interest earned on trust assets. The account should accurately describe each item of income.
  6. All fees paid to professionals to assist with the trust during this time frame. This could include CPAs, attorneys, and financial advisors. The accounting should also state to whom these fees were paid.
  7. All other expenses paid by the trustees during the accounting period. In addition, the accounting should state when the expense was incurred, who it was paid to, and for what purpose.
  8. All disbursements of trust assets made during the accounting period. For example, if you made distributions of trust assets to the beneficiaries, these must be listed on the accounting.The accounting should state the specific beneficiaries who received these distributions.
  9. The allocation of trust assets between trust income and trust principal.
  10. The names of the financial institutions where trust assets are held, and the types of trust assets, including real estate, investment accounts, cash, CDs, or other forms of assets.

The Purpose of Accounting in Probate:

While this may seem like a great deal of information to cover in an accounting, it is important to remember that this is the primary way for the trustee to keep beneficiaries and other interested parties informed of the happenings within the trust. A well-prepared accounting can often go a long way towards preventing disputes and building trust between the trustee and the beneficiaries. In addition, the accounting can provide the trustee with some liability protection. When the accountings are provided to the beneficiaries, they are on notice, and if they do not object or raise questions, the window to accuse the trustee of liability may close.

To avoid potential problems, we strongly encourage you to seek assistance when preparing an accounting during a trust administration. Contact us today at (888) 443-6590 for more information. Or fill out our quick and easy online form today. It would be our pleasure to further assist you.

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