When someone passes away and leaves behind their assets in a trust, it is the responsibility of the trustee to follow the terms presented in that trust. However, there are many laws and restrictions that govern the trustee. This results in the fiduciary duty to provide accounting information of the trust’s finances to the beneficiaries of the trust. Knowing exactly what information to present, as well as when, is an important aspect of trust accounting.
What is an Account in Trust?
An account in trust, also referred to as a trust account, refers to a financial account that has been opened by a trustee per agreed terms. The trustee has the duty of responsibly managing this account in the best interests of the beneficiary. An account in trust may include cash, stocks, bonds, or other assets. Trust accounting contains detailed records all about the income and expenses of a trust. In order to prepare accurate trust accounting information, all copies of statements, invoices, and receipts will need to be kept. Trustees need to be able to keep these records organized, as well as track expenses and investments. Trust accounting is generally required annually for a trust.
What is a Petition for Accounting of Trust?
When a beneficiary makes a request to the court for the trustee to provide information about the trust, this is referred to as a petition for accounting of trust. The trustee has many responsibilities. One of these responsibilities is to provide important and detailed information to all the beneficiaries, in regards to the management of trust assets. After a petition for accounting of trust has been filed, the trustee has 60 days to take action and provide.
Legal Trust Accounting Basics
Legal trust accounting is considered bookkeeping that is required for trust accounts and is governed by state law. By California law, trustees have to keep beneficiaries up to date on the happenings of the trust account. In general, trustees should seek to update the beneficiaries at least once per year. They will need to provide information regarding the assets in the trust and how they have been used, as well as if there have been any changes made.
How Should a Trustee Account to Beneficiaries?
A trustee is required to include the following information from the last complete fiscal year:
- Statement of receipts and disbursements of principal, as well as income, that have occurred.
- Statement of assets and liabilities.
- Compensation of the trustee.
- All agents hired by the trustee, as well as their compensation.
- Statement that the recipient of the account may petition to obtain court review.
- Statement that claims may not be made after the expiration of three years from the date the beneficiary receives an account.
Under California law, trustees must also provide a summary of the following:
- Property at the beginning of the accounting period.
- Disbursements throughout the period.
- Value of any assets received.
- Amount of income or principal.
- Gains or losses on assets sold.
- Net income and loss from a business.
- Distributions to beneficiaries.
- Property at the end of the accounting period.
How Often do Trustees Need to Account?
Unless the trust states otherwise, trustees will need to account to each beneficiary at least annually. They will also need to do so at the termination of the trust or upon a change of the trustee. If a beneficiary demands an accounting in writing, the trustee will have 60 days to provide that information.
Trustee Liability
It is the trustees responsibility to comply with state trust accounting laws, as well as perform their duty to the best of their ability. If a trustee fails to comply or does not complete their duties that are required of them in regards to the trust, they could face some serious issues. If the trustee does not accurately maintain records or falsified information, they could be held personally liable. Trustees that are not familiar with their state’s trust accounting laws should consider the assistance of a professional trust attorney.
Can Trust Beneficiaries Sue a Trustee?
You may be wondering if a beneficiary can sue a trustee if the trustee has breached their fiduciary duties or harmed the trust. The short answer to this question would be yes. Trust beneficiaries are able to bring forth claims against a trustee, as long as they have a valid reason. These reasons could include:
- The trustee misused assets of the trust, particularly for personal gain.
- The trustee acted in such a way that it caused financial harm to the trust.
- The trustee acted on a conflict of interest that caused a loss for a beneficiary.
- The trustee acted on favoritism, providing a benefit to one beneficiary over another.
- The trustee withheld a trust distribution without a valid reason.
Accurately Recording Information as a Trustee
As the trustee of a trust, you will need to know how to properly keep financial records. Doing so could help you keep you away from harsh consequences. Annually, you will be required to present the beneficiaries with the official accounting of the trust. This will include money that came into and went out of the trust. If these numbers do not add up, you could lose your position as a trustee or out of the beneficial share of an estate.
Collect Financial Statements
Obtain statements from financial institutions to determine the starting balances for each account.
Create a Ledger
Utilize online software, such as Excel, to create a ledger. You can also handwrite a ledger.
Keep Detailed Records of All Transactions
Records need to be detailed that involve money, as well as property, that comes into or out of the trust. Document your decision-making process as well. Personal funds should never mingle with trust funds.
Schedule a Consultation with a Trust and Estate Planning Attorney
Keeping accurate records as a trustee, as well as providing those records to beneficiaries, is one of the main duties a trustee is faced with. However, the processes and terminology behind trust accounting can be overwhelming. At Galanti & Copenhaver, Inc., our experienced team knows how to navigate these complex processes. Schedule a free 30-minute consultation today!