If you are the executor of someone’s will, it is your responsibility to settle their estate after they die. Among other things, you will need to prepare and file a court accounting with the probate court. A court accounting is a financial record that thoroughly details an estate’s finances, including assets, income received, expenses paid, and distributions.
Court accountings are not only complicated and time-consuming to prepare, but they are also strictly mandated. If a court accounting has any inconsistencies or minor errors, the probate court will reject it. If you’re hoping to get it right the first time, it helps to know what the court watches for.
Here are four key things the court will pay special attention to when reviewing the court accountings:
1. Estate Assets
The first step in settling an estate is to take an inventory of the estate’s assets and determine a fair market value for each asset at the time of death. It’s important to recognize that as the probate process draws out, the value of the estate’s assets can change. This will be recognized on the ending asset schedule as the fair market value next to the date of death value.
The appreciation and depreciation for liquid assets can be easily established through financial statements, but fixed assets are a bit trickier. When it comes to real estate, jewelry, automobiles, and antiques, the fair market value must be determined at the beginning of probate and at the end. If any of the assets were sold, the sales price must be provided, along with any difference (gain or loss) there may be between the original appraised value and the sale price.
2. Income Received
Part of an executor’s job when settling an estate is to collect any income due to the decedent (at the time of death) or to the estate (during the probate process). The executor must keep detailed records of all income received and retain receipts. For example, if an estate receives ongoing income from a rental property, receipts from those transactions must be collected until the property is sold or until probate is settled.
When preparing a court accounting, adhere to these formatting rules:
- For the court accounting, all income must be listed separately according to the revenue source.
- Income that was owed to the decedent at the time of death (tax refunds, uncashed checks, outstanding loans, etc.) should be recorded as estate assets.
- Income received by the estate during probate must also be recorded.
3. Disbursements Made
The executor must keep a thorough record of every payment made from the estate to pay debts of the deceased, funeral bills, and ongoing costs of administering the estate. Records must include the date that the disbursement was made, the amount, who received it, and what it was for.
Tip: Avoid using cash when making disbursements. Write a check whenever possible, so you have a clear paper trail.
The most important thing to avoid when making disbursements is paying creditors or beneficiaries too soon or out of order. Before paying any outstanding bills or making distributions to beneficiaries, the executor must notify all creditors and potential creditors of the deceased’s death. The executor must then pay legitimate outstanding debts first.
4. Distributions to Beneficiaries
After all disbursements are made, debts are settled, and final taxes paid, the executor can distribute the remaining assets. First, the executor must show how the remaining assets will be distributed among the beneficiaries. The process is fairly simple if the estate has been liquidated, and all assets have been sold. The cash is simply divided among beneficiaries according to the Will or state inheritance laws.
When other assets are involved, such as bonds that haven’t matured or high-valued antiques, the process is more complex. When a variety of assets are involved, the executor must convince the probate court and the beneficiaries that assets have been divided equally. If even one beneficiary disputes, the proposed distributions may have to be changed.
Need Help With Your Court Accountings?
Preparing a court accounting can be a very daunting task. It’s not uncommon for an accounting to be rejected by the court, especially when prepared by a first-time executor with little to no experience. If you’re a new executor going through the probate process and you’re feeling overwhelmed, consult with an experienced CPA for support.
At Marcia L. Campbell, CPA, we have extensive experience developing precise and balanced court accounting according to the probate code and providing an in-depth analysis of the financial details in question.
Contact us at 1-951-686-3608 or by filling out this form to find out how we can help.