Key California Trust Accounting Requirements

A CPA meeting with a trustee to put together a trust accounting.A trustee wields considerable power over a trust. However, there are mechanisms in place to ensure a trustee is adhering to the law and complying with the trust document. One such mechanism is a trust accounting. Here is what to know about a trust accounting and its requirements and why working with a CPA is essential during this process:

Who Performs an Accounting, and Is it Required?

When administering a trust, the trustee conducts a trust accounting. Unless beneficiaries of a trust waive an accounting, trustees usually must perform and provide an accounting to beneficiaries. Trustees should conduct an accounting until they close the trust.

If beneficiaries request an accounting, a trustee must furnish beneficiaries with an accounting within 60 days of the request. Still, requirements vary depending on the kind of trust. Because every situation is different, consulting with an expert is essential to understand whether or not an accounting is required under your circumstances.

Trust accountings are unlike any other type of accounting, so consulting with a CPA who has specialized expertise is essential for both making a lawful, accurate accounting and interpreting an accounting if you suspect a breach of duty.

Related Article: A Beginner’s Guide to Trusts and Trust Accounting

What is an Accounting?

Trust accounting is a protective measure for parties involved in a trust. The trustee should be documenting all trust activities, so interested parties can monitor trust assets.

Ultimately, this process helps beneficiaries review the trust administration and ensure a trustee is administering a trust per the trust instrument and law. A formal accounting should contain information and documents, like: 

    • All receipts and disbursements (bills paid, taxes paid, distributions to beneficiaries) 
    • Account statements
    • A breakdown of gains/losses on asset sales (if applicable)
    • A breakdown of assets and liabilities (a mortgage or other loans) 
    • Any compensation received by the trustee 
    • All professionals or representatives hired by the trust (lawyers, accountants, financial advisors) 
    • Assets on hand at the end of the period
    • A statement informing beneficiaries they can request a review by the court

Related Article:
California Trust Accounting: What Documents are Needed?

Who is Entitled to an Accounting?

Basically, all beneficiaries who should receive a distribution of income and principal during an accounting period are entitled to a trust accounting.

When providing a trust accounting, a trustee must include a legal notice. A trustee’s duties include keeping beneficiaries reasonably informed of the trust and its administration, which includes accounting. Still, a trust document may state that other parties are entitled to receive an accounting. 

Ultimately, a trustee must refer to the trust document when providing an accounting to determine who is entitled to an accounting.

Related Article: Trust Accounts: How Long Does it Take to Distribute Assets

How Often Should a Trustee Conduct an Accounting?

By law, a trustee must conduct a trust accounting annually, when they terminate a trust, and when the trustee changes. 

However, if a beneficiary suspects that a trustee is breaching their duty, they may request an accounting via a written demand at any time. Upon this request, the trustee must supply them with trust accounting. If you do not receive an accounting within 60 days of sending this letter, beneficiaries may file a petition with a court. 

Again, accountings are complicated, and whether or not a trustee must provide an accounting can depend on the type of trust they have. Still, even if a trustee is not obligated to provide an accounting, beneficiaries can petition the courts for an accounting. 

In these situations, beneficiaries must present a compelling case that a trustee has likely breached their fiduciary duty to receive an accounting.

Related Article: What are the Different Types of Trusts?

Get Help Performing or Interpreting a Trust Accounting Today

Trust accounting is a crucial tool for beneficiaries to ensure their trustee is administering a trust per the law and trust document. However, it is an incredibly complex process and document. Whether you are a trustee performing an accounting or a beneficiary reviewing an accounting document, working with an expert CPA is essential.

Fortunately, with Marcia Campbell CPA, you receive trust accounting solutions to conduct an accounting per the law and trust instrument or to assess the financial state of your trust and address any violations. Contact us now to schedule a consultation. 

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