A trust is the culmination of a person’s life and legacy, and in many ways, a trust accounting is the continuation of that story. An accounting is an essential form of protection for beneficiaries and trustees alike, and in California, trustees have a legal obligation to prepare one. Many people have questions about how to do trust accounting in California. An accounting must be accurate, compliant, and include specific pieces of information.
At Marcia L. Campbell, we have helped trustees prepare accurate and compliant accountings for decades to avoid costly penalties and litigation. Learn more about how to prepare one, key requirements, and why it is essential to work with a professional trust accountant in our blog.
Related Article: What is the Purpose of a California Trust Accounting?
How to Do Trust Accounting in California
From including all the right information to ensuring that it’s compliant with probate law, there are several moving parts you need to manage when you prepare an accounting, and it can be difficult to understand what the process entails. Read on to learn the basics of trust accounting.
“When you author the story of the trust and the legacy of the person who left it behind, like with all stories, the details and facts matter. California probate code has specific requirements that you must satisfy to ensure that your accounting is acceptable and doesn’t make you vulnerable to litigation. The stakes are high for trustees, which is why working with a professional is often essential.”
– Marcia L. Campbell, CPA & Trust Accountant
Related Article: What is the Penalty for an Inaccurate Trust Accounting?
What is an Accounting?
Understanding how to do trust accounting requires first defining what a trust accounting is. Trust accounting is a protective measure for parties involved in a trust. An accounting is a financial record of all transactions related to 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.
Related Article: What Are Trust Accounting Rules in California?
What Are Basics When Preparing an Accounting for Trusts?
Basic principles are important to understand when determining how to do trust accounting in California. Per California probate code sections 16060 and 16062, trustees must:
- Keep beneficiaries ‘reasonably’ informed about how they manage the trust.
- Provide an accounting at least once annually.
- Provide an accounting at the termination of a trust or when a trustee changes.
Trustees also must prepare an accounting for beneficiaries when they request one within 60 days. Trust terms determine how often trustees must prepare an accounting. Depending on the trust document, they may be required to prepare one more or less frequently. But more on this later.
An accounting should include information about assets in the trust, how the trustee has used them, any funds or assets that have entered or left the trust, and all financial transactions related to the trust. But there’s more to it than that, which is what we will explore next!
Related Article: How Do You Know if a Trust Accounting is Accurate?
What Should a California Trust Accounting Include?
It is essential to understand what you should include in this record when learning how to do trust accounting in California.
Per California probate code section 16063, an accounting should include the following information for the last fiscal year of the trust or the time since a trustee last prepared and provided an accounting:
- A statement of all receipts and disbursements of principal and income
- A statement of assets and liabilities
- A statement of the trustee’s compensation
- The agents hired by the trustee, their role, their relationship to the trustee, and what the trustee is paying them
- A statement that beneficiaries can petition to obtain a court review of the account and the acts of the trustee within three years
- A statement that beneficiaries cannot make claims against the trustee for breach of their fiduciary duties after three years from the date of receipt
When preparing a California trust accounting, all of these items must also comply with California probate code section 16061. Per this section, you must include a summary of the following:
- Property on hand at the beginning of the period covered by the account
- The value of assets received during a period
- The amount of any receipts of income or principal
- Net income and losses from a trade or business
- Gains and losses on sales
- Amount of disbursements (not including those for a trade or business)
- Distributions to the beneficiaries
- Property on hand at the end of the period
- All relevant bank balances
- Taxes paid
Related Article: Common Trust Accounting Mistakes to Avoid
How Do I Prepare a California Trust Accounting?
Execution is the next part of understanding how to do a trust accounting in California! Remember – the margin for error is slim. An inaccurate accounting that does not comply with the California probate code can have severe consequences.
A California trust accounting helps maintain transparency, which protects beneficiaries and trustees. For beneficiaries, they act as a crucial protection against a trustee who’s tempted to abuse their position. For trustees, on the other hand, they can prevent litigation.
When you prepare a trust accounting, you do not need to register or file it with any government body, but the California probate code still places significant responsibility on trustees to prepare one. Here is what you need to know to prepare one.
Related Article: What is the Purpose of a California Trust Accounting?
When Do I Need to Prepare a California Trust Accounting?
First, let’s discuss how often you need to prepare an accounting, as this is an integral part of how to do trust accounting in California. Trustees are responsible for preparing a California trust accounting regardless of whether or not they have experience or training in this discipline.
At minimum, trustees must prepare one annually (unless the trust document says otherwise.) They also must prepare one when the trust is terminated or when a new trustee has been appointed.
Beneficiaries also have a right to this information, and trustees must provide it whenever they request it. Still, in more severe situations, particularly those that involve fraud or other criminal violations, beneficiaries can petition the court for a current accounting.
“Good trust accounting requires diligently working to keep up with the trust as trustees make transactions and the trust changes. You may not have to prepare an accounting every month, but failing to document changes on a regular basis makes it difficult to remember all the details of those transactions.”
– Marcia L. Campbell, CPA & Trust Accountant
Related Article: Debunking Common Trust Accounting Myths
Who Is Entitled to a California Trust Accounting?
You must provide a California trust accounting to anyone with an interest or involvement in the trust. This typically means beneficiaries who receive a distribution of income and principal during an accounting period, along with trustees, are entitled to an accounting.
Still, this depends on the trust itself. To determine who is entitled to an accounting in your situation, read the document. Trust documents sometimes state that other parties are entitled to receive an accounting, too.
Ultimately, determining who is entitled to an accounting is important. Otherwise, you might fail to provide the necessary parties with an accounting, which can result in them objecting to the accounting and this issue snowballing into full-blown trust litigation.
In the end, interpreting the document and understanding who is entitled to an accounting requires the guidance and expertise of a specialist trust accountant like Marcia L. Campbell.
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Key California Trust Accounting Requirements
Understanding trust accounting requirements is also an important component of understanding how to do trust accounting in California. And California Probate Code trust accounting requirements encompass more than just what the accounting should include! Here is what you should know about California trust accounting rules and requirements.
Related Article: How Do You Know if a Trust Accounting is Accurate?
Who Performs a Trust 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.
Because of this, knowing how to do trust accounting is vital to the trustee’s role. If a trustee does not have the experience or financial expertise to fulfill this duty, then hiring a professional is crucial.
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 if someone other than the trustee prepared it.
Related Article: A Beginner’s Guide to Trusts and Trust Accounting
How Often Should a Trustee Conduct an Accounting?
As we mentioned above, by law, a trustee must conduct a trust accounting annually, when they terminate a trust, and when the trustee changes. So having the expertise to know how to do trust accounting in California is crucial.
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 a 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 and how often they must do so can depend on the type of trust they have, too. 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.
“We talk a lot about what a trust accounting should include, and that’s definitely important, but what is equally as important is that the accounting must balance. Just like you need to make sure a bank reconciliation balances with the statement, accounting should balance with all the numbers.”
– Marcia L. Campbell, CPA & Trust Accounting
Related Article: What are the Different Types of Trusts?
Stop Worrying About Knowing How to Do a Trust Accounting with Premier CPA Trust Accounting in California!
Understanding how to do a trust accounting in California is only part of the battle. Ensuring that your accounting includes all the necessary information and complies with the probate code is crucial to your well-being. But this requires ample experience, expertise, and time. Preparing an accounting is a full-time job, and you already have one of those. So let us help.
At Marcia L. Campbell, CPA, we have provided premier trust accounting services in California for decades. With us, compliance and accuracy are never a question. Visit our contact page and fill out a form to learn about our trust accounting services.