Trust Accounting Basics and Tips for New Trustees

A CPA in a dress shirt with long hair utilizing trust accounting basics to conduct an accurate and comprehensive trust accounting.

Trust accounting is an essential component of managing a trust that keeps beneficiaries in the loop and minimizes the chances of costly disputes. An accounting is required by probate code, and for new trustees, complying with requirements is complicated. Not only does conducting an accounting call for an extensive understanding of the California Probate Code, but it requires specialized skills and knowledge an expert CPA possesses. Learn trust accounting basics in our blog:

Related Article: Marcia Campbell: Riverside’s Expert Trust Accounting CPA Firm

What is Trust Accounting?

Trust accounting is bookkeeping trustees must conduct for trust accounts by state law when managing a trust. Per California Probate Code §16062, trustees must conduct an accounting:

  • Annually
  • Upon the termination of the trust
  • Upon a change of trustee
  • Within 60 days of a beneficiary’s written request

Trustees must keep beneficiaries reasonably informed regarding the trust, trust assets, and how they have used them. Trust accounting is complex, and failing to execute it correctly can have severe consequences.

Ultimately, an expert CPA has the expertise to ensure that your trust accounting addresses everything and is by the books.

Related Article: Key California Trust Accounting Requirements

What Are Trust Accounting Basics You Should Know?

Do Not Mix Funds

One of the most critical trust accounting tips is to never mix personal and professional funds in a trust account. Create separate accounts. Funds that may be in a trust are:

  • Settlement funds
  • Interest, dividends, and capital gains distributions
  • Advances for costs
  • Investment funds

Related Article: Can You Waive a Trust Accounting in California?

Follow Probate Rules

A crucial aspect of trust accounting basics is following probate codes. All accountings filed with the court must satisfy California Probate Code §1061 and include a summary of:

  • The property on hand at the beginning of the period
  • The value of any assets received during the period
  • The amount of any receipts of income or principal
  • Gains and losses on sales
  • The number of disbursements
  • Distributions to beneficiaries
  • Property on hand at the end of the period
  • And more

You can never anticipate when you will be subject to an audit, and complying with regulations avoids costly penalties and worse.

Related Article: Court Accounting vs. Trust Accounting

Monthly Management

One of the most effective trust accounting tips is to remember this is an ongoing process that requires continuous work for trustees.

Staying on top of these tasks facilitates filing taxes and providing documentation to beneficiaries. It also streamlines the reporting process when you provide your annual accounting to beneficiaries or when they demand an accounting.

Part of your monthly management should include verifying trust accounts. We recommend that you check:

  • The bank balance on the statement against the balance you have in your accounting records
  • That statements reflect deposits, including those made after the statement cut off
  • The statement reflects withdrawals, including those made after the statement cut off

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

Record Everything and Stay on Top of Taxes

Maintaining an accurate and compliant record is an essential aspect of trust accounting basics for new trustees.

California Probate Code §16063 requires that trustees provide an accounting during that fiscal year or a year after the last time a trustee performed an accounting. Document everything; it will make your life easier. Things to record include:

  • A statement of receipts and disbursements of principal income
  • A statement of assets and liabilities of the trust
  • A statement that the recipient of the account may petition to obtain a court review of the account and trustee performance
  • The purpose of each deposit and transaction
  • A statement that claims against the trustee for breach of trust cannot be made after three years from the date the beneficiary receives an account or report
  • And much more

Also, maintaining a detailed, accurate record should include preparing for and staying on top of filing an annual tax return for the trust.

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

Do You Need Expert Trust Accounting Services? Contact Us Now.

A trust is a complicated legal and financial entity, and understanding trust accounting basics can further complicate overseeing this instrument. Worse yet, when dealing with the loss of a loved one, this process only compounds those emotions. Failing to adhere to regulations can have severe consequences on the trustee and trust alike. Still, conducting an accounting is not voluntary and is essential to protecting a trust.

Fortunately, with Marcia L. Campbell, we provide specialty trust accounting services to ease this burden and preserve the integrity of a trust. Contact us to get started and learn more.

Leave a Reply

Your email address will not be published. Required fields are marked *