If you are the personal representative or executor of a deceased person’s estate, an important part of your role is to provide court accounting. Court accounting, also referred to as probate accounting, is a financial record of the transactions of an estate.
Under the California Probate Code, court accounting must be provided at least once a year, when the trust is terminated, and whenever there’s been a change in trustee. Whether it’s an annual accounting or a final accounting, all court accountings must include a record of the income received by an estate. This income is referred to as “receipts.”
What is an Income Receipt vs. Principal Receipt?
Income receipts are records of income received by an estate. “Income” is any revenue generated or earned from the assets of an estate. Income receipts commonly include interest from a bank account, dividends, rental income, etc.
“Principal” receipts include the estate’s assets, refunds (such as utility or tax refunds), and any uncashed checks at the time of the decedent’s death. Principal assets should be listed on an inventory and appraisal form.
Note: Some payments received by the estate may include both income and principal. For example, if a payment is received on a promissory note that was initially listed as an asset, the interest amount is “income,” and the amount paid toward the loan is “principal.”
Along with keeping a record of all disbursements made from the estate, the executor must also keep detailed records of all receipts. Under Section 16063 of the Probate Code, accountings must include “a statement of receipts and disbursements of trust principal and income occurring either during the last complete fiscal year of the trust or since the last accounting was made.”
The executor must complete a Schedule of Receipts (which lists all the receipts received by the estate during the accounting period) and attach it to the Summary of Account (a financial statement that shows all of the transactions that happened in the period for the estate).
The Schedule of Receipts must include the following information for each individual receipt:
- The amount
- Description and source of the receipt (stock dividend, interest, etc.)
- The date of the receipt
Receipts can be listed either by category or chronologically, but you may be required to list them chronologically within categories. Normally, whenever an accounting period exceeds one year, or income is received or paid to or from any particular source more than twelve times, it is required that the schedules for receipts and disbursements. The disbursements should be categorized into sub-schedules reflecting the particular income sources or payees for whom there are more than twelve entries per accounting period.
Note: Income receipts and principal receipts must be listed in separate columns or on completely separate schedules.
Why Do You Need This Much Detail?
Court accounting is strictly mandated and can be intimidating for executors who are tasked with providing such detailed information to the court or the beneficiaries. If an executor feels overwhelmed by such a daunting task, it is recommended that they seek assistance from a CPA who understands the probate code.