Trust accounting in California is the probate-mandated bookkeeping required for trust accounts that encompasses the process of managing and reporting a trust’s finances. It ensures a trustee is following trust terms, upholding their fiduciary duty, and administering the trust properly. It’s a crucial line of defense for beneficiaries and trustees alike.
Still, the answer is more complex for those wondering, What is trust accounting? An accounting of a trust is a comprehensive and detailed record of all trust income and expenses. A trust is a legal document that designates a trustee to manage assets for a grantor while the grantor is incapacitated or has died. The grantor also may want the trustee to manage the trust assets while the grantor is still alive. In this case, the beneficiaries would not necessarily get an accounting – the grantor would get one. All beneficiaries have a right to certain information that relates to their interest in the trust after the grantor has died.
Beneficiaries are entitled to know how a trustee is managing trust assets and making disbursements, the amount of the trustee’s compensation, and whether any income has been earned on trust property. This information is usually provided to the beneficiaries in the form of a trust accounting. Here is what you need to know about California trust accounting.
What is Trust Accounting?
Accounting for a trust in California is a record that outlines the financial story of how a trustee is administering a trust. This type of accounting details all information regarding the income and expenses of a trust and helps determine tax requirements.
Trust accounting is a detailed record that includes information about all income and expenses of a trust. You should include specific information in a trust accounting that revolves around:
- Taxes paid, disbursements made to trust beneficiaries, and gains and losses on trust assets
- Fees and expenses paid to advisors of the trustee, such as attorneys, CPAs, and financial advisors
- Compensation and expense reimbursements paid to the trustee
To prepare an accurate trust accounting, you must keep an inventory of trust property, and copies of all account statements, invoices, and receipts.
Trustees should keep records organized and utilize financial software to better track expenses and investments. Trust accounting is usually required annually for a trust. When the trust is settled, a final accounting may be required.
Related Article: What is a Trust Accounting in California?
What Does a Trust Accounting Look Like?
Reframing this record is one way to help illustrate the answer to the question, What is trust accounting? Think of the date the trust creator passed away as a single snapshot. Accounting for trust accounts is the ongoing record of each transaction, or the continuous story of the trust itself.
This record should include detailed descriptions of all money and assets that leave and enter the trust. The trust accounting should include everything, from the purpose of the transaction to who received it.
These documents will, in some ways, resemble a bank statement, except instead of covering a month, it will cover the year and have substantially more detail.
It’s important to understand that there are trust record-keeping requirements your accounting must fulfill. You can learn more about these requirements by reading the article below.
Related Article: How to Do Trust Accounting in California
Who is Responsible for a Trust Accounting?
Now, you likely want more information if you are asking, What is trust accounting in California? It’s also important to understand who is responsible for preparing an accounting. All trustees are responsible for preparing an accounting for current beneficiaries.
Still, keep in mind that trust accounting is also a form of defense for trustees. A compliant trust accounting helps protect trustees from liabilities, so working with an expert trust accountant is essential.
Related Article: How Do You Know if a Trust Accounting is Accurate?
When Do You Need to Prepare a Trust Accounting?
Understanding when to prepare this financial record is also crucial to answering the question: What is trust accounting in California?
When you must prepare a California trust accounting depends on your situation. Trustees must prepare an accounting at least annually. But depending on your circumstances, you may have to prepare one more frequently.
“Several things can force a trustee to prepare an accounting more frequently. For example, beneficiaries can compel you to prepare one, and trustees must provide information regarding how they are administering a trust upon request. This requirement can play a role. Also, if you prepare an accounting that is inaccurate or isn’t prepared per the California probate code, the court can order you to prepare one that is accurate and compliant. This is why working with a professional can save time and effort and even avoid costly penalties or litigation.”
– Marcia L. Campbell, CPA & Trust Accountant
Still, trust accounting isn’t a singular act. Continuous bookkeeping for trust accounts is crucial to ensure your record is accurate and compliant.
Related Article: What is the Purpose of a California Trust Accounting?
What Should a Trust Accounting Include?
Understanding what this record should include is integral to answering the age-old question: What is trust accounting? As we discussed above, this is a comprehensive record of how a trustee is administering a trust. A trust accounting in California should include the following:
- An account statement with all principal and income held by the trust
- A detailed breakdown of assets/liabilities
- Trustee compensation
- A report of the agents a trustee hired
- A legal statement that beneficiaries can object to the trust accounting
- A statement that beneficiaries cannot make claims against trustees after 180 days from the date they receive an accounting
Also, you must ensure you adhere to the needs, requirements, and regulations of the California probate code.
Related Article: Common Trust Accounting Mistakes to Avoid
Trustee Liability & Fiduciary Duties
Trustee liability is at the heart of answering the question, What is trust accounting? Trustees must comply with state trust accounting laws and perform their fiduciary duties to the best of their ability.
A trustee could face serious ramifications if they fail to perform their fiduciary duties in administering the trust. If they fail to provide accounting or other pertinent information to beneficiaries, the trustee may be removed from the position.
Furthermore, if the trustee fails to maintain accurate records or provides false information to the beneficiaries, the trustee may be held personally liable.
Because of this, meticulous trust accounts bookkeeping is a vital part of your role and well-being as a trustee that you cannot afford to neglect. If a trustee has questions regarding their state’s trust accounting laws, they should consult an attorney.
“Trustees have a fiduciary duty to keep beneficiaries reasonably informed of how they administer the trust. A California trust accounting is crucial for beneficiaries, and in many ways, it serves as a line of defense for them and their inheritance. It’s a way of allowing beneficiaries to oversee how trustees are administering the trust so that they can ensure they are administering it per the trust document and not committing severe breaches of duty.”
– Marcia L. Campbell, one of the leading trust accountants in California.
Related Articles: Trust Accounting Basics and Tips for New Trustees
Does a Trustee Have to Show Accounting to Beneficiaries?
Per California trust law and Probate Code, a trustee is generally required to prepare a trust accounting for beneficiaries, which means they must show an accounting to beneficiaries. Trustees must also make the trust accounting available to beneficiaries to review upon request.
Ultimately, this is why expert CPA trust accounting is so important – meticulous, thorough, and accurate trust accounts bookkeeping ensures that you will always be prepared to provide an accounting whenever such a situation arises.
Otherwise, you expose yourself to the risk of litigation and financial and legal consequences.
What is Trust Accounting? Get Expert Accounting for Trusts to Never Worry About this Again.
So, now you know everything you need to understand the answer to the question, What is trust accounting? 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, minimizing the risk you are exposed to for legal liability.
Visit our contact page and fill out a form to learn about our trust accounting services.
If you have any questions about your trust, contact us at 951-686-3608 or fill out a contact form. Someone on our team will reach out.
I am a beneficiary o a irrevocable trust. The Grantor, my mother died in 2013. My back up Trustee is not a US resident. My attorney could easily amend the trust. Do you manage Trusts?
Hi Geoffrey,
Yes, we do! You can learn more about our services here: https://mcampbellcpa.com/court-accounting/.
Hello
Is it required to do trust accounting while the trustor is still alive?
Best regards,
Dulce
Hi Dulce,
As long as the trustor is alive and competent, you should still be able to do trust accounting. If you would like our assistance with your question, please fill out a contact form: https://mcampbellcpa.com/contact/
The General Ledger system is, of course, the heart of a firm’s financial system. A properly functioning General Ledger is, however, but one component of an effective financial process. Stepping back and looking at the financial systems environment holistically, one needs to consider the end results – namely the outputs of the process – and work backward towards the inputs
Hi great article.
Does the Trust accounting include bank statements? I am a beneficiary and the Trustee did not provide a list of assets, property appraisal or any bank statement/balance sheet. Only a list of hand written disbursements. Not sure if this is sufficient. I am in California.
Thanks in advance for posting a reply!
Thanks for explaining that trust accounting services can apply financial planning software to monitor your investments and expenses. Working with the right professionals would probably ensure that you get the most out of the trust. Maybe it would help to start with a trust planner to ensure that you have someone who can guide you through the process and help you create a team of professionals to work with, such as an accounting service.
I like that you mentioned that accountants can provide professional assistance. My wife has been having a hard time with the books for her business. I think that we should hire a pro to help her.
I am a beneficiary of my father’s irrevocable trust. What is required of an accounting of a trust? It is a large estates. We usually only receive a running balance of the check register. That is it. No explanations.
We have asked for a Balance sheet with values and the Trustees refuse to give it to us.
What would a good accounting for Trust for the beneficiaries include?
Thank you!
Hi Ann. If you fill out a form on our contact page, we can provide more information: https://mcampbellcpa.com/contact/.
I want to make sure that I get my estate put together properly. It makes sense that trust accounting would be important. I’ll be sure to work with a professional to ensure that it gets put together properly.
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