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 as it relates to their interest in the trust after the grantor has died.
Beneficiaries are entitled to know how trust assets are being managed, what type of disbursements are being made, how the trustee is being compensated, and whether any income has been earned on trust property. This information is usually provided to the beneficiaries in the form of trust accounting.
What is Trust Accounting?
Trust accounting is a detailed record that includes information about all income and expenses of a trust. Information that should be included in a trust accounting includes details regarding:
- 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, an inventory of trust property, and copies of all account statements, invoices, and receipts must be kept. It is recommended that trustees keep records organized and utilize financial planning 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?
Trustee Liability
Trustees must comply with state trust accounting laws and perform their fiduciary duties to the best of their ability. If a trustee fails to perform their fiduciary duties in administering the trust, they could face serious ramifications. In regard to trust accounting, if a trustee fails to provide accounting or other pertinent information to the 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. If a trustee has questions regarding their state’s trust accounting laws, they should consult with an attorney.
Related Articles: Trust Accounting Basics and Tips for New Trustees
Professional Assistance
Preparing a trust accounting can be very complicated and overwhelming for the average trustee. Due to the complexity and serious ramifications called by mistakes, it is highly recommended to have a qualified and experienced CPA prepare trust accountings. Before choosing a CPA to assist with matters regarding a trust, confirm that the professional has experience with trust accounting. Trust accounting is much different than preparing individual or corporate tax returns. If the CPA in question does not have substantial experience with trust matters, continue the search for a qualified professional.
Annual trust accountings are not only required by some trust documents or probate code, but they also provide protection for trustees in the event that a beneficiary contests the trustee’s actions. Because trustees can be held personally liable, working with an experienced CPA is in your best interest.
If you have any questions about your trust, please contact us at 951-686-3608 or fill out a contact form and 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.
It’s actually a nice and useful piece of information. I’m glad that you shared this useful information with us. Please stay us informed like this. Thanks for sharing.