This article provides an overview of how to prepare a trust accounting, including a list of items that are typically included when a trustee provides a trust accounting. The information that should be included in a trust accounting varies depending on several factors, as discussed below. Information, data or items a trustee should include in a Trust Accounting form may include the following:
1. A statement of receipts, disbursements, and distributions of principal and income for the time period covered by the accounting. The accounting should list the amount of principal held in trust at the beginning of the period, additions to principal during the period, deductions from principal during the period, the amount of principal at the end of the period, and how such amounts are invested. See trustee investment duties. The accounting should list the type of additions to and deductions from principal, as well as the dates of such additions and deductions. With respect to additions to principal during the period, the source of income should be stated. Regarding deductions or amounts paid out during the period, the report should indicate the payee or recipient and the reason for payment.2. A statement of trust assets and liabilities at the end of the time period covered by the accounting. The report should include an inventory of all property under the trustee's control during the period. If feasible, the trustee should include the market values of trust assets. The accounting should include information on any investments made, sold or charged off during the period, along with the date, cost, and source of each investment.
3. The amount of gains or losses on trust assets during the period should be stated.4. The amount the trustee has been paid for the time period covered by the accounting, also referred to as trustee compensation, and the source of payment. See trust administration fees.5. A list of the agents hired by the trustee, their relationship to the trustee, and the amount such agents were paid for the time period covered by the accounting. For example, the trust accounting should provide a report of compensation paid to lawyers, accountants, real estate brokers, investment advisors, property managers, and other individuals or entities that provided services to the trust. If there are unpaid claims, consider including a statement about why such claims are unpaid.6. Pursuant to either state Trust Law requirements or the advice of legal counsel, the trustee may need to provide certain additional statements, language or forms in the trust accounting. These may include: a. a statement by the trustee certifying the accuracy of the account; b. a statement that the beneficiaries or other recipients of the accounting may petition the court for review of the accounting or actions of the trustee; c. information on any statute of limitations or time period after which claims against the trustee may be barred; and d. a receipt, acknowledgement or Trust Beneficiary Release to be signed by the beneficiary.7. Information required to be reported by the terms of the trust instrument or by a court order. If the account will be filed with the court, the trustee should have an attorney put the report in the proper format required by the court. The trustee's name, address, and telephone number should be included on the report as well.8. A statement indicating the time period covered by the report and the type of accounting provided, such as final, interim or partial.
Format of Trust Accounting
Rather than using the format outlined above, it may be permissible to provide a trust accounting in the form of a financial report consisting of financial statements prepared by a CPA and summaries of the financial items listed above. Regardless of the format, a trust accounting should always include a statement indicating the time period covered by the report.Only a licensed attorney familiar with the laws applicable to the trust can determine what type of format is sufficient to report information about a specific trust. The information in a trust accounting should never be displayed or provided in a way that impedes or interferes with a beneficiary's ability to evaluate financial information related to the beneficiary's interest. A trustee should have a solid understanding of a beneficiary's right to information about a trust.
Forms for Trustees
When submitting a trust accounting, a trustee sometimes provides other documents to beneficiaries at the same time, depending on where the trustee is in the process of administering the trust. Documents that sometimes accompany a trust accounting include a trust distribution letter, a trust beneficiary release, and tax returns. For an overview of how these types of forms are used in trust administration, go to forms for trustees.Copyright 2020 Pennyborn.com. ALL RIGHTS RESERVED.Published May 10, 2017. Updated March 23, 2020.
How Trust Accounting Should be Prepared
If you are the trustee of an estate planning trust, you should only submit or distribute a trust accounting form that has been prepared by a CPA, accountant or tax professional experienced in trusts and estates. Because a trust accounting is a financial statement or financial report of the trust, it should be prepared by an accountant or financial professional. If you prepare the trust accounting on your own or with the help of an attorney, have the trust accounting form reviewed by a CPA before sending it to the beneficiaries. Find a Tax Professional.The professional you use for this service should be someone that has an understanding of the laws of the state where the trust is domiciled, as well as any other laws or regulations that may apply. Because a trustee may be sued over a trust accounting or failure to provide one, the trustee should not disregard the potential implications of personal liability in an attempt to reduce trust administration expenses. For more on how a trustee may be held responsible for actions taken as a fiduciary, see for trustees.Another option for preparing a trust accounting is to use a trust company. If you are unsure how to perform one or more fiduciary duties, talk to a trust company about their services. For an overview of services available and what you can expect to pay, review our section on trust companies.
Different Types of Trust Accounting Forms
It is important to understand that there are many different types of trust accounting forms. A trust accounting is also sometimes referred to as a report or an account provided by a trustee. The amount and type of information that should be included in a particular trust accounting depends on several factors, including, but not limited to:1. The state laws that apply to the trust. The states develop their own legislation to govern trusts. Some states have very stringent requirements for administering a trust, while others provide more discretion to the trustee. Before preparing a trust accounting, the trustee should always get legal advice on what the applicable state laws require. The requirements for this type of trustee's report vary from state to state. 2. The type of trust. For example, the trust accounting for a complex family trust designed to provide income to beneficiaries for many generations will look much different than an accounting for a simple living trust with one beneficiary that is settled shortly after the settlor's death. See
types of trusts.3. The assets held in the trust. For example, the format of a trust accounting for a trust with only a small bank account will vary significantly from the trust accounting for a trust that holds millions of dollars in stocks, bonds, real property, and other investments.4. What the trust document says about the trustee's duty to inform and report. Depending on applicable state law, some trusts modify or eliminate the trustee's duty to provide an accounting in some circumstances. For example, the trust instrument may state that the accounting shall consist of copies of the trust's federal and state income tax returns and other documents showing income and disbursements of the trust for the time period covered by the accounting. In some instances it is permissible to have the beneficiaries or other interested parties execute a Waiver of Accounting Form. Before providing information about the trust or disclosing any documents, the trustee should read the trust instrument carefully and have a lawyer provide guidance on duties under the specific trust being administered.5. What type of accounting is required. For example, an Interim Accounting or Partial Accounting may require a different format than a Final Accounting.
Key Elements of Trust Accounting Form
Guidance on how a trust accounting form should be prepared is provided in the Uniform Trust Code. Section 813 of the Uniform Trust Code discusses a trustee's duty to inform and report. One of the comments to this section of the UTC suggests there is no specific format required for a trust accounting. The comment indicates that rather than focusing on the format of the trust accounting, the primary focus should be on making sure the report provided to beneficiaries supplies the information they need to protect their interests. However, the Uniform Trust Code is only a model law and has not been enacted in all states. See Trust Law Sources. The takeaway here is that a trust accounting form should disclose the information a beneficiary would need to protect his or her interests.
Tips for Preparing a Trust Accounting
Before finalizing the trust accounting form, review these tips to avoid common mistakes:1. Avoid gaps in the reporting period covered by the accounting. For example, if there has been a change in trustee or transfer of duties to a successor trustee since the last reporting period, ensure there are reports provided for all time periods rather than leaving a gap.2. Develop an accurate, reliable system for keeping trust records and recording information that will need to be reported in the trust accounting. For more on how to keep these records, review our article on living trust accounting. If you are not able to keep detailed records and store trust receipts securely, retain a professional.3. Review the entire report before sending and make sure it includes any information necessary to understand the accounting. Add explanatory notes if necessary.
INFORMATION ON THIS SITE, INCLUDING ARTICLES, ESTATE PLANNING FORMS, AND THE ESTATE PLANNING BLOG, DOES NOT CONSTITUTE LEGAL, FINANCIAL OR TAX ADVICE. Pennyborn.com is not a law firm and is not a substitute for a lawyer. Your use of this site does not create an attorney-client relationship. Information on this site is for educational purposes only and may not be accurate, complete or up to date.
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