Why is a Trustee Required to Provide an Accounting?
The beneficiaries of a living trust typically have a right to certain information as it relates to their beneficial interest in the trust. For example, beneficiaries may have a right to information such as: how trust assets are being managed; what type of disbursements are being made from the trust to pay taxes, debts, fees, claims, distributions to beneficiaries, and other financial obligations of the trust; whether the trustee is being compensated in a reasonable manner; and whether the trustee is managing trust assets in a way that has resulted in a gain or a loss. The purpose of a
living trust accounting is to provide this type of information to beneficiaries so they are reasonably informed with regard to their interest in the trust.
In some circumstances, the successor trustee of a living trust may provide an accounting to beneficiaries in an effort to limit the trustee’s liability. For example, the trustee may provide an accounting and ask the beneficiaries to sign a written document stating they approve it. See Trust Beneficiary Release.
Failure to provide an accounting when one is required can have serious ramifications for the trustee. If you are the successor trustee of a living trust, make sure you have a solid understanding of your fiduciary duties in administering the trust. If you receive a request from a beneficiary for information about the trust and do not believe you need to respond or do not plan to respond, consult a trust attorney promptly. If you do not believe an accounting is required or are not planning to provide an accounting, consult a trust attorney about this important obligation. See Waiver of Accounting Form. While there are some instances when an accounting is not required, do not make this determination without professional legal advice. For more on this issue, refer to
books for trustees.Note: The law makes a distinction between the rights of contingent beneficiaries of a trust and the rights of current beneficiaries and vested remainder beneficiaries. As a result, trustees typically owe a greater duty to provide information to current and vested remainder beneficiaries than to contingent beneficiaries.
For more details, see
right to information about trust. If you have a question about the different types of beneficiaries, consult an attorney.
Trust Accounting Form
If you are serving as a trustee for the first time, you may have questions about how to prepare a trust accounting. To see what information is typically reported in this type of trust administration document, go to
Trust Accounting Form. The specific items that should be included in the trust accounting for the trust you are administering may be different, but this form provides an overview of what may need to be reported in a typical trust accounting.
When is a Living Trust Accounting Due?
The timing of when an accounting is due is based on the provisions of the living trust and applicable state law. An accounting is typically due at least once annually while the living trust is being administered. A final accounting may be required when trust assets are distributed to beneficiaries when the living trust is settled. For more about this stage of trust administration, go to Trust Distribution Letter.The successor trustee should be prepared to provide an accounting upon reasonable request and notice from a beneficiary. Therefore, the trustee should maintain detailed and accurate records at all times during trust administration. Because beneficiaries have a right to be kept informed about the trust and how it is being managed, the trustee should never be lax about keeping financial accounts, statements, invoices, receipts, and trust paperwork in order. Use financial planning software to track expenditures and manage investments.To determine when a living trust accounting must be provided, review the living trust document. In addition, review state trust codes applicable to living trusts.The rights of beneficiaries to trust information vary based on state law and the terms of the trust. For an overview of the laws regarding living trusts and trust administration in the state where the trust is based, as well as links to relevant state statutes on trusts, go to Trust Law. If you have specific questions about trust law in the United States and want to review uniform trust codes, case law, and treatises on estate planning trusts, go to
Trust Law Sources.
If you have agreed to serve as trustee of a living trust or another type of estate planning trust, the first issue you should address is trustee liability. Providing a trust accounting is only one step in the complex process of administering a trust. Could your personal assets be at risk if you fail to perform your duties as trustee properly? What if you perform all the duties required of a trustee, but have the misfortune of dealing with a litigious beneficiary or an heir that was disinherited? For an overview of what is required of a trustee and the issue of trustee liability, read the Pennyborn.com overview
for trustees.To ensure you comply with all fiduciary duties as trustee, consult a trust attorney for guidance on preparing an accounting and other aspects of living trust administration. If you are preparing a trust accounting without an attorney, get a manual on how to administer a trust from our
books for trustees page.
Trust Administration Fees
If you do not have a legal or financial background, you may decide you cannot prepare a trust accounting on your own. For example, if you do not prepare your own income tax returns and do not manage your own investments, you may not have the experience to properly prepare an accounting for a living trust or prepare a Schedule K-1 Form. See
Schedule K-1 Trust Estate.In this situation, one option is to retain a trust company or bank to administer the trust for you. Before contacting a trust company, find out whether you can afford to pay the fees to have a trust accounting prepared by a professional. To find out what trust companies typically charge, see
trust administration fees.
Other Trustee Duties
Settling an estate or trust can be very confusing, especially if you are a first time trustee. If you are asking a lot of questions about how to properly administer a trust, you are on the right track. The best way to avoid liability as a trustee is to check and double check every action you take as trustee.
While you are in the process of providing a trust accounting to beneficiaries of the trust, take a minute to review our free
successor trustee checklist form to see whether you have overlooked any other duties of trustees. Using a trustee checklist is a good way to move through the process of trust administration more efficiently.Copyright 2020 Pennyborn.com. ALL RIGHTS RESERVED.Updated February 25, 2020.
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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