TRUSTS – ACCOUNTING-HOW TO PREPARE A FORMAL
NON- COURT ACCOUNTING
By: David L. Crockett, Attorney, CPA
UCLA Law School , J.D. ’69, UC Berkeley ’66
901 Dove St., Ste 120, Newport Beach, CA 92660
The trust accounting is to be prepared by the Trustee and/or under his/her authorization on an annual basis starting one year after the date the trust becomes permanent and irrevocable. An accounting is also required upon a change of trustee and upon termination of the trust. (A typical situation of where the trust becomes permanent is where the Trustor dies.) The Trustee may hire accountants to prepare the accounting and use trust money to pay the accounting fees.
People involved in a trust.
Because trusts are not filed or recorded with any government agency, laws have been established to make sure that heirs and trust beneficiaries have some way to find out about a trust and its assets. The parties involved in a trust (which is all written into the trust document) are typically the Trustors who set up the trust, the Trustees who administer the trust and its money and accounts and the Beneficiaries who are the persons who are to receive assets and income from the trust.
What is a Formal (non-court) Accounting pursuant to Probate Code §16063?
A formal non-court accounting is done by the trustee and sent out to the trust beneficiaries. Such an accounting is done in the situation where there are no lawsuits or disputed court petitions involving the trust.
What data is required to be included?
According to CA probate code §16063 (copy attached) the required items are: a statement of receipts and disbursements which have occurred during the last year; a statement of assets and liabilities as of the end of the last fiscal year; a statement of the trustee’s compensation; a description of the agents hired by the trustee, their relationship to the trustee and their compensation paid; and a statement that the recipient may petition the court for review and that such a petition must be within 3 years.
SAMPLE FORMAT OF FORMAL (NON-COURT) ACCOUNTING
Smith Family Trust-accounting for the year ending 12-31-19
Prepared by Suzy Smith, Trustee
- Beginning list of accounts and assets (See attached list naming each property And bank account and stating value of each) Although not legally required, it is preferable to also attach all of the bank and securities statements proving each item on the beginning list.
- Statement of receipts during period (Attach a detailed list showing each amount received-typically a checkbook) (There should be a separate detailed list for each bank account)
- Statement of disbursements during period Attach a detailed list stating each check and disbursement-typically a checkbook. (There should be a separate detailed list for each bank account)
- Statement of assets as of the trust year end Attached a detailed list of the amounts in each account and values of properties and assets remaining at year end. Again, it is advisable to attach bank and securities account statements.
- Statement of debts and liabilities as of the end of the trust year Attach a detailed list of all debts, liabilities, credit cards due, etc. AND include proposed Trustees fees. Again, it is preferable to attach the year end statements proving the debt amount.
- Year end assets net of liabilities
- Statement of trustee’s compensation paid This would be a list of trustee’s fees paid during the year. This is often a source of dispute, depending upon various factors. However, if it has been paid, it must be listed.
- Statement re Agents This is a list of agents including attorneys and accountants hired by the trustee, their relationship to the trustee, if any and what was paid to each one.
- Statement re court petition A statement that the recipient of the account may petition the court pursuant to Probate Code §17200 to obtain court review of the account and the acts of the trustee.
Statement of 3 years to make claims.
- A statement that claims against the trustee for breach of trust may not be made after 3 years have expired from the date the beneficiary receives an account or a report disclosing facts giving rise to the claim.
Applicable laws pertaining to a Formal (non-court) accounting.
Cal Prob Code § 16062 et. seq
§ 16062. Duty to account to beneficiaries
(a) Except as otherwise provided in this section and in Section 16064, the trustee shall account at least annually, at the termination of the trust, and upon a change of trustee, to each beneficiary to whom income or principal is required or authorized in the trustee’s discretion to be currently distributed.
(b) A trustee of a living trust created by an instrument executed before July 1, 1987, is not subject to the duty to account provided by subdivision (a).
(c) A trustee of a trust created by a will executed before July 1, 1987, is not subject to the duty to account provided by subdivision (a), except that if the trust is removed from continuing court jurisdiction pursuant to Article 2 (commencing with Section 17350) of Chapter 4 of Part 5, the duty to account provided by subdivision (a) applies to the trustee.
(d) Except as provided in Section 16064, the duty of a trustee to account pursuant to former Section 1120.1a of the Probate Code (as repealed by Chapter 820 of the Statutes of 1986), under a trust created by a will executed before July 1, 1977, which has been removed from continuing court jurisdiction pursuant to former Section 1120.1a, continues to apply after July 1, 1987. The duty to account under former Section 1120.1a may be satisfied by furnishing an account that satisfies the requirements of Section 16063.
(e) Any limitation or waiver in a trust instrument of the obligation to account is against public policy and shall be void as to any sole trustee who is either of the following:
(1) A disqualified person as defined in Section 21350.5.
(2) Described in subdivision (a) of Section 21380, but not described in Section 21382.
§ 16063. Contents of account; Presentation
(a) An account furnished pursuant to Section 16062 shall contain the following information:
(1) A statement of receipts and disbursements of principal and income that have occurred during the last complete fiscal year of the trust or since the last account.
(2) A statement of the assets and liabilities of the trust as of the end of the last complete fiscal year of the trust or as of the end of the period covered by the account.
(3) The trustee’s compensation for the last complete fiscal year of the trust or since the last account.
(4) The agents hired by the trustee, their relationship to the trustee, if any, and their compensation, for the last complete fiscal year of the trust or since the last account.
(5) A statement that the recipient of the account may petition the court pursuant to Section 17200 to obtain a court review of the account and of the acts of the trustee.
(6) A statement that claims against the trustee for breach of trust may not be made after the expiration of three years from the date the beneficiary receives an account or report disclosing facts giving rise to the claim.
(b) All accounts filed to be approved by a court shall be presented in the manner provided in Chapter 4 (commencing with Section 1060) of Part 1 of Division 3.