Accountings

When a trustee, executor, or administrator manages property for someone else, they have a duty to keep accurate records. What many beneficiaries don’t know is that they are entitled to receive information about their trust or estate. This is known as an accounting.

An accounting is a valuable transparency tool that is used with estates and trusts alike. It allows beneficiaries to review how assets were managed and distributed, providing a clear picture of whether there was any mismanagement. A Philadelphia trust accountings attorney can help explain your rights and obligations throughout this process.

What Is Accounting?

In the context of trusts and estates, an accounting is a detailed financial report that shows how a fiduciary managed assets over a specific period. The accounting process is a basic requirement of serving as a trustee, and failure to do so can have serious consequences for the trustee.

Pennsylvania law imposes fiduciary duties on those charged with managing trusts and estates, and those obligations are spelled out at 20 Pa. Cons. Stat. § 7780.3.  In general, the law requires trustees to keep qualified beneficiaries reasonably informed about trust administration. While that doesn’t mean they have to provide constant updates, there is a minimum amount of information they must share upon request.

Assets on Hand

An accounting begins by identifying the assets that existed at the start of the accounting period. This provides a snapshot of everything the trust or estate owned at that time. Depending on the circumstances, assets may include:

• Real estate
• Bank accounts
• Investment accounts
• Stocks and bonds
• Business interests
• Cash
• Personal property

Receipts and Gains

An accounting should also identify all income and other gains received by the trust or estate. This usually involves the following:

• Interest earned on accounts
• Dividend income
• Rental income
• Sale proceeds
• Business income
• Insurance proceeds

Disbursements and Losses

An accounting must also identify money that left the trust or estate, which can include the following:

• Taxes
• Funeral expenses
• Legal fees
• Accounting fees
• Property maintenance expenses
• Payments made to beneficiaries
• Investment losses

Why Is Accounting Necessary?

Accounting serves an important purpose for everyone involved in trust and estate administration, depending on the position that you’re in. For beneficiaries, an accounting provides transparency regarding the assets held by the trust. The accounting allows them to verify that funds were handled appropriately and that distributions were made in a way that complies with the trust document or estate plan.

For trustees and executors, accountings provide protection when beneficiaries or other parties have questions. A proper accounting creates a record of every transaction, which can simplify the process of proving that each was appropriate.

Accountings also help identify problems before they become major legal disputes. In many situations, accountings reduce the likelihood of litigation by providing beneficiaries with the information they need to understand what occurred during administration. A Philadelphia trust accountings attorney can help fiduciaries prepare accurate accountings and assist beneficiaries in reviewing them.

The Difference Between a Formal and Informal Accounting

Not every accounting follows the same process. In Pennsylvania, there are options for both formal and informal accountings.

Formal Accountings

As the name suggests, a formal accounting is submitted to the court for review and approval. This process often occurs when disputes arise among interested parties, and it is necessary whenever someone intends to seek approval from a judge to modify the terms.

Once the formal accounting is approved, the court’s decision can shield a fiduciary against future claims arising from those transactions. This process is especially common in contested trust and estate matters.

Informal Accountings

An informal accounting is prepared and provided directly to beneficiaries without court involvement, resulting in a simplified process that carries less weight. Many trusts and estates are administered through informal accountings because beneficiaries and fiduciaries can communicate effectively and resolve disputes without litigation.

Informal accountings can save time and expense while still providing meaningful financial information. However, if disagreements arise, beneficiaries have the right to seek the courts’ involvement.

Whether a formal or informal accounting is appropriate depends on the circumstances of the administration. A Philadelphia trust accountings attorney can help evaluate which approach best fits a particular situation.

How Often Can an Accounting Occur?

How often accountings happen depends primarily on the language of the governing documents. For trusts, trustees are usually required to provide annual accountings to beneficiaries, but some trust agreements might include even more frequent reporting requirements.

The standard is usually a little different for estates. While trusts are typically managed and administered for years, the purpose of an estate is to distribute assets in a reasonable amount of time after a person’s death. For that reason, accountings commonly occur when the estate is ready for distribution.

In some situations, beneficiaries may request information before a regularly scheduled accounting. Trustees and executors generally have duties to provide reasonable information regarding administration; however, the extent of these requirements will depend on the language in the document.

Talk to a Philadelphia Trust Accountings Attorney Today

If you have questions about the status of your trust, now is the right time to consider requesting an account. With the help of a Philadelphia trust accountings lawyer, you can ensure those funds have been used appropriately. Reach out to Klenk Law today for a confidential consultation.

Frequently Asked Questions

Who is entitled to receive an accounting?

Beneficiaries and certain interested parties are often entitled to receive accountings or other information regarding the administration of a trust or estate.

Can a beneficiary challenge an accounting?

Beneficiaries have the power to challenge an accounting if they believe the trustee violated their fiduciary duty.

What happens if a trustee refuses to provide an accounting?

A beneficiary may seek court intervention to compel the trustee to provide information and comply with their obligations.

Do all trusts require annual accountings?

Not always, as the trust document often determines the frequency of reporting.