Can a Trustee be Held Liable for Failure to Account to Beneficiaries?
To the extent the trustee is required to provide an accounting based on the living trust document or applicable state law, failure to do so may constitute a breach of the trustee’s duties. If the trustee fails to provide an accounting or other material information to beneficiaries of the trust, the trustee may be held personally liable. In addition, if the trustee fails to maintain accurate records regarding living trust property or provides false information to beneficiaries, the trustee may also be held personally liable.
Do I Need a CPA to Prepare a Living Trust Accounting?
It is generally recommended that the successor trustee of a living trust retain a CPA to prepare a living trust accounting to beneficiaries of the trust and any fiduciary tax returns that may be due. If you believe a CPA is not necessary based on unique circumstances, consult your trust lawyer for guidance.
Preparing fiduciary tax filings and rendering an accounting is much different than preparing individual or corporate income tax returns. Do not assume the person you use to prepare your individual or business tax returns is qualified to advise you with regard to living trust administration. This is an area where specific expertise is required. Before retaining a CPA or tax professional to assist you with financial, tax, and accounting matters for a living trust, ask about prior experience with trust administration. If he or she does not have substantial experience advising trustees, look for someone more qualified. Because trustees can be personally liable for breaching fiduciary duties, it is in your own best interest to work with an experienced professional.
The Trustee's Legal Companion by Liza Weiman Hanks. This comprehensive reference guide covers trust accounting, record keeping, dealing with beneficiaries, appraisals of trust property, preparing trust tax returns, distributing trust property, and terminating the trust.
What is a Trust Accounting for a Living Trust?
When the grantor or settlor of a living trust dies, the successor trustee named in the trust document must administer and settle the living trust. Trust administration involves many duties, including providing an accounting to the beneficiaries of the trust. The accounting is a way for trust beneficiaries to verify how the trustee is managing living trust property, how trust funds are being spent, and the amount of income being earned on trust property.
A living trust accounting typically includes information about the principal and income received by the trust and debts or liabilities of the trust. Information on taxes paid, disbursements made to trust beneficiaries, and gains and losses on trust assets is also typically included. A living trust accounting should include information about fees and expenses paid to advisors to the trustee, such as attorneys, accountants, and financial advisors. Compensation and expense reimbursement paid to the trustee is also reported in a trust accounting.
To prepare an accurate trust accounting, the successor trustee must keep detailed records. This includes making an inventory of living trust property and retaining copies of all account statements, invoices, receipts, and transactions regarding trust assets. The specific form a living trust accounting should take, and the type of information that must be reported, varies depending on applicable state law and the trust document. Failure to provide an accurate trust accounting as required can result in personal liability to the trustee. Consult a trust lawyer or a CPA if you have questions about how to prepare an accounting for a living trust.
If you are going through the process of trust administration for the first time, one of the best guides available for new trustees is The Trustee's Legal Companion: A Step-by-Step Guide to Administering a Living Trust. This guide is easy to understand and covers questions such as how to get help with a trust accounting, the rights of a beneficiary to a trust, concerns trustees have about being liable, and which steps should be taken first when you begin the process of administering a trust. While you should still consult a trust attorney and a CPA for help with trust administration, you can save time and money by using a reference guide such as The Trustee's Legal Companion: A Step-by-Step Guide to Administering a Living Trust.
For more information on an accounting for a living trust, such as when a living trust accounting must be provided and the rights of different types of beneficiaries, see Trust Accounting.
. This guide is easy to understand and covers questions such as how to get help with a trust accounting, the rights of a beneficiary to a trust, concerns trustees have about being liable, and which steps should be taken first when you begin the process of administering a trust. While you should still consult a trust attorney and a CPA for help with trust administration, you can save time and money by using a reference guide such as