When the settlor or grantor 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, distributions by the trust, 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 to trust beneficiaries, and gains and losses on trust assets is also typically included. See
Trust Distribution Letter form for more information. 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. Trustees should use financial planning software to track expenditures, manage investments in an organized manner, and perform all
trustee investment duties.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. If you need to prepare a trust accounting, see Trust Accounting Form. 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, get a legal manual on how to settle a trust. A list of comprehensive trust administration guides is posted on the Pennyborn.com Books for Trustees page. You can get more detailed instructions on how to prepare 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, many people can save time and money by using a reputable trust administration guide.
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.
Other Trust Administration Duties
Preparing a living trust accounting is one of the more complex tasks you will have to perform as trustee. Do you have a checklist of all the steps required to administer a living trust? Using a
Trustee Checklist is a good way to ensure you fulfill all your duties as trustee, especially if you complete the steps out of order.One of the most useful free estate planning forms available on Pennyborn.com is our Successor Trustee Checklist Form. If you are overwhelmed by the amount of time required to settle a living trust, this checklist will help you stay organized and track your progress in closing the trust. To print a free copy, go to
Successor Trustee Checklist Form.Copyright 2020 Pennyborn.com. ALL RIGHTS RESERVED.
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 and may be removed from the position. 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.
For an overview of forms a trustee may want beneficiaries to sign to limit liability, such as consents, waivers, and releases, see
Trust Beneficiary Release.
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 for beneficiaries of the trust and any fiduciary tax returns that are due, including
Schedule K-1 Trust Estate forms. However, some trustees use tax preparation software to prepare tax returns without a CPA. 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. Find a Tax Professional.
Trust Accounting Laws
As a trustee, you should comply with applicable laws at all times. When administering a living trust, you will need to be aware of state laws that apply to the trust and your position as a fiduciary. There are several ways to locate information on the laws that apply to the decedent's living trust or another type of estate planning trust. For a general overview of living trust laws in your state and links to your state's trust code and related statutes, go to
As a fiduciary, it can be beneficial to review other sources of law on trusts, such as case law or common law. See Trust Law Sources. If you have questions about the legal requirements for providing a living trust accounting and how to comply with applicable trust laws, consult an attorney.
Disputes With Trust Beneficiaries
It is not uncommon for beneficiaries to be dissatisfied with the information provided in a trust accounting. See
who has a right to information about trust.
As the trustee, you should have all financial records and documentation for the trust in order so you will be prepared in advance for any dispute. If you are contacted by a beneficiary or an attorney for a beneficiary about the trust accounting or other information disclosed about the trust, you should contact a trust lawyer before providing a response. A trust attorney can provide guidance on how to prevent a dispute and avoid breaching your fiduciary duties.
To learn how will and trust disputes are typically handled, see
will and trust disputes.
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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