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.
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.
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. 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.
Why is a Trustee Required to Provide an Accounting?
The beneficiaries of a living trust have a right to certain information as it relates to their beneficial interest in the trust. For example, beneficiaries 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.
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. While there are some instances when an accounting is not required, do not make this determination without professional legal advice. For more information on how to administer a living trust, see 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. If you have a question about the different types of beneficiaries, consult an attorney.