The Trustee’s Guide to Trust Accounting Duties

In the state of California, trustees have a duty to keep the beneficiaries of the trust reasonably informed about the trust and how it is being administered. As part of this duty, trustees must provide all beneficiaries with an accounting of the trust assets and how they have been used.  

What is a petition for accounting of trust?

A petition for accounting of trust is a request a beneficiary can submit to a court to ask that the court order the trustee to provide detailed information about the trust assets.

The trustee of a trust is required to give an accounting of trust to all beneficiaries that provides information about the management of trust assets. When a trust beneficiary demands an accounting from the trustee in writing, the trustee has 60 days to provide one. 

If the trustee fails to produce an accounting within the required time frame (and an accounting hasn’t been provided in the last 6 months) California Probate Code §17200(b)(6)(C) grants beneficiaries the right to file a petition for accounting of trust with the probate court. The petition simply asks the court to order the trustee to do what they are required to do, provide an accounting.

What are the legal trust accounting basics?

The most basic definition of legal trust accounting is the bookkeeping required for trust accounts by state laws. Under California Probate Code §16060, a trustee has a duty to keep the beneficiaries of the trust reasonably informed of the trust and its administration. Generally, trustees are required to provide information about the assets in the trust and how they have been used at least once a year, as well as at the termination of the trust and whenever the trustee of a trust changes. (California Probate Code §16062)

How should a trustee account to beneficiaries?

California Probate Code §16063 requires a trustee accounting to beneficiaries to include the following information regarding the last complete fiscal year of the trust or the time since the last accounting was done:

  • A statement of receipts and disbursements of principal and income that have occurred.
  • A statement of the assets and liabilities of the trust.
  • The trustee’s compensation.
  • The agents hired by the trustee, their relationship to the trustee, if any, and their compensation.
  • A statement that the recipient of the account may petition to obtain a court review of the account and of the acts of the trustee.
  • 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.

All accountings that are filed with the court must also satisfy California Probate Code §1061, which requires accountings to include a summary of the following information:

  • The property on hand at the beginning of the period covered by the account.
  • The value of any assets received during the period of the accounting.
  • The amount of any receipts of income or principal, with certain exceptions.
  • Net income and loss from a trade or business.
  • Gains and loss on sales.
  • The amount of disbursements, excluding disbursements for a trade or business or distributions.
  • Distributions to beneficiaries.
  • Property on hand at the end of the accounting period.

How often do trustees need to account?

Under California Probate Code §16062, trustees must account to each beneficiary at least annually, at the termination of the trust, and upon a change of trustee. Trustees must also provide an accounting within 60 days if a trust beneficiary demands an accounting in writing.

What is trust accounting income?

A Trust Accounting Income (TAI) formula is used to determine how much income from the trust is available for the trustee to distribute to the beneficiaries. TAI is calculated by adding all of the trust’s sources of income together and then subtracting all expenses. The TAI formula will be used to prepare the trust’s tax returns in certain situations. 

Can trust beneficiaries sue a trustee?

Yes, trust beneficiaries can sue a trustee.

Trustees have a legal or fiduciary duty to manage the trust for the benefit of the beneficiaries while also acting prudently with skill, care, and caution. Because of this fiduciary duty, trust beneficiaries can sue a trustee if they believe the trust is being mismanaged or that the trustee has otherwise breached their fiduciary duty. 

Some common examples of reasons trust beneficiaries might sue a trustee include:

  • Theft or mismanagement of trust assets.
  • Failing to distribute trust assets or provide an accounting.
  • Self-dealing or other conflicts of interest.
  • Paying taxes late or incurring avoidable fees and charges.

To insulate themselves from lawsuits by trust beneficiaries, it’s recommended that trustees keep detailed, accurate, and accessible records that include documentation of every transaction conducted and their time spent on trust administration. Trustees also would be best-served to keep a log detailing the reasons for their decisions, and ensure they follow the instructions contained in the trust instrument.

When should a trustee contact a trust litigation attorney?

A trustee should contact a trust litigation attorney immediately if they’ve been accused of any sort of misconduct. While hiring an attorney when first appointed can help trustees avoid lawsuits in the first place, if you’re already being sued or threatened with a lawsuit, contacting an experienced trust litigation attorney will put you in the best position possible to address any alleged wrongs. 

We also recommend that trustees retain an experienced trust lawyer as soon as they are appointed, particularly if it’s their first time acting as a trustee. A trust administration lawyer can explain the requirements the trust instrument places on the trustee and guide the trustee in its proper administration.

 

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About RMO, LLP

RMO LLP serves clients in Los Angeles, Santa Monica, Ventura, Santa Barbara, San Francisco, Orange County, San Diego, Kansas City, Miami, and communities throughout California, Florida, Missouri, and Kansas. Our founder, Scott E. Rahn, has been named “Top 100 – Trust and Estate Litigation” by SuperLawyers, Trusts and Estates Litigator of the Year, and Best Lawyers in America for Litigation – Trusts and Estates. For a free consultation, call (424) 320-9444 or visit: https://rmolawyers.com.