Estate and Trust Accounts

By Nizam Shajani, CPA, CA, MBA
October 29, 2020

The management of another person’s personal affairs is a sacred trust that is backed by legal obligations to the guardian or trustee. The Trustee has an obligation to keep trust property separate from their personal assets, retain original documents for every transaction, report to beneficiaries on a regular basis, and pass accounts when requested or required.

The obligation to keep accounts is founded on the fiduciary obligation to act in the best interest of the beneficiary. The trustee must be able to demonstrate he or she has managed property responsibly, in the best interests of the beneficiaries, in accordance with the terms of the trust, and not committed any fraud or other misappropriation. This can only be done if proper financial records and accounts are kept.

There is no specific form of accounts is required unless the accounts are to be passed, in which case they must be prepared in “court form”. This uses a cash basis of accounting in which all financial transactions are categorized as either income or capital, and as either receipts or disbursements. These statements include:
o Statement of original assets
o Statement of all money received
o Statement of all money disbursed
o Statement of all investments purchased and sold,
o Statement of all property remaining on hand at the time the accounts are prepared,
o Statement of liabilities at the time accounts are prepared, and
o Statement of compensation claimed by the trustee.

Beneficiaries, public trustees, creditors, or other persons having an interest in the trust may require accounts to be passed. Where the trustee does not cooperate, a court order may be obtained to compel passing of accounts.

A trustee may voluntarily decide to pass accounts even if not requested to do so. Shajani recommends an annual preparation of informal accounts or statements to facilitate the fiduciary responsibilities of a trustee and allow the trustee to be prepared to pass accounts should they be called upon to do so. Shajani is well position to assist in this preparation.

Passing accounts is the process by which formal accounting records for the assets of a trust or estate, including the “estate” of a living person, are submitted by the trustee, attorney, guardian, or other person in charge of managing the financial affairs and property on behalf of another person to the court for approval.

The requirement may be the result of trustee or executor compensation being questioned, an alleged breach of trust, failure of the executor to demonstrate the standard of care to discharge duties, inadequate sale price on the disposition of an asset, failure to act impartially, conflicts of interest, improper investments resulting in a loss or lost opportunity or excessive expenses such as professional fees.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. © 2020 Shajani LLP