When the creator of a trust becomes incapacitated or dies, the person whom they appointed to be the successor trustee will take over management of the trust. One of the main requirements for managing a trust is preparing trust accountings, which the trustee can do independently, or with help from trust accounting software or a trust account attorney. Sometimes, preparing a trust accounting can be a simple process, but more often than not, it is a multi-person job involving nuanced legal issues.


What Does a Trustee’s Duty to Account Entail?

The duties of a trustee are outlined by California Probate Code sections 16000 through 16015. In simplest terms, the trustee is required to solely represent the beneficiaries’ collective best interests when acting on behalf of the trust. Owing to those obligations, trustees have a duty to provide beneficiaries with the information and accountings they need to enforce their rights.

Probate Code section 16063 provides a framework for the type of information that should be contained in a trust accounting. It includes:

  • Trust assets and liabilities
  • Trust receipts and disbursements
  • Trustee compensation
  • Description of third-party professionals hired, their fees and the services they provided
  • A statement that beneficiaries can ask the court to review the accounting or the acts of the trustee
  • A statement that any breach of trust claims against the trustee cannot be brought after three years from the date the beneficiary receives the accounting or the facts giving rise to the claim are disclosed

How Frequently Must a Trustee Account?

Probate Code section 16062 states that a trustee must account to beneficiaries and anyone else who stands to potentially inherit from the trust at least once a year while administration is ongoing, at the termination of the trust, and at the change of trustees. 

Only if the trust is still revocable or waives the trustee’s duty to account, or a beneficiary waives their right to receive an accounting, can the trustee disregard their duty to account. It is important to point out, however, that the court can compel a trustee to account at any time if it has reason to believe the trustee committed a breach of trust. Likewise, beneficiaries can request informal accountings from the trustee at any time for the same reason.

What Are the Consequences of a Trustee Breaching Their Duty to Account?

If a trustee fails to provide the necessary accountings to persons who stand to potentially inherit from the trust, the consequences can be severe, since accountings are one of the only ways trust beneficiaries have to keep tabs on the trustee and the actions they take during trust administration. Failing to account can result in the trustee’s suspension or even surcharge if the failure to account has financially damaged the trust in any way.

On the other hand, if the trust accountings provided are inaccurate or contain red flags, beneficiaries can dispute the accountings in court. If their claim is successful, the trustee could be suspended or removed and possibly even surcharged, especially if the trust incurred financial losses because of their actions. This is why it’s crucial for trustees to utilize the right resources when preparing accountings.

How Does Trust Accounting Software Differ From a Trust Account Attorney?

Whether they are seasoned professionals or new to the role, there is no shame in trustees looking for help to prepare their accountings. In fact, it would be advisable for them to seek help to prevent the possibility of their erring and subsequently incurring a surcharge. The primary options a trustee has for getting help with their accounting duties are trust accounting software and an experienced probate lawyer.

Trust Accounting Software for Trustees

As a trustee, you can utilize trust accounting software to manage the trust you oversee and its assets. In other words, you can use it to create an inventory of trust assets and their value at the time of the trust creator’s death, to track which assets have entered and exited the trust, and to provide information on trustee compensation and the trust’s debts, among other things.

By keeping all the financial information related to the trust in one place, trust accounting software has the potential to streamline administration, though it also has the potential to prolong administration if relied upon too heavily. 

What Are the Advantages of Trust Accounting Software?

The right trust accounting software for trustees can make the accounting of trust assets more manageable. Designed to streamline accounting duties, from calculating taxes to tracking payments and liabilities, these software products are indeed helpful. Plus, there are dozens of options to choose from. 

As with any type of artificial intelligence, calculations (so long as data is correctly entered) generally will be completed more quickly and accurately than if they were being completed manually. Furthermore, with trust accounting software, trustees will generally only have to pay a one-time fee, as opposed to having to pay a professional hourly for their work.

Trust accounting software also goes a long way in keeping the trustee organized, which is crucial to their successful administration of a trust. However, when a trust is complex due to its size, the types of assets it contains, or because it is subject to litigation, trust accounting software may not cut it. We go over why in the next section.

What Are the Disadvantages of Trust Accounting Software?

Trust accounting software tends to take a one-size-fits-all approach to trust management, which may not be appropriate for complicated trusts. For example, while trust accounting software may have the capacity to prepare simple accountings of cash held in trust, it may not have the capacity to prepare accurate accountings of a trust’s various business holdings and real properties.

Another potential problem with trust accounting software is its technological component, namely the possibility that the software will crash, causing the trustee to lose all of their work. If the trustee did not keep thorough paper records of the trust’s finances, this common computer error can spell disaster for everyone involved. At the very least, it could impede the progress that’s been made during trust administration. Likewise, trustees could err when entering data into the software, resulting in the trust accountings being inaccurate.

Finally, while the boilerplate approach of trust accounting software may not pose a problem for professional trustees or trustees with ample trust management experience, it can for non-professional and inexperienced trustees, who may inadvertently omit important financial information from their accountings because of it. 

If you opt to use trust accounting software to prepare your required accountings, it would be wise for you to at least have a trust account lawyer review them before they are shared with beneficiaries and/or the court. This way, if any red flags emerge, they can be preemptively addressed.

Trust Account Attorneys

Hiring a trust account lawyer places a knowledgeable professional at your side. Because trust account lawyers work on administering trusts day in and day out, they have the experience to not just help with accounting duties, but with the administrative duties of a trustee in general. As a result of their expertise, trust account attorneys usually can provide a more comprehensive picture of the trust’s finances in their accountings than trust accounting software.

What Are the Advantages of Trust Account Attorneys?

Being that trust account attorneys are trained in what information to include in their accountings of trust funds, they are likely to account more accurately and efficiently than trust accounting software, which only takes into consideration the standard features of a trust, such as its assets, liabilities and disbursements. Furthermore, if a trust account attorney has any questions or concerns surrounding the trust, they can seek guidance from their colleagues or other relevant professionals. Trust accounting software, on the other hand, has no such capability.

In addition to preparing accountings, trust account lawyers can help resolve accounting disputes before formal litigation is required, or they can defend accountings in court should the need arise.

The trust accounting services of a lawyer can also enable the trustee to be more hands-off. Trust accounting can be a long, time-consuming process requiring everything from mathematical to legal expertise. For trustees who are short on time or lack expertise, a trust account attorney can make accounting much less cumbersome.

What Are the Disadvantages of Trust Account Attorneys?

There are virtually no disadvantages to having a trust account lawyer in your corner. In fact, between trust accounting software and trust account lawyers, the latter is almost always the better choice for the preparation of accountings. This is because no two trusts are the same, and no trust accounting software is advanced enough to account for these differences.

If there were to be a disadvantage of trust account lawyers, it would be their fees for trust accounting services, which can be steep when compared to the cost of trust accounting software. Nevertheless, they generally can be paid directly from the trust, and do not need to be paid by the trustee, personally.

Is It Necessary for Trustees to Seek Help With Their Accounting Duties?

Assuming that the trust is complex, it’s standard practice for trustees to hire a lawyer to assist with their duties. There are many reasons for this, but the most common is that the accounting duties have become too time-consuming or complicated for the trustee to handle. 

That being said, trustees are not required to utilize trust accounting software or a lawyer’s trust accounting services to satisfy their duty to account. If they are confident in their ability to independently manage the trust and prepare code-compliant accountings, they are entitled to do so without any help; however, if they proceed to err, all the blame could fall on them. This is precisely why California Probate Code section 16012 allows the trustee to delegate their responsibilities to experienced professionals whose services provide a benefit to the trust.

All in all, it is important for trustees to remember that trust accounting is a serious matter with little room for error; therefore, if they would like to remain in their role, and not get sued or surcharged, they should do whatever it takes to ensure their accounting duties are completed accurately and efficiently. The most tried and tested way for them to do this is by seeking the help of a trust account attorney.

Need Advice on Whether to Use Trust Accounting Software or a Trust Account Attorney? Call Keystone Law Group Today.

If you’re a trustee or beneficiary of a trust in California and you have questions, don’t hesitate to seek help. 

Our team consists of probate attorneys who can guide you through the best practices of managing a trust, including preparing accountings of trust assets. If you have a lot going on in your life and want to ease the burden of your trustee duties, our highly experienced professionals are a phone call away.