Perhaps you are a trust beneficiary who has little to no information about the inheritance you stand to receive from a deceased loved one’s trust.
Perhaps you are a trust beneficiary who has reason to believe the trustee is stealing trust assets.
Perhaps you are a trust beneficiary who has received inaccurate or incomplete accountings from the trustee.
Perhaps you are a trust beneficiary who’d like to see receipts and bank statements to understand why the value of a deceased loved one’s trust has sharply declined.
It’s natural to feel frustrated if you stand to inherit from a trust but have little to no information about the nature of your inheritance or about the trust’s finances in general, especially because you need this information to enforce your rights and protect your inheritance.
Suppose a trustee is withdrawing money from a trust to spend on themselves. If the trustee fails to replenish the trust with the assets they misappropriated for personal use, beneficiaries’ inheritances will be affected. However, beneficiaries would have no way of knowing this unless the trustee had provided them with trust accountings to review.
Unlike executors and administrators of the estate whose activities are subject to court oversight during the probate process, trustees operate mostly independently during trust administration. In other words, trusts are private entities that generally are administered privately.
Trust accountings are the only window beneficiaries have into a trust’s transactions. Therefore, trust accountings are very important for interested parties to periodically receive and inspect.
By reviewing trust accountings, you will know if the trustee has harmed the trust in some way and can take action to prevent further harm. While the value of trust assets can fluctuate without trustee misconduct necessarily being the cause, it’s impossible to know what is causing fluctuations without seeing trust accountings.
Unfortunately, it is usually the trustees who are engaged in misconduct that refuse to provide accountings, or provide accountings that are inaccurate or incomplete. Thankfully, beneficiaries are not without recourse in this type of situation, as there are legal remedies that can be used to hold the trustee to their trustee responsibilities.
Continue reading to learn more about what a trustee’s duty to account entails.
Does a Trustee Have to Provide an Accounting?
A trust accounting is an overview of trust-related transactions. The successor trustee is responsible for providing beneficiaries with periodic trust accountings.
In California, beneficiaries are entitled to receive a formal trust accounting from the trustee at least once a year for every year the trust remains open, when there is a change of trustees and when the trust terminates (unless the trust instrument or beneficiaries have waived this right). If beneficiaries would like to see an accounting outside of these instances, they are entitled to request an informal accounting from the trustee at any time (we go over how to do this in a later section).
It’s worth mentioning that the trustee doesn’t necessarily need to provide an annual accounting to all interested parties. According to California Probate Code section 16062(a), they generally only need to annually account to “to each beneficiary to whom income or principal is required or authorized in the trustee’s discretion to be currently distributed,” subject to limited exceptions.
Trust accountings are helpful for both trustees and beneficiaries. Trustees can use them to track the value of the trust and its assets, and to have evidence of their trust-related activities in the event a beneficiary ever accuses them of mishandling or misappropriating trust funds. Beneficiaries can use them to keep tabs on the trustee and the status of their trust fund distributions.
A trustee’s duty to account is quite possibly the most important duty trustees have. For this reason, many trustees, even seasoned ones, work with a trust account attorney or CPA to prepare code-compliant trust accountings. Beneficiaries also can utilize a trust account attorney’s services to have any accountings they receive from the trustee inspected for red flags.
What Should a Trust Accounting Include?
To put it simply, a trust accounting should provide a breakdown of assets that have entered and left the trust. Every asset in the trust should be accounted for, no matter its value.
According to California Probate Code section 1061, all accounts should include (when applicable):
“(1) The property on hand at the beginning of the period covered by the account, which shall be the value of the property initially received by the fiduciary if this is the first account, and shall be the property on hand at the end of the prior account if this is a subsequent account.
(2) The value of any assets received during the period of the accounting which are not assets on hand as of the commencement of the administration of an estate.
(3) The amount of any receipts of income or principal, excluding items listed under paragraphs (1) and (2) or receipts from a trade or business.
(4) Net income from a trade or business.
(5) Gains on sales.
(6) The amount of disbursements, excluding disbursements for a trade, business, or distributions.
(7) Loss on sales.
(8) Net loss from trade or business.
(9) Distributions to beneficiaries, the ward or conservatee.
(10) Property on hand at the end of the accounting period, stated at its carry value.
(b) The summary shall be in a format substantially the same as the following, except that inapplicable categories need not be shown:
(c) Total charges shall equal total credits.
(d) For purposes of this section, the terms “net income” and “net loss” shall be utilized in accordance with general accounting principles. Nothing in this section is intended to require that the preparation of the summary must include “net income” and “net loss” as reflected in the tax returns governing the period of the account.”
Here is a breakdown of what a trust accounting generally should include according to California Probate Code section 16063:
“(1) A statement of receipts and disbursements of principal and income that have occurred during the last complete fiscal year of the trust or since the last account.
(2) A statement of the assets and liabilities of the trust as of the end of the last complete fiscal year of the trust or as of the end of the period covered by the account.
(3) The trustee’s compensation for the last complete fiscal year of the trust or since the last account.
(4) The agents hired by the trustee, their relationship to the trustee, if any, and their compensation, for the last complete fiscal year of the trust or since the last account.
(5) A statement that the recipient of the account may petition the court pursuant to Section 17200 to obtain a court review of the account and of the acts of the trustee.
(6) 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.”
If you’re a trustee, it’s natural to feel overwhelmed by the sheer amount of information you must include in your trustee accountings to beneficiaries, but by staying organized and possibly even maintaining a file with receipts, bank statements and other financial documents related to the trust, your duty to account may become less onerous.
Remember, trustees also typically have the ability to use trust resources to hire third-party professionals to help with their duties. The trust attorneys at Keystone are experienced in preparing trust accountings and are happy to take that burden off your shoulders.
Is It Necessary for Trust Beneficiaries to Approve Accountings?
In California, it usually isn’t necessary for trust beneficiaries to formally approve trust accountings. However, as a trustee, it is important to understand that beneficiaries generally have a period of three years from the date an accounting is provided to hold a trustee liable for any of the matters disclosed in the accounting. Because of this, it is wise for the trustee to have beneficiaries sign off on accountings. By having beneficiaries approve a trustee’s accountings, the trustee is insulated from liability, as the trustee can no longer be sued by beneficiaries for matters disclosed in an accounting after approval.
For their part, beneficiaries should take care to thoroughly review trust accountings before signing off on them. Trustee misconduct often is discovered by way of accountings, so it cannot be stressed enough how important it is to go through them with a fine-tooth comb.
If you are a trust beneficiary who does not feel confident in your ability to detect red flags in accountings, it would be a good idea for you to consult with a knowledgeable probate attorney or financial professional who can inspect any trust accountings you’re provided with on your behalf.
The sooner red flags are spotted, the more efficiently they can be handled. For instance, if a trust accounting reveals that a trustee has been borrowing money from a trust and commingling their personal assets with trust assets, beneficiaries could file a petition with the court to try to have the trustee removed and surcharged for self-dealing, and to prevent further damage from befalling the trust.
How to Request an Accounting of a Trust
As a trust beneficiary, you have the right to be kept reasonably informed about trust assets and the status of trust administration. This includes being provided with a formal accounting at least once a year and information concerning administration of the trust upon request.
If a trustee has not provided beneficiaries with the required annual accounting or requested information, they could be regarded as breaching their duties, which could make them liable to legal recourse.
Before beneficiaries resort to an extreme measure, such as filing a trustee removal petition, they may wish to consider the experience level of the trustee and if their failure to provide an accounting could simply have been an oversight that can be easily fixed.
That being said, there are instances when a trustee’s failure to account points to a more serious issue, such as the trustee self-dealing or making risky investments using trust funds. It’s important for beneficiaries to know how to request an accounting from the trustee so they can immediately take action to protect trust assets if they suspect something to be amiss with the trust.
In the following subsections, we discuss how to request an accounting from the trustee. The first step is determining your specific reasons for seeking a trust accounting.
Determine Your Reasons for Requesting Information
While beneficiaries aren’t required to have a reason for requesting information concerning trust administration, it could be useful for them to get clear on what specific information they are seeking and why.
Suppose a trust beneficiary is concerned about the trustee siphoning funds from a specific belonging to the trust. They may only need a breakdown of transactions related to the trust account instead of a full accounting. They may wish to request bank statements as well. If the beneficiary has already informally been provided with substantial information concerning administration (e.g., compete statements for all bank accounts in the trust), they also may not need the trustee to prepare a formal accounting containing the same information.
On the other hand, if there is substantial concern regarding a trustee’s mismanagement of trust assets, a full accounting may be required.
Here are some potential reasons for requesting a trust accounting:
- You believe the trustee to be misappropriating or mismanaging trust assets.
- You want to know if the trust has any creditors and how debts are being handled.
- You suspect the trustee excluded certain assets from previous trust accountings.
- You have reason to believe the trustee is commingling their personal assets with those of the trust.
- You are concerned the trustee is abusing their authority.
- You feel the trustee is neglecting their duties.
If a trustee has failed to provide a formal annual accounting, your reasons for requesting an accounting are not important, as you likely would want to request a full accounting of trust assets. But if you were provided with a formal accounting within the last year, your reasons for requesting an informal accounting may come into play as you complete the next step of the process.
It is also important to note that trustees are entitled to pay attorneys and other agents for the cost of preparing a formal accounting. Also, if the trustee is taking compensation for the time they spend managing a trust (as is typically the case), the trustee is entitled to charge the trust for time they incur preparing an accounting. In other words, the process of having a trustee prepare a formal accounting can be costly for the trust, which is why it makes sense for trustees to first speak with a qualified attorney to determine whether a formal accounting is needed.
Make a Request for a Trust Accounting in Writing
Once a beneficiary determines that they do in fact want a formal accounting, it is important that beneficiaries make their request to the trustee in writing, rather than verbally. This way, if the trustee fails to comply with their request, they’ll have proof to present to the court in the event more extreme measures need to be pursued to obtain the information they are seeking. For a court to compel the trustee to prepare a trust accounting on petition by a beneficiary, at least 60 days must have passed since the beneficiary made a formal request for an accounting.
In the following subsection, we provide a sample letter to the trustee requesting accounting.
Review this Sample Letter to the Trustee Requesting Accounting.
While there are no hard or fast rules surrounding how to make a request in writing for an accounting from the trustee, we provide a template below to help you understand what a typical accounting request contains.
Be sure to tailor your trust accounting request to your specific situation. Also, avoid being discourteous, even if you are frustrated with the trustee. If the beneficiaries and trustee are on bad terms, it not only could delay administration, but it could become unpleasant for everyone involved.
Sample Letter to Trustee Requesting Accounting
Dear [insert name of trustee],
[1st paragraph]
Mention your name and who you are in relation to the trust (a beneficiary). Clearly state the purpose of your letter, which is to make a request for an accounting. Include your reason(s) for making this request. If you have any evidence to back up your concerns, you may wish to briefly describe it. You should ensure that the trust does not have any language waiving the right to an accounting, which is rare.
[2nd paragraph]
If you are seeking certain documentation (e.g., receipts, invoices, bank statements) in addition to an accounting, make sure you specify that.
[3rd paragraph]
If this is not your first request for an accounting, make sure you note how many times you’ve previously made the same request. Provide a timeframe within which the trustee should aim to comply with your request; generally, 60 days is reasonable, unless the trust assets are very complex. Also provide a timeframe within which the trustee should acknowledge that it will comply with your request; generally, two weeks is reasonable.
[4th paragraph]
Mention that if the trustee continues to not comply with your accounting requests, you may have to resort to a court petition to compel the production of a trust accounting.
[5th paragraph]
Thank the trustee for taking the time to review your accounting request. Provide them with your name and contact information in case they have questions or concerns.
Sincerely,
[insert your full name]
File a Formal Petition with the Court to Compel the Trustee to Account
When a trustee fails to provide required or requested trustee accountings to beneficiaries within 60 days of receipt of a formal request for an accounting, beneficiaries may have no choice but to resort to a court petition to try to compel the trustee to provide an accounting.
A trustee is a fiduciary, which means they are supposed to represent the best interests of the beneficiaries at all times. When they fail to account, they are essentially hindering the beneficiaries’ ability to enforce their rights. As such, a trustee’s failure to provide annual accountings or comply with accounting requests generally is considered a breach of trust.
If you can provide evidence in your court petition that the trustee is refusing to give accounting, and thus, has committed a breach of trust, the court is likely to grant your petition to compel the trustee to produce an accounting. In the petition, you can also seek reimbursement of your attorney fees and costs.
Interestingly, even beneficiaries who have previously waived their right to an accounting or who are subject to a trust that waives the trustee’s duty to account can file a petition to compel an accounting if there is reason to believe a breach of trust may have occurred.
It’s important to note that when the court compels the trustee to produce an accounting, they will need to produce a formal accounting of trust assets. In other words, an informal accounting will not suffice.
If you’re a trustee, it’s important you take your duty to account seriously, or it could cost you. You not only could be held responsible for paying your own attorney fees and costs if you end up in court because you breached your duty to account, but you also could potentially be removed and surcharged. If you are not confident in your ability to prepare accurate and timely accountings, it is recommended that you seek the help of an experienced probate attorney or CPA.
How to Handle Common Trust Accounting Disputes
By this point, you probably have a handle on what the trustee’s duty to account entails and the types of issues that can arise when a trustee fails to account.
Nevertheless, we will briefly describe the two most common types of accounting disputes our probate firm handles, and what legal remedies we use to resolve them.
Trustee Refuses to Give Accounting
If a trustee refuses to give accounting, you should send the trustee a written request for an informal accounting, which we described how to do in a previous section. If you have an attorney representing you, they can make the request on your behalf.
When an attorney makes a request for a trust accounting, it may light a fire under the trustee to comply, as it will indicate to the trustee that you have an attorney that could take them to court if they continue to breach their duties.
If the trustee’s refusal to give accounting continues, a formal petition can be filed with the court, the process for which was described in the last section. A probate attorney can help you file your petition, and if necessary, argue on your behalf in court.
As a trust beneficiary, it’s important you not take trust accountings lightly since they are one of the only ways you have to keep tabs on the trustee and their activities. If you have not been provided with timely accountings, you should not delay taking action to try to obtain them, as waiting too long to get to the bottom of what’s happening with the trust could result in your inheritance potentially being reduced or eliminated, particularly if the trustee is engaged in misconduct of some kind.
If a trustee is consistently breaching their duties, you may wish to consider removal in order to keep administration progressing on schedule. While such an extreme measure shouldn’t necessarily be used for minor infractions, it can prevent a trust from being irreversibly harmed by the trustee if their conduct is consistently improper.
Trustee Accountings Contain Red Flags
Perhaps you’ve received a timely trust accounting, but it seems incomplete, inaccurate or contains other red flags.
For example, maybe the trustee’s fees are exorbitant for the amount of work they’ve supposedly completed. Or, maybe large sums of money are missing from the trust.
While these types of disparities may be nothing more than an error by the trustee, they should not be shrugged off. At the very least, an informal written request should be made to the trustee for further trust accounting.
If disparities cannot be adequately explained by the requested trust accounting, the attorneys at Keystone generally would recommend filing a petition with the court to challenge the trust accounting. This would help bring to light whether the trustee’s mismanagement or misappropriation of trust assets caused the disparities.
If it turns out that trustee misconduct was the cause of the disparities, beneficiaries may wish to consider suing the trustee to try to have them removed and surcharged before they can bring more harm to the trust.
Our attorneys can handle any type of trust dispute. Call us today for help.
Is a trustee refusing to give accounting? Are their accountings inaccurate or incomplete? Are they always late?
At Keystone, our attorneys work exclusively in the areas of trust and estate administration and litigation, so we are pros at handling even the most complex trust and estate disputes.
As a beneficiary, you are entitled to information about the trust from which you stand to inherit. You are also entitled to timely and accurate trust accountings. If a trustee is impinging on your rights by failing to provide you with trust information and/or accountings, it is crucial you take action right away.
Call us today to request a free consultation.
