Many estate plans include a trust. These are documents that help family members receive the disbursements they deserve without the hassle of probate. Trust assets can be liquid assets, home titles, or anything in between, making the disbursement period unique with each case.
Depending on the estate size and ability level of the administrator, trust accounting in California can be difficult. As a trustee, you have many responsibilities on your plate, and making a regular review of the account is difficult to manage. When this falls through the cracks, you open yourself up to personal liability.
If you want to learn more about your duties as a trustee and what to keep in mind when accounting for a trust, keep reading below.
What is a Trustee?
First and foremost, a trustee is a fiduciary. They have, among other responsibilities, the fiduciary duty to act in the manner most beneficial to trustees. This means timely disbursements, correct, and transparent accounting are all necessary. These trustee actions must be taken per the terms of the trust, assuring completion of the decedent’s wishes.
Different Types of Beneficiaries
In some types of trust administration, not all beneficiaries have the same access to information. The reason is that while some are current income or principal beneficiaries, others are not.
For individuals who do not have an immediate interest in the trust, it is unnecessary to provide them with the same information as current trust beneficiaries.
Trustee Accounting Responsibilities
Successor trustees have an obligation of loyalty and transparency to the current income and principal beneficiaries of the trust. In simpler terms, this indicates that a trustee must document and produce records of all trust assets, payments, and give timely disbursements, in addition to acting in the best interest of these beneficiaries.
The reason beneficiaries are usually allowed to request and receive an accounting is due to probate laws. These laws state that a beneficiary to income or principal of the trust has the right to remain reasonably informed about the account, a phrase meaning they are entitled to receive documentation of trust assets, opened and closed accounts, even amendments to the trust itself.
The trustee bears these responsibilities until the termination of the trust. Depending on the document’s structure, this could be after the death of a beneficiary or even after assets reach a predetermined minimum amount.
What an Accounting Provides
As an administrative figure, the trustee must account for all assets of the trust. This accounting includes all payments, proceeds, income, and assets on an ongoing basis, including when and how disbursements are made with a paper trail to match. Some relevant documents to have in your records include:
- List the check number used to pay each specific expense of the estate
- Bill payments including date, amount, payee, and reason for payment
- Clear time periods as they relate to accounting
- Losses on the sale or other disposition of assets
- Net losses from a business
- Document distributions made to any beneficiaries
- Information concerning the compensation of the trustee its agents
- The relationship of the agents to the trustee
- A detailed account of your time spend administering the trust
- Statements of receipts and disbursement of principal and income
- Statements of assets and liabilities
- A statement that the recipient may petition for court review
If this sounds like a lot of work, you’re right. These parameters encompass a complete overview of the trust administration.
As such, it also comes with a great deal of liability from angry beneficiaries.
Rights of the Beneficiaries
Now, let’s say that there is a current beneficiary and they want to make a document request after feeling short-changed. If the trust administrator is not cooperative, or if there is reason to believe they’re lying, the dispute gets taken to Court.
In this case, a beneficiary must seek a Court Order to gain formal accounting information. Before filing the petition, the following criteria are required:
- A written request to the trustee was left unanswered for at least 60 days
- A 6-month gap in reports of accounting
- Existing trust accounting seems wrong or suspicious
Can a Beneficiary Sue?
Suppose there is adequate reason to believe a trustee has acted without the best interest of the beneficiaries of the trust in mind or has violated the above deadlines. In that case, beneficiaries retain the right to file a lawsuit. However, they do not retain this right indefinitely.
However, a beneficiary cannot sue indefinitely. Beneficiaries can only sue for a breach of trust if it has been less than 3 years since the breach occurred.
California Trust Dispute Experts
The California probate code is complex and results in many haphazard decisions when individuals try to make heads or tails of their legal rights and responsibilities on their own. In the end, these attempts to save money end up costing far more in the long run.
Whether you are a trustee or looking to dispute an existing trust, both situations call for legal assistance.
At The Legacy Lawyers, we offer our clients the unparalleled legal expertise of an entire team to manage their estate planning.