There are a lot of duties and responsibilities that come with being the trustee of a loved ones irrevocable trust. One of those duties is to keep good records. Another duty is to keep qualified beneficiaries reasonably informed about the administration of the trust. This means the trustee should respond promptly to any reasonable request for information from the beneficiaries. This includes providing information about assets in the form of financial reports or trust accountings.
What should accountings include?
Accounting requirements vary from jurisdiction to jurisdiction. In 2008, Arizona adopted the Uniform Trust Code (UTC). The UTC requires that trustees create “financial reports.” While these are not called accountings, they are very similar. These reports should include any trust property, liabilities, disbursement, records of the trustees compensation, receipts, trust assets and their market value. They should also include any changes in types of assets.
There is no set format required for the accountings and the description provided is fairly vague. In general, the people you send the accounting to, should be able to gather a general idea of the assets in the trust, how they are changing and being spent. A typical accounting includes at least an opening balance for the period, the debits (assets that came into the trust), credits (assets that went out of the trust), an ending balance for the period, and a summary. It may also be beneficial to separate assets allocated towards principal and income in your accountings.
Can the trustee prepare the accountings themselves?
It depends. If the trust assets are fairly simple, and the trustee has some financial know-how a trustee may be able to prepare their own accounting. This is even more likely to be true, if your trustee is a financial institution or a professional fiduciary. If trust assets are complex, or the trustee doesn’t feel comfortable preparing the accounting, it may be best to seek help from a professional. A CPA or bookkeeper should be able to help. If your accounting must be filed with the court, make sure you are filing an accounting that complies with the formatting of the court you are filing it with.
How often does the trustee need to prepare accountings?
How often a trustee needs to prepare an accounting varies from jurisdiction to jurisdiction. Many states require annual accountings or financial reports. Arizona statute requires that the trustee provide financial reports at least annually and at the termination of the trust. While the statute requires accountings at least annually, beneficiaries may request more frequent accountings so long as it is reasonable. A beneficiary can also waive their right to a formal accounting and they may want to in order to save time and expense. If a beneficiary is waiving their right to an accounting, the it is best practice for the trustee to get that in writing. The trust document may also have guidelines for how often accountings need to be sent to beneficiaries or distributees.
Who should receive the accountings?
Who the trustee is required to share trust accountings with also varies between jurisdictions. You have to provide an accounting to the beneficiaries to the trust. You may also have to provide an accounting to the trust protector, if there is one. In Arizona, the trustee is required to send accountings to qualified beneficiaries (beneficiaries who are entitled to distributions of income and/or principal currently). They also have to provide accountings to contingent beneficiaries that would be entitled to income or principal after one event, like the death of another beneficiary.
So, for example. Pretend there is an irrevocable trust. Parent is the current beneficiary. Child is a contingent beneficiary, who will be entitled to trust income and principal upon Parent’s death. Grandchild is a contingent beneficiary, entitled to distributions only on the death of Parent and Child. The trustee would need to send accountings or financial reports to Parent and Child, but not grandchild.
The trustee however, does not have to automatically send accountings to beneficiaries who will inherit only if several other beneficiaries die before the trust is scheduled to end. For example, you probably do not have to automatically send the accounting to the back up for the back up beneficiary who is unlikely to receive trust assets anyways. If these remote beneficiaries reasonably request an accounting, the trustee would still likely have to provide it though.
Once you have completed the accounting, you can send it via mail. When you do, keep the receipt showing the date you sent it. In some jurisdictions, there is a deadline for beneficiaries to file a law suit after receiving the accounting. In those states, once the deadline has passed, the trustee’s liability is limited.
One Response
Thank you, as always, for your effort in producing the “Elder Law Issues.” I find them timely and informative.
Regarding trust accountings, however, I am thinking it would be good to emphasize that, apparently, ensuring that trust beneficiaries receive reports or accountings and other information about a trust, or even become aware of its existence after the settlor’s death, is not a high priority for the Arizona Legislature.
A.R.S. § 14-10813 is a default provision, and, except for the trustee’s duty to respond to the request of a qualified beneficiary of an irrevocable trust for trustee’s reports and other information reasonably related to the administration of the trust, may be waived by the trust instrument. See A.R.S. § 14-10105(B)(8). Such a provision begs the question: how to qualified beneficiaries know to inquire about trustee’s reports and other information if the duty to provide them with notice of the trust’s existence has been waived?
I have seen many trust forms containing boilerplate which purport to make the trust “private” and “confidential,” and excuse the trustee from revealing any information not required to be disclosed by Arizona law. Some successor trustees often take full advantage of such a provision to the detriment of the beneficiaries.
Does anyone imagine that the typical settlor, who has four children, and who has designated one of them to serve as successor trustee, intends that child to keep the trust and administrations secret from the other beneficiaries?
Somehow, prospective trust clients need to be educated on this point and encouraged to inquire on these matters and insist that the privacy and confidentiality boilerplate be eliminated to the extent that it authorizes the trustee to withhold information from the beneficiaries.