For many people serving as fiduciaries, such as trustees and conservators, one of the most time-consuming endeavors you will undertake is preparing an accounting. A fiduciary’s accounting is a numerical summary of the actions he or she has taken during the period of the account, and serves as a shield against allegations of wrongdoing.
The standards for when an accounting is due vary considerably. For example, trustees must account yearly, on change of trustee, and at termination of the trust, unless the trust modifies or waives the duty to account, subject to certain limitations. Conservators must account within one year of appointment, and then every two years thereafter, unless required to do so more frequently by court order. In some situations, third parties have a legal right to demand an accounting from you, irrespective of these deadlines.
The actual content of what must be set forth in an accounting is, for the most part, the same for all fiduciaries. A fiduciary must explain all payments, identifying the payor, payee, amount, and purpose, made during the accounting period. A fiduciary’s accounting must reflect gains and losses on sales of non-cash assets during the accounting period, based on the value of those assets at the beginning of the fiduciary’s accounting period. A fiduciary must be prepared to defend the truth of each item in his or her accounting with documentary evidence. It is easy to see how the accounting process can become quite daunting.
There are several general pre-emptive steps a fiduciary can take to make the duty to account easier to manage and fulfill:
- Obtain copies of all bank statements for the accounting period. For conservators, you will also need to have original statements for certain months in the accounting period.
- Pay recurring expenses, such as monthly utilities, using online payments. Whenever possible, pay for goods and services by check, and write descriptive information about the purpose of the transaction on the memo line. If you are a fiduciary pursuant to a court order, you can ask the court to authorize cash allowances, and waive your duty to account for those allowances. Absent court order, try to avoid ATM withdrawals of cash, or checks to cash, unless absolutely necessary, because these are nearly impossible to prove.
- Avoid using the assets you are managing as a fiduciary as your own. If you believe you are entitled to personal reimbursement from the assets you are managing, discuss this with your attorney before doing so.
- Keep an itemized, periodically updated log of all account activity for your personal reference.
By following these steps, you and your attorney will be able to quickly and confidently generate and defend your accounting.