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Being an Executor of an estate and a Trustee of a trust comes with significant responsibilities. One such responsibility is to account to the beneficiaries of the estate or trust.
Executors and Trustees are fiduciaries, which means that they owe a duty of care to the beneficiaries of the estate or trust. To confirm that the Executor or Trustee has satisfied his/her duty of care, it is important to provide an accounting at certain times during the administration of the estate or trust.
Usually, the Executor or trustee will provide an accounting to the beneficiaries prior to either a partial or final distribution when he/she requests that the beneficiaries execute a Receipt, Release, Refunding, and Waiver Agreement that is designed to protect the Executor or Trustee from liability.
Beneficiaries may request an accounting:
Sometimes, however, there are situations when a beneficiary will request that the Executor or Trustee provide an accounting. This may be a formal or informal accounting depending on the request. Regardless, the fiduciary has a responsibility to provide an accounting when requested. It would be preferable to provide an informal accounting. However, sometimes the beneficiary will request a formal judicial accounting, which can be more involved, costly, and subject the fiduciary to a court proceeding.
Other interested parties may request an accounting:
Creditors and a surety company (if there is a fiduciary bond involved) may also request an accounting. These requests for will very likely be a formal judicial accounting.
The Court may demand an accounting:
In certain cases, the Court can even demand an accounting from the fiduciary. This is typically the case when the fiduciary is requesting to resign, when there is a request for the fiduciary to be removed from that role, or when the term of the fiduciary’s role has ended, such as when there is a preliminary executor or temporary administrator.
If the fiduciary fails to provide an accounting to a beneficiary or an interested party, then the beneficiary or interested party can petition the Court to compel the fiduciary to provide a judicial accounting.
If the fiduciary fails to provide an accounting demanded by the Court, then the fiduciary can be held in contempt of court and suffer significant legal ramifications.
A fiduciary may wish to provide an accounting even if there is none requested:
In some cases, no one has requested an accounting, and beneficiaries are willing to execute the appropriate Receipt, Release, Refunding, and Waiver Agreements. In these circumstances, it may seem that no accounting is necessary. However, in some cases, it may be prudent for the fiduciary to petition the Court for a decree from the Court judicially settling the accounts of the estate or trust.
This kind of judicial decree is like a stamp of approval from the Court and could help avoid or defend accusations of wrongdoing of the fiduciary.
Additionally, if a fiduciary bond has been issued, you may need to get a final decree from the Court settling the estate in order to have the bond discharged.
The bottom line is that there are a number of different circumstances in which an Executor or Trustee should provide an accounting, and it is important to seek the advice of qualified counsel whenever an accounting is involved.
Contact us today with questions or comments.