Trust Accounting Basics and Why They Matter

In California, the trustee must provide a trust accounting "to each beneficiary to whom income or principal is required or authorized in the trustee's discretion to be currently distributed." Probate Code §16062(a).

So, the trustee must render a trust accounting to each member of a group eligible to receive distributions whether or not he or she received any amount from the trust during the accounting period or at any other time from the trust account. In addition to the requirement to provide a trust accounting to current beneficiaries under Probate Code §16062(a), which includes any real property, personal property, bank accounts, brokerage accounts and trust bank accounts, the trustee may wish to provide a trust accounting to contingent and remainder beneficiaries. Names and addresses obtained from the settlor at inception of the trust should be verified periodically, e.g. once a year, and on the death of a settlor or whenever an amendment is made that could change the beneficial interests.

It is the trustee's duty to prepare the accounting for the trust and the trustee may perform this duty personally, or may delegate the task to an attorney, accountant or other agent, subject to the trustee's duty to exercise general supervision over the person performing this service. Probate Code §16012(b).

The trustee is required to provide a trust accounting at least annually for trusts created by instruments, including wills, executed on or after June 30, 1987. Probate Code §16062. Trustees are also required to account when there is a change of trustee and when the trust terminates. Probate Code §16062(a).

There are several exceptions to these requirements. In some instances, the trust instrument can waive the trustee's duty to provide a trust accounting, or a beneficiary can waive the right to an account. However, the waiver can be withdrawn in writing at any time "as to the most recent account and future accounts." Probate Code §16064(b).

Probate Code §16063(a) specifies that a trust accounting to trust beneficiaries must contain the following:

• A statement of the receipts and disbursements of principal and income that have occurred during the last complete fiscal year of the trust or since the last trust account;
• A statement of the trust's assets and liabilities as of the end of the last complete fiscal year of the trust or as of the end of the period covered by the trust account;
• The trustee's compensation for the last complete fiscal year of the trust or since the last trust accounting;
• 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;
• A statement that the recipient of the account may petition the court under Probate Code §17200 to obtain court review of the account and the trustee's acts; and
• A statement that claims against the trustee for breach of trust may not be made after the expiration of 3 years from the date the beneficiary receives an account or report disclosing facts giving rise to the claim.

In this way, a trust accounting can benefit both the trustee and the beneficiaries. Beneficiaries benefit because it discloses the financial activity of the trust. Trustees benefit because it satisfies the Trustee's duty to keep beneficiaries informed and it sets a time limit for beneficiaries to object to the Trustee's handling of the trust.

Contact Cheadle Law today to discuss a Trust Accounting for your trust and the benefits the experience of Cheadle Law provides at 949.553.1066