While the necessity and timing of a trust Account is dependent in part on the language of the trust, unless the trust instrument provides otherwise, a Trustee has a responsibility to provide an Account to keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. (ARS § 14-10813)
This accounting requirement does not apply to revocable trusts in which the settlors are continuing to act as the trustees. So, if you have, or are considering establishing a revocable (living) trust, you can rest assured that you will not be required to provide an accounting to the qualified beneficiaries named in your trust! The duty to account, in general, applies to revocable trusts when a Successor Trustee (not you) is managing your trust either during your lifetime, or thereafter.
Is a Trustee Required to Provide Status Updates if Requested?
Yes. ARS § 14-10813(B) provides that a trustee, on request of a beneficiary, shall promptly furnish to the beneficiary a copy of the portion of the trust instrument that are necessary to describe the beneficiary’s interest, and within 60 days after accepting a trusteeship, shall notify the qualified beneficiaries of the acceptance and of the trustee’s name, address, and phone number.
Additionally, within 60 days after the date the trustee learns of the creation of an irrevocable trust or the date the trustee acquires knowledge that a formerly revocable trust has become irrevocable, whether by death of the settlor or otherwise, shall notify the qualified beneficiaries of the trust’s existence, of the identity of the settlor or settlors, of the trustee’s name, address and phone number, and the right to request a copy of the relevant portion of the trust instrument and of the right to a trustee’s report.
What Information Should Be Included in an Accounting?
ARS §14-10813(C) provides that the trustee shall send to the distributes or permissible distributes of trust income or principal and to other beneficiaries who request it, at least annually and at the termination of the trust, a report of the trust property, liabilities, receipts and disbursements, including the source and amount of the trustee’s compensation, a listing of the trust assets and, if feasible, their respective market values. A statement of receipts and disbursements of principal and income that have occurred during the last complete fiscal year of the trust or since the last account.
It is important for a trustee to remember that his/her role is to act impartially on behalf of the trust’s beneficiaries and to provide the trust beneficiaries with full disclosure of actions taken as trustee. This requires thorough record keeping by the trustee and translation of those records into a clear accounting so that beneficiaries can fully understand what the trustee has done.
Examples of Some Best Practices:
- Keep copies of all bank and investment account statements
- Keep copies of all credit card statements, and receipts for large purchases
- Have real property appraised or obtain realtor comparisons from third party professionals to establish fair market value, and keep copies of the same, along with all closing statements for the sale of any real property
- Use a CPA or licensed fiduciary to prepare the annual Accounts, if you are not able to yourself, or do not have time (this is a reasonable cost of trust administration, and may be paid by the trust)
- If you intend to receive Trustee compensation, seek legal advice about whether the Trust allows for the same, and the basis upon which Trustee fees should be calculated. You will also need to provide notice of intention to charge trustee fees, and notify the qualified beneficiary at least 30 days in advance of any change in the method or rate of the trustee’s compensation (ARS
- Use a Certified Financial Planner for investment advice to ensure compliance with the prudent investor rule and CPA to give tax advice and prepare tax returns (this is a reasonable cost of trust administration, and may be paid by the trust)
- Use an experienced estate planning attorney for advice on the proper administration of the Trust to ensure you understand and comply with all fiduciary duties (this is a reasonable cost of trust administration, and may be paid by the trust)
- Do not engage in acts which can be perceived as “self-dealing”, meaning using trust assets in a way which may benefit you or your immediate family. By way of example, do not pay your spouse’s plumbing company to make plumbing repairs to trust real property unless you get multiple commercial bids from other plumbing companies first and costs paid are below market value.
Can Beneficiaries Waive the Accounting?
Yes, a beneficiary may waive in writing the right to a trustee’s report (formal accounting) or other information otherwise required to be provided to the beneficiaries. However, even if all beneficiaries have waived an account, it is very important that the trustee maintain thorough records. Account waivers can be withdrawn by beneficiaries, or a court may require a full accounting upon a showing that it is reasonably likely that a material breach of the trust has occurred. In addition, accurate records will be needed when compiling tax returns for the trust or decedent’s estate.
Are Accountings Beneficial?
Yes! Accountings are powerful tools and should not disregarded or waived without considering the benefits they provide. Some families and trustees are under the impression that the primary goal in trust administration is to minimize costs, at all costs. While no one wants to spend more than is necessary to do the job right, cutting corners often causes problems that could have been easily avoided with a little diligence.
We have found that, too often, jealously and distrust arises in even the best of families after a parents’ death. This is particularly true when one family member has total control of the administration and is not reasonably forthcoming with information related to the process. A full and detailed accounting is one way for a trustee to protect him or herself against charges of misappropriation of assets, mismanagement of trust funds, self-dealing, or other breaches of fiduciary duties. The trust may contain a limitation of time by which a beneficiary must raise claims against the trustee, or thereafter be forever barred. In the alternative, if the trust does not prescribe such limitation, ARS §14-11005 provides a beneficiary may not commence a proceeding against a trustee for breach of trust more than 1 year after the date the beneficiary was sent an accounting that adequately disclosed the existence of a potential claim for breach of trust and informed the beneficiary of the time allowed for commence a proceeding. Depending upon circumstances, trustee may even want to file the accounting for court approval to discharge himself of any and all liabilities.
If you have questions or need help with a trust accounting, either as a Trustee or beneficiary, please contact one of our experienced attorneys.
-Stephanie A. Bivens, CELA, Esq.