Does a Trustee Have to Show Accounting to Beneficiaries in New York

Yes, if a beneficiary asks. A New York trustee does not have to prepare an accounting on their own initiative, and many trusts run for years without one. But a trustee who is asked by a beneficiary must account, and a trustee who refuses can be ordered to account by the Surrogate’s Court under SCPA 2205 and removed if they ignore the order. The rest of this page covers who may ask, what an “accounting” means when the answer is a stack of brokerage statements, how to make the demand so that it counts, and what a trustee should do when the letter arrives. This page is part of our trust and estate accounting section.

Which Beneficiaries May Demand an Accounting

Both classes of trust beneficiary have the right, and each has a reason to use it.

• Current (income) beneficiaries, the people entitled to the trust’s income now, or to discretionary distributions now. They want to know that all the income was collected, that expenses charged to income were proper, and that they received what the trust directs.
• Remainder beneficiaries, the people who take the principal when the trust ends, including those whose interest is contingent on surviving someone or reaching an age. Their share is what is left after years of investment decisions, expenses and commissions, so they have the most at stake in the principal schedules. A remainderman does not have to wait until the trust ends to ask.

A co-trustee and a successor trustee may also require an account from a trustee, and the Attorney General may on behalf of a charitable beneficiary. A creditor of the trust and a person with some other legal interest in its administration can petition under SCPA 2205, and the court can order an accounting on its own motion. Someone with no interest in the trust, however concerned, cannot. While a revocable trust’s grantor is alive, the trustee accounts to the grantor, and the remainder beneficiaries’ rights begin when the trust becomes irrevocable, usually at the grantor’s death.

What “Accounting” Means for a Trust

Trustees sometimes answer a request by sending the year-end brokerage statements. That is information, and a beneficiary is entitled to it, but it is not an accounting. A statement shows the balance in one account at one moment. An accounting is the trustee’s sworn statement of the whole administration, in the schedule format the Surrogate’s Court uses (SCPA 2208), covering the period from the trust’s funding, or the last settled account, to the present:

• the principal received, each asset with its date, description and value at receipt;
• realized gains and losses on everything sold, measured against those opening values;
• income collected, by source;
• administration expenses, separately for those charged to principal and to income;
• distributions of principal and distributions of income, to whom and when;
• new investments and exchanges;
• principal and income on hand at the end of the period;
• the interested parties, the computation of the trustee’s commissions, other pertinent facts, and a cash reconciliation tying the schedules to the bank and brokerage statements.

The principal and income columns are what make a trust accounting longer than an estate’s. Income beneficiaries and remaindermen have opposing interests in how each receipt and expense is classified, and the account has to show the classification so that each side can check it. The investment schedules are read against the Prudent Investor Act. See how a New York accounting is prepared for the schedules in detail, and when a trust accounting is required for the other events, besides a demand, that call for one.

Periodic statements still have a place. A trustee who sends the beneficiaries a yearly summary of principal, income, expenses and commissions is keeping them informed, which is a duty in itself, and is building the eventual accounting one year at a time. A trustee who takes annual commissions without a court order is required by SCPA 2309 to furnish such a statement each year. But a yearly summary does not close anything. Only a release signed after a full account, or a decree, does that.

The Duty to Inform, Short of an Accounting

Independently of any accounting, a trustee must keep the beneficiaries reasonably informed: tell them the trust exists and that they are beneficiaries, give them a copy of the instrument or the parts that concern them, answer reasonable questions about the assets, the investments, the distributions and the trustee’s compensation, and tell them about events that affect their interests, such as the sale of the trust’s real estate. A trustee who answers those questions as they come up rarely receives a formal demand. A trustee who does not answer them is the reason most demands are made. The scope of the duty is covered on beneficiaries’ rights to trust information.

How to Demand an Accounting

Ask in writing. A letter or email to the trustee, or to the trustee’s lawyer if there is one, that identifies the trust, states that you are a beneficiary, and asks for an accounting in the Surrogate’s Court format for the period from the trust’s funding to date, together with the bank and brokerage statements, is enough. Ask for a copy of the trust instrument at the same time if you do not have one. Give a reasonable time to respond; a trustee cannot produce a multi-year account in a week, but can acknowledge the request and say when it will be ready. Keep the letter and the proof of delivery, because the petition to compel will recite the demand and the failure to answer it.

You do not have to be on speaking terms with the trustee, and the demand does not need a reason. Beneficiaries sometimes hesitate because the trustee is a sibling or a parent’s old friend. The request is a routine part of trust administration, and a trustee who has done the job properly has no difficulty answering it.

Compelling an Accounting Under SCPA 2205

If the trustee does not respond, or responds with something short of an accounting, the beneficiary petitions the court to compel one. SCPA 2205 lists who may petition and gives the court the power to order any fiduciary to account. For a trust under a will, the petition goes to the Surrogate’s Court that admitted the will and issued the letters of trusteeship, and it is ordinarily entertained once seven months have passed since the letters issued. For a lifetime trust there are no letters; the petition is filed in the Surrogate’s Court of the county where the grantor lived or where the trust is administered (the Supreme Court also has jurisdiction), and it attaches the trust instrument.

The court issues a citation; on the return date the trustee is directed to file an account within a set period, usually a few months. Most trustees comply at that point. A trustee who does not can be held in contempt and can be removed under SCPA 711 and 719, with a successor appointed to collect the assets and account in their place. Once the account is filed, the beneficiary may examine the trustee under oath under SCPA 2211, file objections by the return date under SCPA 2209, and pursue a surcharge for any loss the objections establish. The mechanics are on compelling an accounting under SCPA 2205 and when a trustee refuses to give an accounting.

A concrete example. A father’s will leaves his estate in trust for his widow for life, with the remainder to his three children, and names the eldest child as trustee. Twelve years later the widow is still living, the two younger children have never received a statement, and their letters go unanswered. They petition the Surrogate’s Court that probated the will to compel an account. The trustee is ordered to file one, and it shows that the trust’s brokerage account was left half in cash for a decade and that the trustee took commissions each year without sending the statements SCPA 2309 requires. The children examine the trustee, object to the investment record and the commissions, and the matter settles at a conference with a payment back to the trust and a corporate co-trustee going forward. None of that could begin until the account was on the table.

What a Trustee Should Do When Asked

Answer promptly, in writing, and say when the account will be ready. Silence is what turns a request into a petition, and the court will not think well of a trustee who made a beneficiary come to court for something they were entitled to on request.

Prepare the account in the court’s format from the start, even though it is being delivered informally. An informal account in the Surrogate’s Court schedules, with the statements and invoices organized behind it, answers the demand, can be closed by receipts and releases from the adult beneficiaries, and can be filed for judicial settlement under SCPA 2206 without being redone if a beneficiary will not sign or if minor or unborn remaindermen mean no one can sign for them. See informal accountings and judicial accountings.

Deliver the records with the schedules. Bank and brokerage statements, closing statements on any sale, the appraisal that fixed the opening values, the invoices behind the expenses, and the commission computation. Beneficiaries object to what they cannot see; the trustee who shows the backup has answered most objections before they are made.

Do not condition a distribution the beneficiary is already entitled to on signing a release beyond the customary receipt and release. And do not be surprised by the cost: the expense of preparing a trust accounting is a proper charge to the trust, not to the trustee personally, unless the trustee’s own default caused the proceeding. Where the numbers will not survive scrutiny, the time to find that out, and to consider a resolution, is before the account is served, not after objections are filed.

Pitfalls

• For beneficiaries: accepting statements in place of an account, signing a receipt and release before seeing the full schedules and the backup, or waiting years after the trustee has openly refused. A release is a contract that bars later objections except for fraud or withheld information.
• For beneficiaries: filing to compel a testamentary trustee before seven months have run from letters, or filing in the wrong court for a lifetime trust.
• For trustees: ignoring the letter, sending a summary that does not reconcile, or keeping no separation between principal and income so that the account has to be rebuilt from scratch.
• For trustees: distributing the remainder without an account and releases and assuming the trust is closed. The duty to account continues until the account is settled.
• For both: assuming a trust that has run for twenty years is too old to account for. It is not; the beneficiary can compel an account for the whole period, and the trustee will have to produce one.

If you are a beneficiary who has asked and not been answered, or a trustee who has just been asked, we can tell you what the trust requires, what the account has to contain, and the quickest way to get it done. Call 212-233-1233 or email [email protected].