As a beneficiary or executor of an estate, you may wonder if the executor must provide an accounting of the estate’s finances to beneficiaries. The answer is that an executor does not automatically have to show an accounting to the beneficiaries. However, beneficiaries can request an accounting and the executor must comply. For that reason, it is important for an executor to keep accurate records of all transactions of the estate.
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What Kind of an Estate Accounting Are Beneficiaries Entitled To
An estate accounting is a document that details every transaction that occurred in the estate and provides some summaries and explanations of the transactions. The document consists of various schedules in a court-approved format and complying with general accounting standards. At a minimum, the estate accounting includes schedules listing line by line all of the assets that are a part of the estate, all of the expenses of the estate, all income of the estate, and proposed distributions of the estate.
The accounting is a set of schedules where an executor has to show all possible information about the estate, such as
- an itemized list of the assets that are in the estate
- the funds or property received by the estate
- the expenses of the estate
- the beneficiary distributions already disbursed and
- the beneficiary distributions yet to be disbursed
Beneficiaries and their estate attorney can review the schedules and decide that they are satisfied with the information. Or the beneficiaries can compel the executor to show all of the documents associated with the estate as well as the executor’s personal documents. Beneficiaries are entitled to have the executor show documentation such as
- account statements
- closing statements
- copies of checks
- tax returns
- loan applications
What to Do When an Executor Refuses to Show any Accounting
While the majority of executors and administrators handle probate timely and adequately and respond to beneficiaries requests appropriately, there are times where an executor refuses to show an accounting when asked. There are steps that you can take to hurry the executor along and protect your interest in an estate. You are entitled to a full accounting of the estate’s assets and to the timely distribution of the estate’s assets.
The seven-months waiting period
Just because you are waiting doesn’t mean that the executor is not preparing an accounting. They may be preparing it and it just maybe not ready yet. Also, the executor might be busy with other things. – they may be doing other things.
Under most circumstances, you don’t receive your inheritance right away and don’t receive an accounting right away. There is a waiting period. According to New York law, creditors have seven months to claim what is owed by the estate. This time limitation creates an idea of how long it will take to get your inheritance. It may be that the executor is not refusing to show an accounting, he is simply waiting out the required period to expire in order to see what claims may be in the estate in order to show the most accurate accounting.
Delays due to litigation
If there is litigation involved, then there could be a more extended period going by before you can collect your inheritance. Different types of litigation can affect an estate.
- A medical malpractice claim
- A business dispute
- Real estate eviction
- The validity of the decedent’s will
- The qualification of the executor
Litigation can add years to an estate proceeding and may give an impression that the executor is refusing to show an accounting. But the executor should still show a preliminary partial accounting.
Delays in marshaling assets
Before the executor can distribute assets, the executor has to find the assets first. If the decedent did not leave a detailed list of the assets in the estate, then the executor will have to perform multiple searches.
- Look through the decedent’s documents
- Find decedent’s safe deposit boxes
- Search for real estate
- Search for other assets
As long as the executor is performing their duties, they are not refusing to show an accounting, even if they are not yet ready to distribute the assets.
Compelling an accounting
Once seven months have passed, and the executor is still not releasing money or property left by the estate and is not providing an accounting, then you may have to consider a proceeding to compel the executor to show an accounting. Through compelling an executor to show a full accounting and fulfill the bequests in the will, a New York estate attorney can help you protect your rights.
A beneficiary typically files a petition or an accounting of an estate, to get an idea of what the executor is claiming is left for distribution. If there are disagreements over what is in the estate, we resolve those disagreements before moving on to the distribution stage.
Compelling a distribution
Once the accounting is resolved, we file a petition to compel a distribution, to ask the court to force the executor to stop refusing to show an accounting and to release the inheritance. This law is meant to protect you from an executor who either is lax in handling their duties or is purposefully refusing to distribute the inheritance. The law lets you ask the court through a New York estate attorney to force the executor to turn over property that you are entitled to.
This is not the same as another kind of petition that compels the executor to pay out inheritances in advance of the seven months that creditors have to file a claim against an estate. That part of the law is meant to force the executor to pay out to heirs who need estate assets for family support or education. The motion to compel for a regular inheritance also does not include a motion to compel the executor to release non-probate assets such as jointly held bank accounts or property.
Informal vs. Formal Accounting
An executor typically starts with an informal accounting, which is not filed with the court. If beneficiaries are unsatisfied, they can demand a formal judicial accounting.
After asking for an accounting, a beneficiary will typically receive an informal accounting first
If a beneficiary and the executor agree to an informal accounting, it might work, as long as the beneficiary is satisfied, they have all the information. When an executor files an informal accounting, they don’t have to file it with the court. They can just provide it to the beneficiaries. An executor may ask a beneficiary to approve an informal accounting before the executor makes distributions of estate funds.
If not satisfied, the beneficiary will demand that the executor show a formal accounting
If the beneficiary is not satisfied with an informal accounting, they can ask for a formal accounting. If the executor fails to provide one, the beneficiaries can compel the executor to provide one. If the executor is ordered by the court to provide an accounting, they usually do or get removed by the court. Sometimes they provide an incomplete or fraudulent accounting. Beneficiaries can sue to challenge those accountings and get the money that the executor may be keeping from the beneficiaries.
Why Most Executors Prefer an Informal Accounting
If you are an executor or administrator of an estate, the last thing you want to do is to have to provide a judicial accounting, unless the beneficiaries are making you do it.
If you are an executor, try to settle for an informal accounting. Since a proceeding for a judicial estate accounting has been filed against you, you will have no choice but to file some sort of an accounting. An informal accounting is a good way for the executor and the beneficiaries to try to find common ground and resolve a case without the expenses and the time commitment of a formal estate accounting.
Downsides of a formal accounting
A formal judicial accounting has many downsides, not only for the executor but for the beneficiaries as well:
- It requires a lot of work from the executor. The executor has to spend time on a judicial estate accounting, the time he could have spent on his professional and personal pursuits. The executor will not be paid extra for the work of providing an accounting.
- Expensive. The fees for attorneys, accountants, and appraisers being involved can add up to tens of thousands of dollars.
- Gives beneficiaries another reason to complain. To add insult to injury, the beneficiaries will complain that the executor is spending too much on lawyers and accountants, for the judicial estate accounting, even though it is the beneficiaries themselves who created the accounting situation in the first place.
- Exposes the executor to potential liability. Once the executor files the judicial estate accounting, the beneficiaries’ attorney will try to find inconsistencies in order to extract a settlement from the executor.
- Can force unjust settlement. The prospect of a drawn-out judicial estate accounting can squeeze the executor into giving up a share of their rightfully owned estate just to avoid the torture.
- Leaves less money in the estate to be shared. Money can be better spent by you and beneficiaries than paying lawyers and accountants.
Benefits of an informal accounting
An informal estate accounting has many benefits over a judicial estate accounting:
- It requires less work. Because you don’t have to use court-mandated forms, there is less work to do. For example, you would not have to list every single item of expense and income, you can just give a summary of income and expenses.
- Cheaper. Less attorney and accountant fees.
- Easier to work things out. The atmosphere of a contested estate accounting is less contentious so it’s easier to work things out.
- More money left over for a settlement. As opposed to giving estate money to lawyers and accountants, keep the money for yourselves and the beneficiaries
Requirements of a Formal Accounting
If the beneficiaries are not satisfied with the informal estate accounting, then the executor would have to file a formal judicial accounting with the court. Here is a list of some of the things that a formal judicial accounting entails:
Documents included in the formal estate accounting packet
Documents that have to be included as part of the formal estate accounting are:
- Petition for Judicial Settlement of Account with Verification
- Receipt and Release plus Acknowledgement before the Notary Public for beneficiaries of the trust
- Citations for beneficiaries who do not sign waivers
- Waiver of Citation and Consent in Accounting for beneficiaries of the trust
- Affidavit of Accounting Party
- Proposed Final Decree of Judicial Settlement
Schedules that have to be submitted as part of the formal estate accounting packet
The court requires the submission of the following schedules with an estate accounting.
- Schedule A (Statement of Principal Received)
- Schedule A-1 (Statement of Increases on Sales, Liquidation or Distribution)
- Schedule B (Statement of Decreases Due to Sales, Liquidation, Collection, Distribution or Uncollectibility)
- Schedule C (Statement of Funeral and Administration Expenses and Taxes Charged to Principal)
- Schedule C-1 (Statement of Unpaid Administration Expenses)
- Schedule D (Statement of All Creditor’s Claims)
- Schedule E (Statement of Distributions of Principal)
- Schedule F (Statement of New Investments, Exchanges and Stock Distributions)
- Schedule G (Statement of Principal Remaining on Hand)
- Schedule A-2 (Statement of All Income Collected)
- Schedule C-2 (Statement of Administration Expenses Charged to Income)
- Schedule E-1 (Statement of Distribution of Income)
- Schedule G-1 (Statement of Income on Hand)
- Schedule H (Statement of Interested Parties)
- Schedule I (Statement of Computation of Commissions)
- Schedule J (Statement of Other Pertinent Facts and Cash Reconciliation)
- and Schedule K (statement of Estate Taxes Paid and Allocation Thereof).
Although not every estate accounting requires all the schedules, you would still need to itemize and categorize all the expenses and income and ensure that they are reconciled with your bank balances.
Although informal accountings are more popular for small estates, large estates, though rare, usually require a more formal accounting.
Tips For Executors on Submitting a Good Accounting
Make sure to include all expenses
Just like filing a tax return for a business, you will pay dearly if you neglect to list all of the expenses. Make sure the beneficiaries will not charge you for money that is not due to them but was spent on the expenses of the estate. Look over the estate accounts and even the decedent’s personal bank accounts and possibly your personal bank accounts (ask your estate attorney). Even small expenses can add up to large sums fairly quickly. No expense should be left unaccounted for.
Be involved in the accounting process
It’s easy to just let the attorney and the accountant handle the judicial accounting. After all, they’re getting paid to do it. You can’t do everything yourself, and you have to delegate. However, this does not mean that you should not be involved in the process. After all is said and done, it’s you who is in the crosshairs, not the attorney or the accountant. So make sure you check their work.
Do not procrastinate
Start compiling the judicial estate accounting as soon as the Citation for Compulsory Accounting is served, if not before. This is because it takes months to put together an accounting, but the court is only going to give you from thirty to sixty days. Courts know that executors have the option to start putting the accounting together before the court issues the Judicial Accounting Order; this is why courts give so little time to file an accounting. Don’t procrastinate – call your New York estate lawyer and tell them to start working on the accounting right away.
The sooner you start, the more time you have to fix any issues that may come up, so that you’re one hundred percent protected from any allegations that may come up from the beneficiaries. Even if the beneficiaries will ultimately agree to work things out based on an informal accounting, you will still need to file some kind of accounting, so get to work.
Receipts and Releases
If all the beneficiaries agree to the accounting, then a document called receipt, release, and refunding agreement is executed by each beneficiary, where each beneficiary agrees to discharge the executor or administrator from personal liability regarding the management of the estate and agrees to refund to the executor or administrator any legitimate expense related to the estate that is spent after distribution is made to the beneficiary. The personal representative may or may not file these receipt, release and refunding agreements with the court.
Accounting vs. Inventory of the Estate
Beneficiaries have the right to have the executor show an inventory of the estate (not to be confused with a formal accounting) within nine months of the appointment of the executor of the estate. An Inventory is something that should just be filed – the beneficiary should not have to ask for it. Some executors make a mistake of just filing the Inventory with the Court and not automatically sending a copy to the beneficiaries. It’s always a good idea to ask the executor for an inventory before deciding whether or not to proceed to the next step.
To sum up, does an executor have to show an accounting to beneficiaries? Not automatically, but yes if they ask for it. The executor can start with showing an informal accounting to the beneficiaries. If the beneficiaries are not satisfied, then the executor would have to file a formal accounting with the court.
If you are looking for a New York estate law firm that has extensive experience with executor accountings, we at the Law Offices of Albert Goodwin are here for you. You can call us at 718-509-9774 or send us an email at email@example.com.