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Preparing an Estate Accounting in New York

new york estate accounting

After a person dies, their executor or administrator is tasked with gathering their assets, paying any debts and taxes, and distributing the remaining assets to the beneficiaries. Often, there is also an additional requirement of providing an accounting. An estate accounting provides a detailed record of:

  • All of the assets that are a part of the estate
  • Any income generated
  • Expenses paid
  • Distributions made
  • And the remaining assets available for distribution

The executor provides the accounting to the beneficiaries and sometimes to the court as well. Executors typically start with an informal accounting which is sent directly to the beneficiaries. If the beneficiaries are not satisfied with that, then the executor has to file a formal judicial accounting, which is filed with the probate court, which in New York is called the Surrogate’s Court.

The Basic Contents of an Accounting

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
  • etc.

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.

Informal 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.

Informal accounting can contain only a simple summary of the estate funds, such as the principal received, income generated, expenses, payment of debts, and remaining funds left for distribution to the beneficiaries.

Formal Accounting

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.

A formal accounting may be required in a number of scenarios:

  • A beneficiary can compel the executor or administrator to account, possibly because there is a disagreement on how estate funds were used.
  • The court can also order a judicial accounting, especially when there is a minor beneficiary.
  • The executor or administrator may also initiate a petition to judicially account when not all beneficiaries execute receipt and release agreements, and the executor or administrator would like to be protect himself by getting the court to approve the accounting and fully discharge him from liabilities.

Requirements for a Formal Accounting

A formal estate accounting requires a detailed accounting report regarding the principal received, realized gains or decreases from the principal, funeral and administration expenses, unpaid administration expenses, creditor’s claims, distribution of principal, new investments, income collected, administration expenses charged to income, distribution of income, statement of principal and income on hand, interested parties, computation of commissions, estate taxes paid, and cash reconciliation, reported under a court-approved format.

The principal received must be detailed and should include date received, a description, and a value. If the principal received is not in cash, but in the form of property (such as real property), there must be an appraisal to determine its value at the time it was received. If the real property has been sold for a profit at a price higher than its appraised value (for example, a house appraised at $550,000 was sold for $600,000), the gain (of $50,000) is reported in a separate schedule under realized increase of principal. If property such as stock, for example, was sold at a price lower than the value it was received (for example, 100 shares valued at $10/share when received was sold at $8/share thereafter), the loss (of $2/share or $200) is reported in a separate schedule under realized decreases of principal.

Interests received, such as interest from a bank account or a certificate of deposit, is reported under a separate schedule under income collected. Administration expenses are categorized under administration expenses taken from principal and administration expenses taken from income. These expenses must be sufficiently described, justified, and supported by receipts. Distributions are also categorized as those taken from the principal as opposed to those taken from income. At the end of the estate accounting summary, the remaining on hand should generally balance with your cash reconciliation, a separate schedule that provides the ending balances for all the bank accounts. The amount for unpaid administration expenses and commission for the executor or administrator is also indicated, which should already include a contingency fund and a proposed distribution to the beneficiaries.

A judicial estate accounting for the executor or administrator is a complex activity. The accountant or attorney can do it for the executor or administrator but the executor or administrator must review it personally to ensure that all items are reported accurately.

What is included in the formal accounting

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 with the formal accounting

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.

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.

The downsides of a formal 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.

A judicial accounting in  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

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.

Get Receipts and Releases before you distribute funds!

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.

If you are an executor or administrator who would like help in putting together an estate accounting, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York, NY, Brooklyn, NY and Queens, NY. You can call us at 718-509-9774 or send us an email at attorneyalbertgoodwin@gmail.com.