New York trust accounting can be informal, formal or a hybrid.
Informal New York trust accounting
Informal accounting can contain only a simple summary of the trust funds, such as the principal received, income generated, expenses, and distributions to the beneficiaries. If all the beneficiaries agree on the informal accounting, then a document called receipt, release, and refunding agreement is executed by each beneficiary, where each beneficiary agrees to discharge the trustee or administrator from personal liability regarding the management of the estate and agrees to refund to the trustee or administrator any legitimate expense related to the estate that is spent after distribution is made to the beneficiary. These receipts and releases do not need to refer to final accounting reports of trustees but can refer to intermediate reports. Once beneficiaries sign on the intermediate reports, they may be precluded from further questioning it in the future.
The trustee may or may not file these receipt, release and refunding agreements with the court. If the trustee files these receipts and releases with the court, he can get a court order discharging him from liability. This is called the hybrid accounting, which is a mix of the informal receipt, release and refunding agreements, formally filed with the court.
Formal New York trust accounting
New York formal trust accounting, on the other hand, occurs in a number of ways. A beneficiary can compel the trustee to account, possibly because there is a disagreement on how trust funds were used. The court can also order a judicial accounting, especially when there is a minor beneficiary. The trustee may also initiate a petition to judicially account when not all beneficiaries execute receipt and release agreements, and the trustee would like to protect himself by getting the court to approve the accounting and fully discharge him from liabilities.
Formal New York trust accounting requires a detailed accounting report regarding the principal received, realized gains or decreases from the principal, funeral and administration expenses, unpaid administration expenses, 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 principal as opposed to those taken from income. At the end of the 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 trustee is also indicated, which should already include a contingency fund and a proposed distribution to the beneficiaries if it is a final accounting.
The differentiation between principal and income is more important in a trustee’s accounting because there are some trusts that require only a distribution of income to the lifetime beneficiary with the principal to the remainderman. There are some trusts that allow an invasion of the trust principal for the beneficiary under certain limited circumstances.
What is included in the formal accounting
Documents that have to be included as part of the formal 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 a trust 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.
A judicial accounting for the trustee can be a complex activity. The attorney can do it for the trustee but the trustee must review it personally to ensure that all items are reported accurately.
Although informal accountings are more popular for small trusts, large trusts usually require a more formal accounting. If you are a trustee that is compelled to submit a judicial account or you are a beneficiary that would either like to compel a trustee to judicially account or need to review an accounting done by a trustee, 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 firstname.lastname@example.org.