What is Fiduciary Accounting and When Might You Need It?

By Valerie Makarenko,
Senior Manager in Anchin Private Client

What happens when you are named a fiduciary to an estate or trust?

The definition of a fiduciary is someone who acts in the principal’s best interest. When a fiduciary is named to an estate or a trust, this means that the fiduciary party has knowingly accepted the fiduciary duty on behalf of the beneficiary. This is a significant position because of the responsibility now held by the fiduciary, or trustee, to always act in the best interest of the beneficiary.

One can be named a fiduciary of the trust or estate from its inception.  There might also be situations when there is a need to substitute the original fiduciary.  For example, the original trustee/executor is no longer able to handle complicated matters related to the administration of the trust or estate, or there is a change in the relationship between the family and the current trustee.  In this case, the estate or trust might name a corporate trustee or a trusted advisor, such as an attorney or their tax accountant, to be a trustee/executor. When this happens, a fiduciary accounting is needed to establish the current assets and liabilities of the estate or trust.

A fiduciary accounting is a detailed and extensive report of all activity within a relevant period in the estate or trust. This official report is compiled by a professional, usually a third party, and should include:

• A statement of receipts, disbursements, and distributions of principal and income;
• A detailed description of all assets and liabilities;
• A computation of the fiduciary’s compensation; and
• Information about the beneficiaries.

What happens when a comprehensive report of a trust or an estate activity is needed?

If you have been named a trustee/executor of a trust or estate, now is the time to have a fiduciary accounting done of all the trust’s or estate’s activity.  The trustee/executor can be liable for their actions if their actions are deemed not to have been conducted in the best interest of the beneficiary, therefore, it is important to have a very comprehensive report done and have all parties review and approve it. This will protect the trustee/executor from any potential lawsuits if there are some questions from the beneficiary or disputes over handling of the assets.

Another reason to have a fiduciary accounting done is because a third party may ask for this type of official documentation. For example, if one of the beneficiaries for an estate or trust is a charitable organization, then the Attorney General’s office will ask for a fiduciary accounting report establishing the trust’s or estate’s activities, and determining the balance of the assets for charitable distribution.

If you have any questions about fiduciary accounting and when you might need one, please reach out to Valerie Makarenko, Senior Manager in Anchin Private Client, or your Anchin Relationship Partner.