The Importance of Documentation for Fiduciary Accounting

Whether you’re a trustee under a trust, or acting under a power of attorney or a conservator in a conservatorship, maintaining proper records and preparing periodic accountings are the best ways a fiduciary can help protect itself and serve its beneficiary’s best interests.

That brings to mind a case in which our client was serving as a power of attorney for their father. When the other siblings opened up special proceedings in probate court to determine if there were assets that should be in trust, our client was asked to provide a fiduciary accounting.

Our client had acted as an attorney-in-fact under his father’s power of attorney for almost ten years. Our client had not been asked to prepare an accounting during that time and kept some, but not all the records of its activities. When later instructed by a court order to provide a full accounting for the entire period, reconstructing the years’ of exemplary service provided by the fiduciary became a substantially more difficult task in the absence of detailed financial records long since misplaced. This situation exemplifies how important it is for fiduciaries to keep all receipts, bank statements, and tracking information.

What is a Fiduciary Accounting?

Fiduciary accountings are comprehensive reports detailing the activities within a trust, estate, or conservatorship during a specific period of time. Accountings detail all of the receipts and disbursements managed by the person handling the assets and financial affairs for the beneficiary. That even includes a person acting under a written power of attorney, whether for a few months or several years.

A fiduciary will help protect itself from liability and unwarranted challenges by keeping detailed financial records and documenting those important records so they can be easily itemized in an accounting. Accountings protect the beneficiary as well because fiduciaries are obligated to keep adequate records, account truthfully, and provide evidence to the beneficiary of any potential errors or wrongdoing. An accounting provides transparency into how the fiduciary has managed the beneficiary’s affairs.

Elements of a Fiduciary Accounting

Under normal circumstances, the fiduciary should prepare an accounting at least once per year. An accounting will usually contain the following information:
– Statement identifying the subject estate/trust/power of attorney, the fiduciary providing the accounting, and the time period covered by the accounting.
– Cash and property transactions, including compensation paid to the fiduciary and the fiduciary’s agents (like attorneys and accountants).
– Gains and losses realized during the accounting period must be disclosed along with all receipts and disbursements.
– Asset values at the end of the accounting period.
– Significant transactions such as changes in investment holdings, adjustments to carrying value, stock splits, or a change of custodial institutions.
– Allocation of receipts, accruals, disbursements, or allowances between income and principal.

Fiduciaries who fail to inform and account to a beneficiary may be in breach of their obligations to the beneficiary. Even when no accounting is required in real time, an accounting may become due many years later.

It is important to keep thorough records so a detailed report can be made when needed. If ever questions are raised or disagreements occur over asset management, an accounting and thorough papertrail is a fiduciary’s best protection and may be the means to a successful resolution between fiduciary and beneficiaries.

If you are an attorney-in-fact acting under a power of attorney or a trustee or beneficiary with an accounting concern, please reach out to our experienced attorneys at Hamlin | Cody so we can discuss all of your options under the law.