Trustee’s Obligation to Account to Beneficiaries

Many complaints made about persons responsible for the administration of estates arise out of the failure of trustees to give a proper accounting for what they have done to the beneficiaries of an estate.

This can potentially cause the beneficiaries to believe that the trustee has acted incorrectly, improperly, negligently or even that the trustee has stolen from the estate.

This article is written to inform trustees of their obligations to account to beneficiaries and is not intended to be, and ought not to be, construed as legal advice.

An accounting is a process whereby the trustee shows and/or tells the beneficiaries what assets and liabilities formed part of the estate initially, how they were dealt with by the trustee, what money he/she received, what money was spent and why and what is remaining to be distributed once all liabilities have been paid and any and all assets converted to cash (if any and subject to the terms of the will).

An accounting is needed to protect both the beneficiaries and the trustee of an estate.

A beneficiary is entitled to know how much he/she is to receive, to be sure that he or she is getting the amount of money he or she is entitled to receive, and that the trustee has acted honestly and in his best interests.

A trustee wants to be sure that the beneficiaries are satisfied with what he has done and that each of them have received the amount that is properly due to them. In addition, a trustee is not entitled to receive any compensation until the beneficiaries consent to his taking it.  A trustee does not normally ask for such consent until he gives an accounting for his actions.

A trustee of an estate is required and obligated to account to the beneficiaries and can do so either formally (by way of a passing of accounts) or informally (for example, by way of an interim accounting).

Informal Accounts

Informal accounts, which are by far the most common, normally take the form of a letter which shows and/or tells the beneficiaries what assets and liabilities formed part of the estate initially, how they were dealt with by the trustee, what money he/she received, what money was spent and why and what is remaining to be distributed once all liabilities have been paid and any and all assets converted to cash (if any and subject to the terms of the will).

Formal Accounts

A formal accounting is done in a procedure known as a “passing of accounts”.  The accounts are prepared in Court form, and submitted to a judge of the Court for audit.  Notice is given to all beneficiaries. If someone objects to the accounts or to the compensation claimed by the trustee, the trustee and the person objecting must appear before the judge on the date fixed for passing the accounts.

A trustee must pass his accounts before a Court, in part, the following circumstances.

1. If beneficiaries who receive informal accounts refuse to sign a release releasing the trustee;
2. If a beneficiary compels the trustee to pass their accounts (i.e. if they are upset with the trustee or believe they have acted improperly);
3. If the estate being administered involves beneficiaries who do not have capacity to sign a release including estates involving minors, persons who are mentally incompetent, and absentees (beneficiaries whose identity is known but who cannot be located).

It is the responsibility of the trustee to keep proper accounts, and is one of the things that is included in his compensation.  If he wishes to employ someone else to prepare them, he must pay that person for doing so from his compensation.