Formal Estate Accounting Requirements

Estate Accounting is both something an executor should do, and something an executor can be required to do. This article is about what happens when an executor is required to provide an accounting.

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What is a Formal Estate Accounting?

A formal Estate accounting is a report of the executor's financial administration of the estate to the date of the report. It details all of the estate assets, the expenditures and the receipts of the administration. Usually it is accompanied by the provision of 'vouchers', being the source documents that evidence the transactions - such as invoices, receipts and bank statements.

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What must an Estate Accounting Include?

An estate accounting must accurately report on the income, expenses, gains and losses of the estate, and reconcile those to the bank accounts maintained for the estate.

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Inventory

It should include an inventory (balance sheet) of the estate, and a report as to the entitlements of the beneficiaries - which should exactly equal the inventory total.

The starting funds, plus the sale proceeds of estate assets and income, minus the recorded expenditures, must equal the current bank funds.

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This simple equation can prove surprisingly difficult for an executor to prove - particularly where the administration has continued for a lengthy period and/or where various transactions were done with cash, and vouchers have not been retained.

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Executors should bear in mind that they can be personally responsible for any deficiency between the expected bank totals and the actual balances.

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This is so even if the Executor has acted honestly.

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Transactions (Categorised)

The accounting must provide a detailed list of every transaction undertaken with respect to the estate. To be useful, the transactions should be grouped by category: distributions, maintenance expenses, interest income and expense, repairs, legal and accounting fees, dividend income and the like.

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The precise categories which are useful will depend on form of the estate assets and the nature of the administration undertaken.

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Some forms of income, expenses and gains and losses must be accounted separately, in order to correctly allocate them. For example, a life tenant is entitled to the income, and is responsible for the non-capital expenses, associated with the asset/s gifted in the life tenancy, while the remainder beneficiaries are entitled to the capital expenditure, gains and losses. In that case, the estate accounting needs to be able to separately identify those payments and receipts and to correctly allocate them to the affected beneficiary/ies.

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Beneficiary Entitlements

The entitlement of each beneficiary, taking into account any distributions already made to them, should be calculated and reported. The total of the beneficiary entitlements must equal the value of the Inventory.

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Format of Reports

The precise requirements of an estate accounting are determined by the jurisdiction in which the order for an accounting is made.

Some jurisdictions require the accounting to be in a specific court form. Others provide only general guidance as to the requirements of content, while leaving the form unspecified. Others again use a hybrid approach.

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Attestates provides a set of ready-to-issue reports, both detailed and summary. The data can also be exported to Excel for formatting in any other way the Court rules may require.

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How To Comply

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Keep contemporaneous records and accounts.

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Attempting to retrospectively create an estate accounting, reconciled to bank accounts, over a lengthy period is very difficult. Memories are not perfect, and it can be hard, 2 years later, to remember why a particular payment was made - and even harder to find the records to vouch the transaction.

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Executors must keep in mind that their obligations are equivalent to that of a trustee, and they owe a fiduciary obligation to the beneficiaries. They must act with absolute good faith, and must be able to account for every dollar - in and out.

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To do that, contemporaneous record-keeping is essential. The executor must be able to produce the vouchers (invoices and receipts) and the bank statements that record the transactions, as well as providing the summary reports which indicate how the estate has been managed - and these records must correspond. This can only effectively be done by keeping the records, and an accounting, as the administration progresses.

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Recording the administration in accounts, and preserving the vouchers, is an essential part of good estate administration - whether or not, at the time, the executor believes that the beneficiaries will ever  call for an accounting.

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The court expects an executor to be able to account promptly whenever called on to do so. Executors who are unable or unwilling to do this may be removed as executors, and costs orders (and compensation orders) made against them.

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Conclusion

Estate accounting is a formal financial reporting of the assets, income and expenditure of an estate. It is very detailed, requiring an explanation of, and evidence to support, every transaction undertaken for the estate. The only effective way to do this is concurrently, as the transactions themselves are undertaken.

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Attestates is purpose built to facilitate simultaneous recording of tranactions, categorising them in a meaningful way and to provide instant, comprehensive reporting whenever required. Vouchers and statements can be attached to a specific transaction and all vouchers and statements can be produced in a single, bookmarked report at the click of a button.

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