Accounting and Auditing for Trusts and Estates DVD


I. OVERVIEW Introduction
Summary of Account


•Estimated Market Value of beginning and ending Assets
•Income vs. Remainder Beneficiary
•Trust accounting is unique because of two “owners”. One owns principal. One owns Income. *
•Trustee is custodian with a lot of responsibility and few benefits. *

  Income vs. Principal

•What is Income under the Principal & Income Law? *
•Capital gains are principal *
•Fiduciary accounting is RESPONSIBILITY ACCOUNTING *
•Sample of Summary of Account *

  Schedules Needed for Summary of Account

•What if income beneficiary and remainder beneficiary are the same? *
•Definition of Principal*
•All “death taxes” are charged to principal *
•Question: Fair market value in regards to non-liquid assets? *

  Net Income from Trade or Business

•Disbursement Schedule *

  Trustee’s Duty to Diversify

•Duty towards beneficiaries *
•Example: Trustee buys land as investment property *
•Diversify to avoid large losses *
•What is a diversified portfolio? *
•Question: How much control has settlor over the kind of investments made by trustee?
•Question: Distribution of capital gains?


•Summary of account does not say much about financial health of an estate. Example. *


•Trustee can be sued for breach of fiduciary duty
•Make sure that every asset is adequately insured
•Advise trustee to buy fiduciary liability insurance
•Question: What level of insurance ought to be obtained? *

  Accountant’s Duties – Golden Rule

•Question: No-contest clause, only enforced when contest is unsuccessful? *

  Duty to Inform Beneficiaries

•Trustee’s duties to inform the beneficiaries and to account to the beneficiaries *
•Waiver of accounting *
•Duty to disclose stock splits *
•Disclose terms for contesting a trust *
•Every person named in a will or trust is entitled to a complete copy of it *
•Duty to disclose employment of trustee’s family members *
•If not filing in court, mandatory contents of account *
•Beneficiary’s right to waive an account *
•No accounting mandatory for revocable trust *

  Sample Account with Reports
  “Wherefore” Paragraph
  Accountant’s Legal Liability

•As an advisor to a fiduciary you subject yourself to the jurisdiction of the court. *
•Example: How an accountant can be called to task before the court. The estate of Joshua Heifetz *

  Court Guidelines

• Hiring accountants. Billing issues
• Question: Are less experienced fiduciaries held to a lower standard?
• A lay person will be held at least to the standard of “prudent person” *
•Attorney should provide conformed copy of petition and report as filed *

  CPA also Appointed as Trustee
  Supporting Schedules
  Sample Summary Prepared with Software
  Mismanagement - Court Approved
  Hourly Rates Approved by Court
  Uniform Prudent Investor Act

•Other resources known to the trustee
•Needs for liquidity and regularity of income
•An asset’s special relationship to a beneficiary
•Trustee’s duty to diversify investments
•Delegation of investments and management functions

  Uniform Principal and Income Act

•What if Trustee is given sole discretion?
•Adjustment between principal and income
•Income received from an entity
•How to treat bonds: income or principal?
•Stock Dividends
•General rule: distributions of money.
•Original issue discounts.
•Distributions from another trust
•Conducting business or other activity
•Obligation to pay money
•Insurance proceeds
•Difference between a trust and an estate
•Depreciation Allowance
•Interest in minerals or natural resources
•90/10 rule
•Marital deduction
•Asset backed securities
•Allocation of disbursements during administration of trust
•Reimbursement of principal reserve for future disbursements
•Allocation of disbursements: taxes
•Question: Capital gains paid at trust level or passed through to income beneficiary?
•Allocation of disbursements: adjustments
•Overriding Rule

  Typical Estate
  Appraising Assets for Probate

•The Probate Referee
•Rental Property
•All payouts during probate administration charged to principal *

  Various Samples

•Chart of accounts with two net worth sections *
•Opening, adjusting and closing entries
•Different format of summary of account
•Accounting for a probate estate
•Accounting for a trust. Principal or income?
•Other kinds of fiduciaries *

  Sample Executors Account for Probate

•Backup Schedule to Statements of Account
•Receipts of Principal. Adjustments to Carry Value
•Gains and losses on sales or other dispositions
•Schedule G: Principal balance on hand
•Information schedules – Principal
•Schedule of Proposed distributions to beneficiaries
•Schedule regarding status of creditors claims *
•Summary of extra fees *
•Waiver of accounting

  Sample Trustee’s Account
  Information schedules – Principal
  Auditing a Living Trust

•Deduction for Depreciation and depletion
•Mutual fund distributions
•Treatment of bond discount and premium
•Treatment of US savings bonds

  Proprietorships and Partnerships

•Question: What if trustee contributes money to the partnership? *
•Don’t run businesses *

  Common Mistakes in Estate Accounting

•From what date is income beneficiary entitled to distributions?
•Probate is comparable to escrow *
•When do properties distributed from probate become subject to the trust?
•During probate, does interest accrue from date of death?
•What assets are subject to probate?
•Only funded living trusts avoid probate. "Declaration of Trust" rule
• Non-probate assets subject to federal estate tax. The “Q-Tip” marital deduction
•Advantages and disadvantages of probate
•When must a probate account be filed


•Successive income beneficiaries
•How often must trustee make distributions to income beneficiary?
•Allocation of receipts between income and principal
•Are you always bound by the Principal and Income Law?
•Common problem: wrong valuation of assets
•What does “Income Beneficiary” mean? *
•What is a “Remainder Beneficiary”? *
•When to make a breakdown between principal and income
•General standards of fiduciary accounting

  Retainer Letter

•Chapters marked with a * asterisk can be accessed only by clicking on “next chapter” button on your remote control.