Understanding Court Accounting
By Bhakti Shah, JD, CPA, Partner and Claire Snow, CPA, CFE, Supervisor
Fiduciaries (i.e., trustees, executors and guardians) have tremendous responsibility when managing assets in their care. One of those duties is to maintain detailed account records for their beneficiaries. A court-ordered accounting can be a valuable tool for both parties, giving clarity and transparency to the beneficiary, while simultaneously providing protection for the fiduciary from personal liability.
Below is a breakdown of what you need to know about a court accounting: what it is, what might compel one to be ordered and the typical components of this type of accounting.
Court Accounting Defined
Often referred to as a formal fiduciary accounting, a court accounting is a comprehensive report that details all of the income and expenses of a trust, estate or guardianship/conservatorship during a specific time period. It is different from other types of accounting, such as business financial statements, personal net-worth statements and loan applications and must conform to State statutes, local court rules and the Uniform Principal and Income Act (UPIA).
What Might Compel a Court Accounting
A fiduciary accounting may be required by State statute, the governing instrument, a court order or at the beneficiary’s request. Common reasons to compel a court accounting include a belief by an interested party that an executor, agent or trustee has stolen property, misappropriated funds, co-mingled assets or abused power. Additionally, a State Attorney General’s Office may require a formal accounting to finalize an estate when a 501(c) charity is a remainder residuary beneficiary of the estate. Providing dual protection, a court accounting can serve to protect a fiduciary from personal liability, as well as provide the beneficiary with transparency. The accounting requires the fiduciary to disclose all activity of the trust or estate, which the beneficiary can review and challenge if necessary.
Typical Components of a Court Accounting
A court accounting typically includes the following components:
- Inventory of Assets: A complete list of the entity’s assets at both the beginning and end of the period in question. This can include real estate, bank accounts, investments and personal property. Assets that are withdrawn, paid out or moved during the period are documented.
- Income and Receipts: A record of all income the entity receives during the accounting period, including interest, dividends, rental income and any other sources of income. Income received from the entity’s investments is measured against the principal and income investment schedules to ensure that all income has been received and categorized correctly.
- Expenses and Disbursements: A detailed account of all expenses paid from the entity during the accounting period, including debts, taxes, legal fees and administrative costs.
- Distribution to Beneficiaries: A record of all distributions made to any of the beneficiaries during the accounting period.
- Changes in Asset Value: Any changes in the value of the entity’s assets during the accounting period, such as appreciation or depreciation in property value.
Contact Us
A court accounting presents a comprehensive snapshot of all the entity’s activity during the period in question. It provides transparency for all interested parties, including both the beneficiaries and fiduciaries. Our experienced professionals are here to help you with your accounting needs. If you have any questions, contact your PKF O’Connor Davies client service team or connect directly with our fiduciary accounting specialists:
Bhakti Shah, JD, CPA
Partner
bshah@pkfod.com | 908-956-0464
Joseph Parmegiani, JD, CPA
Partner
jparmegiani@pkfod.com | 908-967-6876
Bonnie Orr, CPA
Partner
borr@pkfod.com | 845-244-0351