Why is a Trust Accounting Important?

By law a trustee must provide an accounting to all beneficiaries at least annually. While the trust instrument can’t waive this requirement, most trusts do not.

While many beneficiaries likely just gloss through a trust accounting prepared by a trustee until they want to challenge the trustee’s actions, this is not recommended.

First, there is a three-year statute of limit to challenging a trustee’s actions after their actions have been disclosed to you. Therefore, if the trustee performed some malfeasance in year one of the administration of the trust but you do not become suspicious until year five, you may be prevented from challenging the trustee’s malfeasance if they properly disclosed their transactions in the accounting.

While this may seem unfair as you often don’t know the significance of certain line items found in an accounting until after you discover some other improper administration, the law is unforgiving. As a result, it is of monumental importance to review each and every disclosure your trustee provides to you with the up most attention to detail, and if you don’t understand the context of a line item, ask. Probate Code section 16061 requires the trustee to provide all relevant information regarding the beneficiaries interest in the trust upon reasonable request. Because what is relevant under the law is so broad this means that the vast majority of information regarding the trust must be provided to the beneficiary on request. If the trustee refuses or stonewalls your requests, then it is a big red flag that the trustee is trying to hide information from you.

Beside the statute of limitations, you want to discover the trustee’s improper administration as quickly as possible in order to preserve the remaining trust assets. Generally speaking, a bad trustee does not just make one mistake, instead they repeatedly improperly administer the trust to the detriment to the beneficiary. While you can pursue claims to recover the money that was lost, the trustee will always contest that amount. Instead, the best way to preserve the trust’s estate is by keeping the trustee honest the entire time and challenging every improper administration as is lets the trustee know you are paying attention—thereby limiting the likelihood of the trustee trying anything improper—and it stops the loss much earlier than if you wanted later on into the administration of the trust to challenge the trustee’s actions.

While combing through trust accounting can be time intensive and difficult to decipher, it is worth it, even if you must retain an attorney to do so as your outlay of cash now may save you a much more significant amount of money in the end.