A fiduciary – an executor, administrator, guardian, or trustee – holds a position of trust. Because the fiduciary acts for the benefit of others, he must account for the manner in which he handles the assets entrusted to him. Accordingly, a fiduciary has an obligation to account to the beneficiary, at reasonable times, for each item of the estate or trust that comes into his hands.
The fiduciary’s administration of an estate or trust may be concluded either informally or formally. Whereas a formal accounting is submitted to the court for adjudication, it must be prepared in the format provided by the Rules of Court; an informal accounting, however, is not submitted to the court, and may be prepared in any format that the parties find mutually acceptable. Ordinarily, regardless of form, an accounting will include schedules detailing the inventory of assets at inception, subsequent receipts, disbursements made, any distributions to beneficiaries, the balance on hand, and a proposal for distribution upon termination.
In regards to informal accountings, where all interested parties agree to the accounting and execute a Refunding Bond and Release, the fiduciary will not be required to settle his account via court action. Due to the substantial filing fees and audit fees incurred by the estate or trust in seeking judicial approval of an accounting, parties ordinarily will attempt to amicably resolve any issues and avoid judicial approval of the fiduciary’s account.
As to formal accountings, a person in interest may file a complaint upon an order to show cause to compel the fiduciary to account. Also, a fiduciary has the right by statute to seek judicial approval of his account. As previously mentioned, a formal accounting will ordinarily require an audit by the Surrogate which could result in a substantial fee. Currently, for example, an estate exceeding $200,000 (a modest estate if the decedent owned a residence and any financial accounts) will incur an audit fee of 4/10 of 1% of the estate – exclusive of the filing fee, for an estate of $500,000 the audit fee alone will be $2,000 under the current statute.
Regardless of whether the fiduciary’s accounting is presented formally or informally, it is essential that the fiduciary maintain accurate records of all transactions and establish a record-keeping system to monitor the activity of the funds in his charge. The nature of the record-keeping system depends on the size of the estate or trust, the nature of the assets under the fiduciary’s control, and the volume of the anticipated transactions during the course of administration.
Because estate and trust administration and litigation requires specialized knowledge, you may wish to consult with an experienced attorney if you are either a fiduciary or beneficiary of an estate or trust. Specifically, you may wish to contact an attorney if you have questions regarding the probate process, administration of an estate or trust, fiduciary obligations, preparation of a formal or informal accounting, refunding bonds and releases, and the procedures for filing a formal accounting or exceptions thereto. This article is for information purposes only, and is neither legal advice nor the creation of an attorney client relationship.
Justin M. Smigelsky, Esq., 2014, all rights reserved