Trust Accounting to Beneficiaries: What to Expect

Trust Accounting. Boring! (Not if you’re a beneficiary)

“Tell me the bottom line!”, the beneficiary feels like yelling. “Did I make money or lose?” 

One of the duties of a trustee is to provide financial information to beneficiaries. Unlike a corporation that does not have to tell shareholders in detail about expenses and compensation to officers, a trust has to disclose all of its numbers, its performance and the market value of its holdings, when requested. The trustee has a duty to provide information that’s reasonably targeted to the beneficiaries.

Information of a financial nature comes under the heading of “Accounting.” Accounting can be informative, useless, or just intimidating. Most of us who look at any list of profits and losses, income, values and charges to income and capital either glass over, are bored or get the heebie-jeebies. That’s 99% of us, I’m guessing.

The goal of Accounting is to report and be informative. A targeted Accounting will tell stakeholders what they (and any reasonable person) would want to know. Targeted Accountings are not highly complicated. Beneficiaries will benefit if they get the information that’s relevant and helps them understand the basics: Values in the beginning, values at the end, money in, money out (categorized by purpose). If they want more information, they can always ask.

Can I give tax returns and financial account statements to beneficiaries as an accounting?

Providing third-party information (as opposed to spreadsheets you create) may qualify as a sufficient accounting for beneficiaries, but it may be confusing for them. They would benefit from a format they can understand like A + B – C equals D, where “D” is the total value of the trust at the end of the year. Some beneficiaries may desire more information than this, which you can easily provide as needed.

But for the average beneficiary to try to get to “D” by looking at financial statements and tax returns is a heavy lift. I wouldn’t recommend this if you’re trying to satisfy the statutory requirement of reasonable information for the typical beneficiary. That said, if the trust instrument allows for that “basic information” to be provided, it certainly saves expense to the trust for having to format it in a different manner, which can be very time-consuming. It may be sufficient to provide annual tax returns and end-of-year statements from financial institutions, along with the book value of any fixed assets like real estate.

If you’re not providing annual accountings, you probably should. Once in a while, trust instruments say no accounting is necessary, unless requested by beneficiaries, in which case you need to do so. Target your accounting to the interest level of the beneficiaries, without dumbing it down so that it is useless.