How to Prepare a Trust Accounting in California: A Step-by-Step Guide

Serving as a trustee in California comes with significant fiduciary responsibilities, one of which is providing accurate and timely trust accountings to beneficiaries. Whether you're managing a simple family trust or a complex estate, understanding the trust accounting process is crucial to ensure compliance with California law and to maintain transparency with beneficiaries.

In this guide, we'll walk you through the essentials of preparing a trust accounting in California, including legal requirements, formatting tips, and where to find helpful templates.

What Is a Trust Accounting?

A trust accounting is a detailed report that outlines all financial activities of a trust over a specific period. It provides beneficiaries with a clear picture of how trust assets are being managed, including income received, expenses paid, distributions made, and the current status of trust assets and liabilities.

When Is a Trust Accounting Required in California?

Under California Probate Code § 16062, trustees are generally required to provide an accounting:

• At least annually

• Upon termination of the trust

• When a new trustee assumes duties

• Upon reasonable request by a beneficiary (Trust Accounting Template in Excel, Google Sheets - Download | Template.net)

However, the trust instrument may waive the requirement for periodic accountings, except when the trust becomes irrevocable upon the settlor's death.

Legal Requirements for Trust Accountings

According to California Probate Code § 16063, a trust accounting must include:

1. Statement of Receipts and Disbursements: Detailing all income and expenses of the trust.

2. Statement of Assets and Liabilities: Listing all assets and debts at the beginning and end of the accounting period.

3. Trustee's Compensation: Disclosing any fees taken by the trustee.

4. Agents Hired and Their Compensation: Including attorneys, accountants, or other professionals.

5. Gains and Losses: Reporting any realized gains or losses from the sale of trust assets.

6. Trust Assets at Market Value: Providing current valuations of trust assets.

Step-by-Step: Preparing a Trust Accounting in California

1. Establish the Accounting Period

Determine the time frame for the accounting, typically a 12-month period unless otherwise specified.

2. Inventory Trust Assets at Beginning of Period

List all trust assets with their values at the start of the accounting period.

3. Record All Receipts

Document all income received by the trust, such as:

• Interest and dividends

• Rental income

• Proceeds from asset sales

4. Record All Disbursements

Detail all expenses paid from the trust, including:

• Trustee fees

• Legal and accounting fees

• Taxes

• Property maintenance costs

5. Calculate Net Income or Loss

Subtract total disbursements from total receipts to determine the net income or loss for the period.

6. Update Asset and Liability Balances

Provide updated values for all trust assets and liabilities at the end of the accounting period.

7. Disclose Trustee and Agent Compensation

List any compensation taken by the trustee and payments made to agents, along with descriptions of services rendered.

8. Prepare the Formal Report

Organize the information into a clear and understandable format, often including schedules such as:

• Schedule A: Receipts

• Schedule B: Disbursements

• Schedule C: Gains and Losses

• Schedule D: Assets on Hand

• Schedule E: Liabilities

Sample Trust Accounting Format

Here's a simplified example of how a trust accounting might be structured:

[Name of Trust]

Accounting Period: January 1, 2024 – December 31, 2024

Schedule A – Receipts

• Interest Income: $5,000

• Rental Income: $12,000

• Total Receipts: $17,000

Schedule B – Disbursements

• Property Taxes: $3,000

• Maintenance Expenses: $2,000

• Trustee Fees: $1,500

• Total Disbursements: $6,500

Schedule C – Gains and Losses

• Gain on Sale of Stock: $2,000

• Loss on Sale of Property: ($1,000)

• Net Gain: $1,000

Schedule D – Assets on Hand

• Cash: $10,000

• Investments: $50,000

• Real Estate: $200,000

• Total Assets: $260,000

Schedule E – Liabilities

• Mortgage Payable: $50,000

• Total Liabilities: $50,000

Net Trust Value: $210,000

Downloadable Trust Accounting Templates

To assist you in preparing a trust accounting, the State Bar of California offers several helpful templates: (Client Trust Accounting Resources - State Bar of California)

• Account Journal Template:

• Client Ledger Template:

• Reconciliation Form:

These templates can be downloaded from the State Bar's Client Trust Accounting Resources page: (Client Trust Accounting Resources - State Bar of California)

Tips for Effective Trust Accounting

• Maintain Accurate Records: Keep detailed records of all transactions, including receipts, disbursements, and supporting documentation.

• Use Accounting Software: Consider using trust accounting software to streamline the process and reduce errors.

• Regular Reconciliation: Reconcile trust accounts regularly to ensure accuracy and identify discrepancies promptly.

• Consult Professionals: When in doubt, seek assistance from attorneys or accountants experienced in trust administration. ([PDF] Handbook on Client Trust Accounting for California Attorneys, [PDF] Judicial Council forms for standard and simplified accountings)

Final Thoughts

Preparing a trust accounting in California is a vital responsibility for trustees. By adhering to legal requirements and maintaining transparent records, you can fulfill your fiduciary duties and provide beneficiaries with the information they are entitled to receive. Utilizing available templates and resources can simplify the process and help ensure compliance with California law.

For a visual guide on using the State Bar's trust accounting templates, you might find this video helpful:

(Client Trust Account Reconciliation: Using the Account Journal)

Contact the top-rated California trust and probate attorneys Moravec, Varga & Mooney today to schedule a telephonic consultation. Have questions? call (626) 460-1763 or email LV@MoravecsLaw.com.

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