Suppose a parent passes away and one sibling is named trustee and begins managing the trust, while the other sibling is a beneficiary who is not receiving much information. At first, the trustee provides occasional updates, but over time, communication slows, and distributions seem smaller or less consistent without explanation. The beneficiary starts to wonder whether bills are being paid correctly or whether trust assets are being used as their parent intended. After several attempts to get answers go unanswered, the beneficiary becomes concerned that something may be mismanaged. Fortunately, they have an option: to demand accounting. Here is what to know about accounting requirements for trusts.
About Trusts
A trust is a legal arrangement often used to protect assets, avoid probate, maintain privacy, reduce estate administration costs, plan for incapacity, and ensure that property is distributed according to specific wishes. It can also provide financial security for family members, support charitable causes, and manage assets for minors or individuals with special needs. In a trust, one person, known as the grantor or settlor, transfers assets to another person or institution, called the trustee, who manages those assets for the benefit of one or more beneficiaries. Trusts are commonly used in estate planning because they offer greater control over how and when beneficiaries receive assets. Trusts may be revocable, meaning they can be changed or canceled during the grantor’s lifetime, or irrevocable, meaning they generally cannot be altered once established.
What a Trustee Does
Many people confuse the roles of a trustee and an executor, but they serve different purposes in estate planning. An executor is the person named in a will to manage the deceased person’s estate through the probate process. The executor gathers assets, pays debts and taxes, and distributes property to heirs, and their duties usually end once the estate is settled.
A trustee, on the other hand, is the person or institution chosen to manage and distribute property that has been placed into a trust. In this role, the trustee must follow the instructions written in the trust document and handle trust assets carefully and responsibly. This often includes managing bank accounts, investments, real estate, or other property held for the benefit of others.
Trustees are legally required to act in the best interests of the trust’s beneficiaries. These fiduciary duties include managing trust assets with care and prudence, remaining loyal to the beneficiaries, and avoiding conflicts of interest or personal gain. Trustees must also act honestly, follow the terms of the trust, and administer it in good faith. They must help protect trust assets, ensure proper trust administration, and uphold the grantor’s intentions for the trust and its beneficiaries.
Depending on the type of trust, a trustee may begin serving while the person who created the trust is still alive, such as with a living trust. In other situations, the trustee takes over only after the trust creator passes away. Because many trusts are designed to last over time, a trustee may manage the trust for months, years, or even decades. Throughout the process, the trustee must act in the best interests of the beneficiaries, keep accurate records, and make distributions in accordance with the trust’s terms.
Accounting
Accounting for a trust means keeping clear records of all money and property that goes in and out of the trust over a set period of time. The trustee is responsible for tracking and organizing this information.
Florida Statute §736.08135 sets out the requirements for a trustee’s accounting of a trust. A trust accounting is basically a clear report that shows all financial activity in a trust during a specific time period, usually since the last report or since the trustee first took over.
The law requires that the accounting be easy to understand and clearly identify the trust, the trustee, and the time period covered. It must include all money and property that entered and left the trust. This includes income such as interest, dividends, rent, and business earnings, as well as expenses such as taxes, fees, and other costs incurred by the trust.
The trustee must also report all significant transactions that affect the trust’s management. This includes payments made to the trustee or their agents, as well as gains and losses from investments. The accounting should also show any changes in the value of trust assets and list what assets are still held at the end of the period.
In addition, the trustee must include information about any liabilities the trust owes, if known, and explain how income and expenses are divided between income and principal when it affects beneficiaries. If this is the final accounting, the trustee must also include a plan for the distribution of remaining trust assets.
Beneficiaries in Florida can object to and challenge the accounting. Under Florida law, a beneficiary generally has six months to bring a breach-of-trust claim if the matter was adequately disclosed in a trust accounting or other trust disclosure document and accompanied by a proper limitation notice. If the matter was not adequately disclosed, longer limitation periods may apply, and the claim may not begin to accrue until the beneficiary has actual knowledge of the relevant facts. Failure to file a claim within the applicable deadline can permanently bar the beneficiary from pursuing legal action against the trustee.
Contact an Experienced Florida Trust Attorney
If you are a beneficiary or trustee dealing with questions about a trust accounting, it is important to contact an experienced Florida trust attorney as soon as possible. A trust attorney can review the trust document, help enforce your rights if a trustee is not being transparent, and evaluate trust accounting. Early legal guidance can help address issues quickly by clarifying what is going on and, hopefully, avoiding formal litigation.