As fiduciary you are required to account to the beneficiaries, but the type of accounting will vary depending upon the actual beneficiaries and the fiduciary’s relationship with them. There are two types of accounting: informal and judicial accounting.
Typically, the least expensive and fastest way for a fiduciary to account is to prepare an informal accounting that provides, at a minimum, the assets that were collected, any distributions or payments made from the estate and the amounts to be distributed. Additionally, if the fiduciary decides to take a commission or hold a reserve fund for any remaining expenses, this will be calculated and provided within the accounting and distribution schedule. With an informal accounting, beneficiaries typically receive a copy of the accounting or all statements from the estate account along with a receipt, release and refunding agreement. This agreement provides that the beneficiaries have received the accounting and assets they are entitled to, release the fiduciary from any liability, and agree to refund any amounts due to the estate for payment of additional debts or expenses, if necessary. Once all beneficiaries have examined the accounting and returned the signed and notarized release agreement, the fiduciary can release the funds to the beneficiaries.
Objecting to an Accounting
Sometimes beneficiaries refuse to sign the release agreement that accompanies an informal accounting or they may not have the capacity to sign a release, such is the case with a minor or incapacitated beneficiary. In that instance, it will be necessary to prepare and file a judicial or formal accounting with the Surrogate’s Court in order for the fiduciary to be released and to distribute the estate funds.
A judicial accounting may also be necessary when a beneficiary is a charity or when the estate is insolvent. This option is more costly and time consuming for the estate. A beneficiary may also compel the fiduciary to judicially account by filing a petition with the Court. With a judicial accounting, the beneficiaries have an opportunity to question and examine the fiduciary and object to the accounting. This is why it is extremely important for the fiduciary to keep detailed records and receipts for all transactions in the estate so that he or she can account for all of the assets passing through his or her hands as fiduciary. It is always best to consult an experienced estate attorney to assist you with the preparation of an accounting, whether informal or formal to assess the circumstances and best protect the fiduciary.