Fiduciaries Must Account, or Else…

When someone serves as an executor, trustee, guardian or agent under a Power of Attorney, they are known as a fiduciary.  By law, all fiduciaries must account for their actions.  Over the years, this duty has often been ignored.  However, there is an increasing trend in litigation to sue fiduciaries for alleged financial abuse.  Many of these actions do not reveal fraud against the fiduciary.  On the other hand, such costly litigation is often initiated and allowed to continue when a fiduciary’s accounting is nonexistent, untimely, or incomplete.

To avoid litigation, a fiduciary should prepare accountings on a regular basis, at least annually.  There are two types of accountings: formal and informal.  An informal account is a written statement of the assets under the fiduciary’s management, which should include a list and source of the assets acquired by the fiduciary, as well as any income and expenses accrued.  It should also note the sale or liquidation of any asset and the disposition of the proceeds of such sale or liquidation.  A formal accounting incorporates all of these elements, but also includes written substantiation of any assets accumulated and expenses undertaken.

When someone is appointed as fiduciary, he or she should undertake the following steps.  First, all financial statements should be acquired and kept from the date of appointment until several years after the date the appointment has concluded.  Such financial statements should include not only bank statements and brokerage account statements, but information regarding life insurance, annuities and real property, among other items.

Second, a fiduciary must maintain a check register or ledger between the date of appointment until such appointment concludes. This register or ledger should be kept several years thereafter due to statutes of limitations.

Third, checks or copies of checks should be kept.  If a formal accounting is required, they will need to be produced to verify to whom they were written.  It is extremely advisable to refrain from writing checks to “cash,” as doing so can create a presumption that the “cash” was absconded by the fiduciary.  Although it is frequently convenient to have cash around, it is more advisable to utilize a debit card for an account in order to minimize the need for cash.  If cash is ultimately necessary, the fiduciary should acquire and retain receipts for all such expenditures.

Fourth, receipts should be maintained for all expenditures, not just cash expenditures.  The receipts should clearly detail the payee, as well as the goods and/or services provided.

For many individuals, this standard of record keeping exceeds what they do for their individual finances.  However, fiduciaries have a duty to protect and preserve assets for, among others, the beneficiaries of an estate.  If these guidelines are not followed, the court can remove a fiduciary and charge them personally for any perceived discrepancy in the estate assets.

In light of the foregoing, it is imperative for fiduciaries to keep accurate records.  By doing so, their attorneys can prepare their accountings in a timely and satisfactory manner.

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