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How to File an Estate Trust’s Financial Records

As trustee, you should keep accurate and organized records of the trust’s financial records you receive from banks, brokerages, or other sources. The trust instrument or a request from a beneficiary may require you to prepare annual accounts, or compilations of all the trusts financial records for each year. You should also keep copies of the trust’s income tax returns for at least seven years after they are filed.

Keep all the brokerage and bank statements year by year in individual files. In each file, keep the monthly statements, as well as any cancelled checks, deposit slips, or purchase and sale confirmations. Files should be kept in date order so that when you need to find a particular transaction, you can put your hands on it easily.

Preparing annual accounts for an estate trust

Annual accounts are those compilations of all the trust’s activity and financial records for any 12-month period that you distill from all the information you receive. Your trust instrument should indicate whether you’re required to prepare these accounts annually or only if a beneficiary asks to see one. But preparing them on a regular basis is a really good idea whether they’re required or not.

Compiling all of your financial data into one place allows you to see how the trust has done over the past year. You can see what investment mistakes you’ve made and how to avoid them in the future. And, should a beneficiary or court demand to see one, you won’t have to create one under pressure.

Like with financial statements, file annual accounts in date order so you can access them easily. It’s not at all uncommon to have to go back through years of annual accounts in order to mine certain types of information, such as unequal distributions to beneficiaries. By having these accounts prepared, in order, and easily found, locating the information you need is a simple task.

Referencing trust tax returns

You should keep copies of the trust’s income tax returns for seven years just as you would do with individual returns. As trustee, you need to keep copies so you can easily reference past tax returns as needed.

Depending on the size of the tax return, and the amount of underlying information that’s needed to prepare the returns, you can either choose to file all tax returns by date in one file, or open a new file for each tax year.

If the initial assets inside a trust arrive via a decedent’s estate, make sure to obtain a copy of the Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. In it, you’ll find the estate tax values of all the assets that have arrived in the trust. Keep a copy of Form 706 for as long as the trust is in existence. You may need to reference the form in the future.

If the trust owns business or partnership interests, consider hanging onto the trust’s income tax returns (including all supporting documentation) for the trust’s lifetime. The year-to-year activity in the partnership or business may impact the trust’s cost in that business or partnership. When the entity dissolves, or the trust sells its share, having that information handy may be crucial in determining what tax, if any, is owed.

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