How to Prepare a Trust’s Final Accounting
Before terminating a trust, you as trustee will need to prepare a final account and obtain assent from all remaindermen. These are your last steps, usually completed after distributing the final income amounts, paying the last expenses, and filing the final tax returns. Final accounting should be done for non-probate and probate trusts. Obtaining remaindermen assent can protect you from a potential lawsuit.
Final accounting for a non-probate trust
You prepare this final account just like all the others you’ve prepared up until now. You’ll know this is the final account because you’ll mark it final on the cover page, and Schedules C and F will show zero balances. As you prepare this account and then obtain the signatures of the beneficiaries, keep the following in mind:
Don’t discontinue preparing your annual accounts just because the income interest in the trust has ended. It may take years after the income interest has terminated before you actually get to prepare the final account. Sometimes, even though the trust is terminating, the assets remaining don’t transfer to the remaindermen for a very long time. As you’re responsible for any assets, you need to account for them.
After you prepare the final account and sign the cover page, give it to all the remaindermen to sign off on. You don’t need to have the income beneficiaries sign off on your accounts after the income interest has expired.
You may want to have an attorney draft the final assent letter. Obtaining the remaindermens’ assent releases your liability with acceptance of the distribution. If a trustee releases all the assets and fails to obtain assents, he or she could be sued later when the trust no longer has any assets.
Be sure to provide copies of accounts to beneficiaries and remaindermen when you ask for their assent. And keep the originals of all the accounts, including this final one, and all the signed assents. You can never be certain when someone will raise a question regarding your period of trusteeship.
Final accounting for a probate trust
Prepare the final probate account in the same manner as you would a non-probate account. Here are a few things to keep in mind:
Be sure to mark the account not only by its number but also as final. Sign the cover page as trustee.
Obtain assents from all the remaindermen. Usually, the probate court provides you with its official assent form to use for this purpose.
When mailing assents out to the remaindermen, send them either by registered or certified mail, and request return receipts. Doing so ensures that if one or more remaindermen is balky in providing the requested signature, you have proof for the probate court that you sent the form and that the remainderman received it.
After you receive all the assents, you may choose to have your accounts allowed by the probate court. If you opt for allowance, the probate judge will review your administration from the filing of the probate inventory through all the annual accounts and ending with the final account.
The probate judge then reviews the size of the fees that you took for your administration. The judge also checks to ensure that income was distributed as required and that the trust principal was distributed in accordance with the instrument.
Allowance isn’t absolutely required, but it never hurts to know that the probate court approved your administration.
If, when you petition the probate court to have your accounts allowed, any of the income beneficiaries or remaindermen are minors or are otherwise incompetent to legally act for themselves, the court may require that you have a guardian ad litem appointed to protect his or her interest.
Although this is not always avoidable, try to steer clear of this step by filing your accounts when they’re due but waiting until all the income beneficiaries and remaindermen are of legal age and capacity before you ask the court for allowance.