How to Prepare Accounts for Allowance by a Probate Court
When preparing accounts for allowance, you will need to choose the accounting form used in your local probate court. Some states require principal and income accounting, and others require receipts and expenditures accounting. You may prepare your accountings on an annual basis as you do your estate income tax returns.
Check to see what form of account applies in your jurisdiction and when they are required to be filed and allowed. Even if they’re required to be filed annually, you may not be required to seek their allowance until the final account is filed. The first (which is sometimes also the final) accounting starts with the assets you listed on the estate inventory.
Check with your court to see which one of the following forms of probate accounting you should use.
Principal and income
Some states require an accounting that differentiates between income and principal, but most don’t for estates (but may for trusts under wills).
Income is interest, dividends, rents, and the like; the earnings on the principal during the period of the accounting. Principal is the assets of the estate on which income is earned.
Principal and income accounting basically means that the principal and any additions to or subtractions from principal are accounted for on their own schedule, and income to the estate is accounted for on its own schedule. The income and principal are then reconciled at the end of the accounting or at the bottom of the columns.
Receipts and expenditures
In some states you have to report assets or income received (receipts) on one schedule, including as your first entries those assets on the probate inventory (for example, Schedule A), expenditures on another schedule (for example, Schedule B), and property on hand at the end of the accounting period on a third (for example, Schedule C).
This form of accounting is called receipts and expenditures accounting. If your accounting balances (as it should), and this is your final account, your ending balance will be zero because you’ll have distributed all the assets of the estate before you file your final accounting.
Length of accounting period
Some courts may require that an annual accounting be filed, but others permit your accounting to run from the date of death through the closing of the estate, even if that period is several years. If you’re preparing an annual account, you may have two choices to bring your account to a full year after your decedent’s date of death:
Using a calendar year-end (which coincides with the 1099 forms you may be receiving)
Using a fiscal year-end (any month end other than December)
If your court allows a choice, choose whatever works best for you. Remember, just because you may have chosen a fiscal year-end for income tax purposes doesn’t mean you’re required to choose the same year-end for your probate accounting.