Fiduciary accounting (sometimes called “court accounting”) is a comprehensive report of the activity within a trust, estate, guardianship, or conservatorship during a specific period.
It is a process whereby a fiduciary records the receipts, disbursements and changes in the asset value of a trust. This helps to make sure that the trust is in compliance with its obligations.
Fiduciary accounting is different from commercial or accrual-based accounting. It uses the concept of carrying value. The carrying value is the current book value of an asset. After a certain event, such as the death of the decedent, the asset’s value is revalued.
The concept of carrying value is particularly important. It allows for the attribution of the changes in asset value to a specific trustee.
An account should be written in a way that is understandable by someone who is not familiar with fiduciary accounts. Accounts should also include capital gains and losses, bills paid, and the purchase or sale of assets.
A fiduciary accounting statement is one of the most important documents a trustee can prepare. The statements must contain the following elements: the book value of the property being accounted for, the selling price, and the beneficiary’s income.
When performing fiduciary accounting, the first thing you should do is ensure the trust assets are properly allocated between the principal and the income. For example, you may need to account for transfers between the two to pay for a large expense or to make a significant capital investment.
You should also make a comprehensive report of the accounting. This will help to protect the trustee from possible lawsuits.
When would I need a fiduciary advisor?
In this Betterment article, “when looking for an advisor to trade on your behalf and make investment decisions for you, you should strongly consider choosing a fiduciary advisor.”
If you want to entrust an advisor with your financials and give them discretion, you may want to make sure they’re legally required to put your interests ahead of their own.
On the other hand, if you’re simply seeking help trading securities in your portfolio, or you don’t want to give an advisor discretion over your accounts, you may not need a fiduciary advisor.
If you have questions about fiduciary accounting, give us a call before engaging an advisor.