Avoiding Common Pitfalls in Trusts and Estates Accounting

September 1, 2023

by Eric Sheldon

Lessons Learned and Expert Advice

Trusts and estates accounting is a complex area that requires precision, detailed record-keeping, and an understanding of both legal and financial regulations. However, even experienced accountants and fiduciaries can make costly mistakes that can not only compromise the intentions of the grantor but also risk legal repercussions.

Pitfalls to Avoid

By avoiding these pitfalls and heeding expert advice, fiduciaries can ensure that they fulfill their obligations diligently and minimize the risk of legal complications.

Lack of Proper Documentation

Comprehensive and organized documentation is the cornerstone of effective trusts and estates accounting. Without it, fiduciaries cannot accurately track assets, income, and distributions, which can result in complications during audits or legal challenges.

Failure to Understand Tax Implications

Both trusts and estates are subject to specific tax laws, and failing to understand these can result in unnecessary tax burdens. For example, a common mistake is overlooking the annual tax return filing for irrevocable trusts, which can attract penalties.

Ignoring State Laws

Trusts and estates are subject to state-specific rules and regulations. Not being aware of, or ignoring, the laws of the jurisdiction in which the trust or estate operates can be detrimental.

Poor Communication

Lack of communication between trustees, beneficiaries, and professional advisors can lead to misunderstandings and disputes. Open and consistent communication is crucial in executing the grantor’s wishes accurately and minimizing conflicts among interested parties.

Overlooking Asset Revaluation

Trust assets should be periodically revalued to reflect current market conditions. This is critical for calculating taxes and determining fair distribution among beneficiaries. Failure to revalue can result in beneficiaries challenging the fiduciary’s handling of the estate.

Expert Advice

Engage Specialized Professionals: Ensure that the professionals you work with have experience in trusts and estates accounting.
Continuous Learning: Regulations change; keep up to date with legislation and industry standards.
Audit Trails: Implement robust accounting software that offers a clear audit trail.

Avoid tackling this on your own, reach out me. I can help you work through the red tape, understand what’s needed to administer the account(s), and feel confident that you are in compliance.

Categories: Blog