TRUSTS & ESTATES (ACCOUNTINGS) | Marc Cunningham LLC

Trusts & Estates (Accountings)

Legal support for the general duties of the estate administrator or executor (generally known as the “fiduciary”), such as filing and paying estate income taxes, insuring the estate assets, liquidating valid estate debts, marshaling (meaning to grant access for the purpose of collecting) the estate assets (completely disclosing an inventory of all the assets the fiduciary has collected, all costs the fiduciary has expended from the estate to collect such assets, and any interest the assets have generated since the death of the decedent), paying legitimate estate operating expenses.

Legal support for the final duty of the fiduciary performing the accounting of the estate assets, to inform each beneficiary as to the actions the fiduciary has taken thus far, and to inform each beneficiary of the fiduciary’s proposed distribution plan as to which the remaining estate assets (called the “residuary”) the fiduciary has determined may go to which beneficiaries pursuant to the will, and then finally to obtain releases from all the beneficiaries of the estate, in the unlikely event that all the beneficiaries agree with the fiduciary’s proposed distribution plan.

The fiduciary’s accounting must conform to generally-accepted accounting principles (GAAP) and must include all supporting documents, such as account statements, canceled checks, receipts, transaction logs and all other relevant documentation related to the estate assets and the fiduciary’s actions in collecting such assets.

The fiduciary must provide all such information directly to all beneficiaries in a completely transparent manner.

All beneficiaries have a right to hire their own independent accountants and lawyers examine the fiduciary’s accounting and perform their own independent reconciliations of the fiduciary’s proposed distribution plan (although generally as a practical matter, only those beneficiaries who may inherit any percentage of the assets in the estate ever actually participate in the examination of the fiduciary’s proposed distribution plan) in order to check the fairness and accuracy of the fiduciary’s proposal, until such time as all beneficiaries are personally satisfied that the fiduciary’s proposed distribution plan is accurate and conforms to the wishes of the decedent, as specified in the decedent’s will.

If all beneficiaries agree on the fiduciary’s proposed distribution plan, the process will be classified as an informal accounting, each beneficiary must execute receipt, release, refunding, indemnification and waiver of process agreements, or one agreement that includes all such individual receipt, release, refunding, indemnification and waiver of process tasks into one consolidated agreement, perhaps styled as a receipt, release, refunding, indemnification and waiver of process (RRRIW) agreement, and if so, the fiduciary will not have to petition the Surrogate’s Court for an order to settle the estate through a formal judicial proceeding.

Such RRRIW is the documentary evidence that through informed consent based upon the fiduciary’s representations in the RRRIW, each beneficiary agrees fully with the proposed distribution of estate assets to each particular beneficiary asproposed in the fiduciary’s distribution plan (the receipt reference), and agrees that the fiduciary performed all required duties correctly and appropriately, and therefore release the fiduciary from any liability in connection with the fiduciary’s proposed distribution plan, once all distributions have been completed (the release reference), and agrees to reimburse the fiduciary for any expenses or fees the fiduciary may be owed (the reimbursement reference), and most importantly from the fiduciary’s perspective, all beneficiaries agree jointly and severally to indemnify and hold the fiduciary harmless for any claims against the fiduciary in connection with the performance of the fiduciary’s duties in formulating the distribution plan (the indemnification reference), assuming that there was no fraud or willful misconduct by the fiduciary, in return for which the fiduciary agrees to waive all formalities relevant to service of process on the fiduciary in the event any beneficiary commences any action against the fiduciary (the waiver reference).

Surrogate’s Courts have often voided such RRRIW due to possible self-dealing and overreaching on the part of the fiduciary against any beneficiary.

Familiarity with New York Surrogate’s Court Form JA-2NY-CRR entitled “JA-2 Receipt and Release” which is the Surrogate Court’s most-basic standard boilerplate release form for accountings and releases, not as detailed as an RRRIW prepared by a lawyer.

Compliance with receipts, refundings, releases, indemnifications and waivers of process, governed in general by the New York Surrogate’s Court Procedures Act (SCPA) Section 2202.

In the event that one or more beneficiaries disagree with the fiduciary’s proposed distribution plan, and further negotiations between the fiduciary and beneficiaries cannot settle the disagreements, or if one or more of the beneficiaries is a minor and such minor’s parent or guardian obtains a court order, or if the fiduciary obtains a court order because the fiduciary anticipates challenges to the fiduciary’s proposed distribution plan, then matter becomes a contested accounting and must be referred to a Surrogate’s Court for a formal judicial accounting.

Compliance with judicially-approved informal accountings, governed in general by SCPA Section 2203.

Legal support for both beneficiaries and fiduciaries in contested accounting actions, working towards the final order settling the estate through judicial decree, whether all parties may agree with such settlement or not.

Legal support for any pursuant to the SCPA any person interested (meaning a person who may potentially be a beneficiary of the estate), any person on behalf of an infant or child born after the making of the will when such infant or child is a person interested, attorney-general of the state where any part of the estate may escheat to the state of New York, co-fiduciary after he or she has filed his or her account and a petition for judicial settlement, county treasurer, creditor, fiduciary of a deceased person interested, public administrator, remaining fiduciary successor fiduciary where letters of the predecessor or co-fiduciary have been revoked or the predecessor or co-fiduciary has been removed, or surety on the bond of a fiduciary required to account.

Compliance with compulsory accountings, governed in general by SCPA Sections 2205-2206.

Legal support for the fiduciary in obtaining either “letters testamentary” (if the decedent died “testate”, meaning with a will) or “letters of administration” (if the decedent “intestate”, meaning without a will).

Legal support for certification of such letters by the Surrogate’s Court, which are then used by the fiduciary to marshal all the decedent’s tangible assets (such as antiques, artworks, bank accounts, furniture, jewelry, real estate, safe deposit contents, vehicles and the like) and intangible assets (such as intellectual property licenses).

In the event the fiduciary learns that some asset of the decedent may be in the possession of some third party, the fiduciary will first have to take reasonable actions to investigate the situation, and if the fiduciary then has reasonable cause to believe such asset is indeed a part of the decedent’s estate, the fiduciary should first notify the holder of such asset in writing that such asset must be provided immediately to the fiduciary.

Legal support for the fiduciary in the event that such holder refuses to return such item, thus requiring the fiduciary to petition the Surrogate’s Court to issue an order pursuant to the SCPA, for either a decree directing the holder to deliver such item (or the cash value thereof) immediately to the fiduciary, or an order either for a deposition of the holder, or to show cause to require the holder to prove that the item is actually being held validly by the holder and should not be considered as part of the decedent’s estate, or the Surrogate’s Court may impose a trust on the proceeds of the item (which must then be turned over to the fiduciary) if the holder has already either disposed of the item, or committed the waste of the item (meaning that the holder has either significantly decreased or eliminated altogether the value of the item), in which case the holder would have to provide the cash equivalent of the item to the fiduciary.

Once marshaled, the fiduciary must identify all the specific assets, meaning assets specified in the will that must be given to beneficiaries specified in the will, either by name or by status (for example, “the third daughter of my second son”).

Legal support for distribution of all the decedent’s assets remaining after the specific assets are identified, called “residual assets”, to all the residual beneficiaries (those beneficiaries who are identified in the will either by name or status, but for whom the will does not provide any specific assets) generally after a judicial accounting (a plan for equitable distribution of the residual assets, or cash value thereof, proposed by the fiduciary, presumably after discussion and agreement with the residuary beneficiaries, and then approved by the Surrogate’s Court).

General recommendation when appointing an executor and trustees (if any trustees may be necessary due to the will creating a trust from all or part of the estate for a minor or incapacitated beneficiary or beneficiary with a guardian) in a will to name different people as the executor and as the trustee, to avoid any conflict of interest in having one fiduciary who is both the executor and the trustee, thus negating the ability of that turstee to account to anyone other than himself or herself.

Legal support for any accounting prepared by the fiduciary, which at a minimum should contain an itemized financial statement of the estate principal (including any realized earned income and any realized gains or losses on any estate assets) as of the date of the accounting, including any accounting fees already paid, debts or unpaid administration expenses, distributions actually completed, funeral and administration expenses, legal fees already paid, professional fees (such as for subject matter experts – SMEs – including appraisers, investigators, and the like) already paid, proposed distributions still to be completed, proposed executor commissions still to be paid, proposed legal fees still to be paid, proposed professional fees still to be paid, remaining estate balance on hand, and any estate funds to be reserved for future contingencies (such as fees for accounting, legal and professional services, storage, transportation of estate assets and the like).

A possible order of schedules attached to a fiduciary’s accounting may be: Schedule A - Principal Received; Schedule A-1 - Realized Increases; Schedule A-2 -Income Collected; Schedule B - Realized Decreases; Schedule C - Funeral and Administration expenses; Schedule C-1 – Unpaid Administration Expenses; Schedule C-2 - Administration expenses chargeable to income; Schedule D - Creditor’s Claims; Schedule E - Distributions of Principal Proposed and Completed (for which the relevant receipts, releases, indemnifications and waivers of process filed with the Surrogate’s Court should also be attached); Schedule E-1 - Distributions of Income; Schedule F - New Exchanges, Investments and Stock Distributions; Schedule G - Principal Remaining and Personal Property Remaining in Hand; Schedule G-1 - Income Remaining on Hand; Schedule H - Interested Parties and Proposed Distribution; Schedule I - Computation Executor’s and Trustee’s Commissions; Schedule J - Other Pertinent Facts and Cash Reconciliation; and, Schedule K - Estate Taxes Paid and Allocation of Estate Taxes.

Compliance with the computation of various commissions and in particular executor’s commissions, governed in general by SCPA Section 2307.

Compliance with the computation of Trustee’s commissions, governed in general by SCPA Sections 2308-2309.

Legal support for the fiduciary requesting the Surrogate’s Court to commence a proceeding under SCPA Section 2110 for the review of any payment made to or proposed by any attorney who rendered or may render any services in connection with the estate.

The fiduciary should also file an Affidavit of Completion of Estate Proceedings with the Surrogate’s Court once the fiduciary has completed all activities related to the estate and accounting.

Last updated 201008_1820