Fiduciary Accounting Handbook 2022

The Fiduciary Accounting Handbook demystifies preparation of Probate Code accountings—assisting the work of professionals from probate judges to trust administration attorneys. With a full chapter on court proceedings, the latest edition of the Handbook provides a step-by-step, schedule-by-schedule guide to preparing periodic accountings acceptable to the court and to affected parties.

“This must-have resource for any trust and estate practitioner or fiduciary is written in a practical and easy-to-understand style replete with 'how-to' illustrations and alerts.”
Keith Schiller, Esq., Schiller Law Group, Orinda

Two complete sample accountings, as well as separate sample schedules downloadable as Excel spreadsheets
Common mistakes found in fiduciary accountings
Practical explanation of when and how to make adjustments between income and principal
The rules scattered throughout the Probate Code organized into clear instructions to produce the accountings judges want to see
Separate chapters devoted to receipts, gains and losses, disbursements, and distributions
Recordkeeping checklist to ensure preparation of an acceptable accounting
Form engagement letter and helpful advice for working effectively with CPAs to produce an accurate accounting

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Overview
Table of Contents
Forms CD Contents
Selected Developments
Authors
OnLAW System Requirements
Specifications

“This must-have resource for any trust and estate practitioner or fiduciary is written in a practical and easy-to-understand style replete with 'how-to' illustrations and alerts.”
Keith Schiller, Esq., Schiller Law Group, Orinda

Two complete sample accountings, as well as separate sample schedules downloadable as Excel spreadsheets
Common mistakes found in fiduciary accountings
Practical explanation of when and how to make adjustments between income and principal
The rules scattered throughout the Probate Code organized into clear instructions to produce the accountings judges want to see
Separate chapters devoted to receipts, gains and losses, disbursements, and distributions
Recordkeeping checklist to ensure preparation of an acceptable accounting
Form engagement letter and helpful advice for working effectively with CPAs to produce an accurate accounting

Introduction and Sample Accountings

I. ORGANIZATION OF THIS BOOK 1.1
II. EXAMPLES 1.2
- A. The April Cash Trust 1.3
  - 1. The Settlor April Cash; Her Family and Her Assets 1.4
  - 2. A Rare Negative Number: Account Beginning Date Bisects Settlement of Securities Purchase 1.5
  - 3. Late Acquired Assets, Receipt From Fiduciary Accounting for Principal and Income 1.6
  - 4. Another Rare Negative Number: Purchase of Bond With Accrued Interest 1.7
  - 5. Dividend Reinvestment 1.8
  - 6. Distributions in Breach of Trust 1.9
  - 7. Miscellaneous and Routine Receipts and Disbursements 1.10
  - 8. Sales and Exchanges: Gains, Losses, and Sales Without Gains or Losses 1.11
  - 9. Trustee Fee, as a Liability 1.12
  - 10. Sample Accounting of the April Cash Trust 1.13
    - a. Summary of Account 1.14
    - b. Assets on Hand—Beginning of Period 1.15
    - c. Additions to Trust 1.16
    - d. Receipts 1.17
    - e. Gains on Sales 1.18
    - f. Disbursements 1.19
    - g. Losses on Sales 1.20
    - h. Distributions 1.21
    - i. Assets on Hand—End of Period 1.22
    - j. Changes in Form of Assets 1.23
    - k. Liabilities 1.24
- B. The Real Estate Trust 1.25
  - 1. The Settlor David Jones; His Family and His Assets 1.26
  - 2. Rents and Security Deposits 1.27
  - 3. Receipt in Escrow 1.28
  - 4. Gains and Losses on Sale 1.29
  - 5. Funeral Expenses and Debts of a Decedent 1.30
  - 6. Sale Without Gain or Loss: Sale for a Note 1.31
  - 7. The Short Sale 1.32
  - 8. Repairs and Capital Improvements 1.33
  - 9. Mortgage Payments 1.34
  - 10. Disbursements in Escrow 1.35
  - 11. Cancellation of Indebtedness Income 1.36
  - 12. Trustee’s “Loans” to Trust 1.37
  - 13. Absconding Beneficiary and the Proposed Distribution 1.38
  - 14. Sample Accounting of the David Jones Trust 1.39
    - a. Summary of Account 1.40
    - b. Assets on Hand—Beginning of Period 1.41
    - c. Receipts 1.42
    - d. Gains on Sales 1.43
    - e. Disbursements 1.44
    - f. Losses on Sales 1.45
    - g. Distributions 1.46
    - h. Assets on Hand—End of Period 1.47
    - i. Changes in Form of Assets 1.48
    - j. Liabilities 1.49
    - k. Proposed Distributions 1.50

Types of Fiduciaries and the Various Duties to Account

I. INTRODUCTION 2.1
II. TYPES OF FIDUCIARIES, BRIEFLY
- A. Guardians 2.2
- B. Conservators 2.3
- C. Agents Under Powers of Attorney 2.4
- D. Personal Representatives
  - 1. Nature of the Fiduciary Relationship 2.5
  - 2. Types of Personal Representatives 2.6
- E. Trustees
  - 1. Brief History 2.7
  - 2. Modern Will-Substitute Trusts 2.8
III. ACCOUNTS REQUIRED OF GUARDIANS AND CONSERVATORS
- A. Start Here: Inventory and Appraisal
  - 1. Guardians and Conservators 2.9
  - 2. Temporary Guardians and Temporary Conservators 2.10
- B. Periodic Accounting
  - 1. First Account 2.11
  - 2. Frequency of Accountings 2.12
  - 3. Guardian or Conservator Dies or Absconds 2.13
  - 4. Temporary Conservators and Guardians 2.14
- C. Final Account 2.15
- D. Standard or Simplified Accounting? 2.16
  - 1. Judicial Council Account Forms 2.17
  - 2. Standard Accounting
    - a. When to Perform a Standard (Categorized) Accounting 2.18
    - b. When to Use Judicial Council Forms 2.19
    - c. Presenting Data on the Mandatory Judicial Council Form 2.20
  - 3. Simplified Accounting 2.21
  - 4. All Accountings, Whether Standard or Simplified 2.22
- E. Supporting Documents 2.23
- F. Penalties for Late Accounts 2.24
- G. The Guardian’s or Conservator’s Audience 2.25
- H. Waiver of Account 2.26
- I. Release of Guardian by Ward 2.27
- J. Petitioning for Approval of Accounting
  - 1. Guardian’s Petition for Approval of Accounting 2.28
  - 2. Conservator’s Petition for Approval of Accounting 2.29
IV. ACCOUNTS REQUIRED OF PERSONAL REPRESENTATIVES
- A. Start Here: Inventory and Appraisal
  - 1. Requirements for Filing an Inventory and Appraisal 2.30
  - 2. When Administration Follows a Guardianship or Conservatorship 2.31
- B. Periodic Accounting
  - 1. Generally, at End of Administration 2.32
  - 2. Mid-Administration Accounting 2.33
- C. Terminated Personal Representative 2.34
- D. Deceased or Incapacitated Personal Representative 2.35
- E. The Absconding Personal Representative 2.36
- F. Documents That Support the Account 2.37
- G. Penalties for Failure to Account 2.38
- H. Waiver of Account 2.39
- I. “Report” Instead of Account 2.40
- J. Personal Representative’s Audience 2.41
- K. Petition to Approve Personal Representative’s Account 2.42
V. ACCOUNTS REQUIRED OF TRUSTEES OF IRREVOCABLE TRUSTS
- A. Why Distinguish Between Irrevocable and Revocable Trusts? 2.43
- B. Duty to Account, Generally, to Report, and to Provide Information
  - 1. Beneficiaries Defined 2.44
  - 2. Duty to Account
    - a. Duty Owed to Current Beneficiaries 2.45
    - b. No Duty Owed to Remainder Beneficiaries 2.46
    - c. Waivers
      - (1) Waivers in the Trust Instrument 2.47
      - (2) A Beneficiary’s Written Waiver 2.48
      - (3) Waiver Does Not Trigger the Running of the Statute of Limitations 2.49
    - d. Frequency 2.50
  - 3. Duty to Report 2.51
  - 4. Duty to Keep Beneficiaries Reasonably Informed 2.52
  - 5. Trust Records and the Beneficiaries’ Right of Inspection
    - a. Beneficiaries Have a Right to Inspect Trust Records 2.53
    - b. Records the Trustee Should Keep 2.54
    - c. The “Personal” Records of the Trustee Who Commingles 2.55
- C. Accounting as a Preliminary Step to the Performance of Other Duties 2.56
- D. Accounting Protects the Trustee
  - 1. The 3-Year Statute of Limitations 2.57
  - 2. The 180-Day Statute of Limitations 2.58
  - 3. Petitions for Court Approval 2.59
  - 4. Release of Liability for Disclosures Made in Accounting 2.60
    - a. Beneficiary Must Have Capacity 2.61
    - b. Full Disclosure 2.62
    - c. Not Induced by Improper Conduct 2.63
    - d. No Unfair Advantage 2.64
- E. Serving the Accounting 2.65
- F. Petitioning for Court Approval of Trustee’s Account 2.66
VI. ACCOUNTS REQUIRED OF TRUSTEES OF REVOCABLE TRUSTS
- A. Duties Owed to Whom? 2.67
- B. When Person Holding the Power to Revoke Is Not Competent 2.68
- C. Distinguishing Persons to Whom Duties Are Owed From Persons With Standing 2.69
- D. Safe Practices 2.70
VII. FORMAT OF TRUST ACCOUNTS
- A. Minimum Requirements 2.71
- B. Why Trustees Should Account as if Preparing for Court Review 2.72

Preparing the Accounting, Step by Step

I. SIX PASSES 3.1
- A. First Pass: Gathering and Organizing the Working Papers 3.2
- B. Second Pass: Reconciling the Cash
  - 1. Goals and Strategies 3.3
  - 2. Setting Up the Spreadsheets 3.4
  - 3. Checking Accounts 3.5
    - a. The Description Columns 3.6
    - b. The Receipts and Disbursements Columns 3.7
    - c. Transfers Between Accounts 3.8
    - d. Reconciliation 3.9
  - 4. Investment Accounts 3.10
    - a. Entering the Data 3.11
    - b. Assets 3.12
    - c. Dividend Reinvestments 3.13
    - d. Reconciling the Cash 3.14
    - e. Money Market Funds 3.15
    - f. Investment Accounts With No Cash 3.16
  - 5. Real Estate and Personal Property 3.17
  - 6. Final Review 3.18
- C. Third Pass: Reconciling the Assets 3.19
  - 1. Setting Up the Spreadsheet 3.20
  - 2. Entering the Data 3.21
  - 3. Reconciling the Assets 3.22
    - a. The Steps 3.23
    - b. Example: Purchases Only 3.24
    - c. Example: When a Portion of the Asset Has Been Sold 3.25
    - d. Example: When There Are Both Purchases and Sales of the Same Asset 3.26
    - e. Example: Assets With No Activity 3.27
  - 4. Final Review 3.28
  - 5. When the Account Does Not Balance 3.29
- D. Fourth Pass: Reconciling the Whole Accounting 3.30
  - 1. Setting Up the Spreadsheet 3.31
  - 2. Entering the Data
    - a. Cash Accounts 3.32
    - b. Brokerage Cash Accounts 3.33
    - c. Assets 3.34
    - d. Special Assets 3.35
  - 3. Checking the Spreadsheet 3.36
- E. Fifth Pass: Preparing the Schedules 3.37
  - 1. Caption 3.38
  - 2. Receipts Schedule 3.39
  - 3. Additional Property Received During Period of Account Schedule 3.40
  - 4. Disbursements Schedule 3.41
  - 5. Distributions Schedule 3.42
  - 6. Gains and Losses 3.43
  - 7. Assets on Hand—End of Period 3.44
  - 8. Changes in Form of Assets 3.45
  - 9. Summary of Account 3.46
- F. Sixth Pass: Refining the Accounting 3.47
  - 1. Missing Descriptions 3.48
  - 2. Allocating Income and Principal 3.49
  - 3. Missing Information 3.50
II. EXHIBITS
- A. Form: Spreadsheet for a Checking Account 3.51
- B. Form: Spreadsheet for an Investment Account 3.52
- C. Form: Spreadsheet for Real Property 3.53
- D. Form: Spreadsheet for Personal Property 3.54
- E. Form: Third Pass Spreadsheet 3.55
- F. Form: Summary Reconciliation Spreadsheet 3.56
- G. Form: Summary of Account 3.57

Assets on Hand—Beginning of Period

I. A MEASURE OF THE FIDUCIARY’S RESPONSIBILITY ON DAY ONE 4.1
- A. Preparing the Schedule Is a Three-Step Process 4.2
- B. The Schedule’s Appearance 4.3
- C. Minimum Requirements for Preparing the Schedule
  - 1. Step One: Identify the Beginning Date
    - a. When the Accounts of Guardians and Conservators Begin 4.4
    - b. When the Accounts of Personal Representatives of Decedents’ Estates Begin 4.5
    - c. When the Accounts of Trustees Begin
      - (1) When an Income Interest Begins 4.6
      - (2) When an Income Interest Ends 4.7
      - (3) When the Trustee Starts After a Vacancy 4.8
  - 2. Step Two: Identify All Property for Which the Fiduciary Is Accountable
    - a. First Account: Property for Which Guardians, Conservators, and Personal Representatives Are Responsible 4.9
    - b. First Account: Property for Which Trustees Are Responsible 4.10
    - c. Second and Subsequent Accounts: Property for Which All Fiduciaries Are Responsible 4.11
  - 3. Step Three: State the Carry Value of Each Item of Property
    - a. Defining Carry Value 4.12
    - b. Carry Value in First Accounts of Guardians, Conservators, and Personal Representatives 4.13
    - c. Carry Value in Accounts of Trustees 4.14
- D. Differences Between First and Subsequent Accounts
  - 1. The First Account 4.15
  - 2. Assets on Hand at the Beginning of Subsequent Account Periods 4.16
- E. Best Practices 4.17
- F. Form: Principal and Income 4.18
- G. Insurance 4.19
- H. Income Receipts and Disbursements at the Beginning 4.20
- I. Income Received on Behalf of Terminated Mandatory Income Interest 4.21
- J. Common Mistakes
  - 1. Using Negative Numbers 4.22
  - 2. Failing to Inventory an Asset for Which the Fiduciary Is Responsible 4.23
  - 3. Including Assets for Which the Fiduciary Has No Responsibility 4.24
  - 4. Excluding Assets for Which the Fiduciary Is Responsible 4.25
  - 5. Failing to Recognize That a Thing Is an Asset 4.26
  - 6. Failing or Refusing to Recognize Responsibility 4.27
  - 7. Failing to Recognize That Responsibility Begins Now 4.28
  - 8. Confusing the Notion of “Wealth” With the Notion of “Responsibility” 4.29
  - 9. Omitting Commingled Funds and Adjusting Carry Value to Make Account Balance 4.30
  - 10. Confusing Net Value or Market Value With Carry Value 4.31
  - 11. Treating Securities Accounts as a Single Property 4.32
II. EXHIBITS
- A. Form: Using Negative Numbers 4.33
- B. Form: Failing to Recognize That a Thing Is an Asset 4.34

Additional Property Received During Period of Account

I. DEFINING THE “ADDITIONAL PROPERTY RECEIVED DURING PERIOD OF ACCOUNT” SCHEDULE 5.1
- A. Defining Carry Value 5.2
- B. The Additional Property Schedule’s Appearance 5.3
II. MINIMUM REQUIREMENTS FOR PREPARING THE SCHEDULE
- A. Preparing the Schedule for the Fiduciary’s First Account 5.4
- B. Preparing the Schedule for the Fiduciary’s Second and Subsequent Accounts 5.5
- C. Supplemental Inventory 5.6
III. PRINCIPAL AND INCOME: RECEIPTS FROM DECEDENT’S ESTATE AND OTHER TRUSTS 5.7
IV. FORM: ADDITIONS TO TRUST SCHEDULE 5.8

Receipts

I. ACCOUNTING FOR RECEIPTS 6.1
II. THE RECEIPTS SCHEDULE’S APPEARANCE 6.2
III. PREPARING THE SCHEDULE, AT A MINIMUM 6.3
- A. Categorize 6.4
- B. Receipts in Escrow 6.5
- C. Disclose Mistakes 6.6
- D. Borrowed Funds 6.7
IV. RECEIPTS OF PRINCIPAL AND INCOME
- A. Income Is a Defined Term 6.8
- B. Receipts From Entities Are Generally Income 6.9
- C. Receipts From Entities: Allocation to Principal 6.10
- D. Receipts From Entities: Mutual Funds 6.11
- E. Receipts From a Decedent’s Estate and Other Trusts; Trust-Owned Businesses Accounting Separately; Derivatives, Options, and Asset-Backed Securities 6.12
  - 1. Receipts From a Decedent’s Estate and Other Trusts 6.13
  - 2. Receipts From Trust-Owned Businesses for Which Trustee Accounts Separately 6.14
  - 3. Receipts From Derivatives, Options, and Asset-Backed Securities 6.15
- F. Receipts Normally Allocated 100 Percent to Principal 6.16
- G. Receipts From Rental Properties 6.17
- H. Bank Account Interest Owed to Trustee 6.18
- I. Interest on Bonds Owed to Trustee 6.19
- J. Special Rules for Assets Listed in Prob C §16357(c) 6.20
- K. Insurance Against Loss of Occupancy, Income, or Profits; Property Insurance; Life Insurance
  - 1. Allocation of Insurance Proceeds Between Income and Principal 6.21
  - 2. Which Schedule? 6.22
    - a. Accounting for Property Insurance Proceeds 6.23
    - b. Accounting for Title Insurance Proceeds 6.24
    - c. Accounting for Life Insurance Proceeds 6.25
  - 3. Dividends 6.26
- L. Insubstantial Receipts 6.27
- M. Deferred Compensation, Qualified and Non-Qualified Plans, IRAs, Annuities 6.28
  - 1. Trusts Not Described in IRC §2056(b)(5) or §2056(b)(7) 6.29
  - 2. Trusts Described in IRC §2056(b)(5) or §2056(b)(7) 6.30
    - a. If Payor Provides Documentation 6.31
    - b. If Separate Fund Payor Provides No Documentation 6.32
- N. Liquidating Assets: Leasehold Interests, Patents, Copyrights, Royalty Rights, Notes With No Stated Interest 6.33
- O. Mineral, Water, and Natural Resources 6.34
  - 1. Receipts Allocated 100 Percent to Income 6.35
  - 2. Production Payments Under an Agreement That Provides for Interest or Its Equivalent 6.36
  - 3. Other Receipts; the 90:10 Rule 6.37
  - 4. Trust-Owned Interests Acquired On or Before January 1, 2000 6.38
- P. Timber and Related Products 6.39
  - 1. Timberland Acquired After January 1, 2000 6.40
  - 2. Timberland Acquired On or Before January 1, 2000 6.41
- Q. Derivatives and Options 6.42
- R. Collateral-Backed Securities 6.43
- S. Dividend Reinvestment Programs 6.44
- T. Specifically Gifted Property 6.45
V. COMMON MISTAKES
- A. Late-Received Assets Are Not Receipts 6.46
- B. In General, Sales Proceeds Are Not Receipts 6.47
- C. Receipts Collected During a Sale Are Not Gross Sales Proceeds 6.48
- D. Omitting From Assets on Hand the Source of a Receipt 6.49
- E. Failing to Account for Receipts From Commingled Assets 6.50
- F. Form 1099 Phantom Income Is Not a Receipt 6.51
- G. Transfers Between Accounts Are Not Receipts 6.52
VI. EXHIBITS
- A. Form: Receipts Schedule 6.53
- B. Form: Receipts From Entities 6.54
- C. Form: Dividends and Capital Gains 6.55
- D. Form: Receipts From Rental Properties 6.56
- E. Form: Bank Account Interest 6.57
- F. Form: Interest on Bonds Owed to Trustee 6.58
- G. Form: Assets Listed in Prob C §16357(c) 6.59
- H. Form: Dividend Reinvestment Programs 6.60

Gains and Losses

I. IN GENERAL
- A. Distinguishing Gains From Losses 7.1
- B. Separate Schedules Are Required 7.2
- C. Appearance of the Schedules
  - 1. Gains 7.3
  - 2. Losses 7.4
II. PREPARING THE SCHEDULES, AT A MINIMUM
- A. Gains on Sales or Other Dispositions 7.5
- B. Losses on Sales or Other Dispositions 7.6
III. BEST PRACTICES 7.7
IV. PRINCIPAL AND INCOME
- A. In General 7.8
- B. Mineral and Water Interests, Other Natural Resources, Timber 7.9
- C. Sale, Redemption, or Other Disposition of Obligation to Pay Money 7.10
  - 1. Obligations That Mature More Than 1 Year After Acquisition 7.11
  - 2. Obligations That Mature in Less Than 1 Year 7.12
- D. Options 7.13
- E. Asset-Backed Securities 7.14
- F. Insurance Proceeds 7.15
- G. Marital Deduction Trusts 7.16
V. COMMON MISTAKES
- A. It Is a Mistake to Calculate Gain Using Net Sales Price 7.17
- B. It Is a Mistake to Calculate Loss Using Net Sales Price 7.18
VI. EXHIBITS
- A. Form: Gains on Sales or Other Dispositions 7.19
- B. Form: Insurance Proceeds 7.20
- C. Form: Sales in Which Expenses Were Paid in the Course of the Sale 7.21

Disbursements

I. WHAT A DISBURSEMENTS SCHEDULE MUST INCLUDE 8.1
- A. Disbursements: Payments to Third Parties 8.2
- B. The Disbursements Schedule’s Appearance
  - 1. Requirements for Different Types of Fiduciaries 8.3
  - 2. Sample Complete Disbursements Schedules
    - a. Form: Disbursements From the Cash Trust 8.4
    - b. Form: Disbursements From the Real Estate Trust 8.5
II. PREPARING THE SCHEDULE, AT A MINIMUM 8.6
III. BEST PRACTICES
- A. Disclose, Explain, and Atone for Mistakes 8.7
- B. List Categorically, Then Chronologically 8.8
- C. Each Real Property and Business Is Its Own Category 8.9
- D. Amounts Disbursed in Escrow 8.10
- E. Use Subtotals 8.11
IV. DISBURSEMENTS OF PRINCIPAL AND INCOME
- A. Debts of a Decedent, Expenses of Final Illness, and Expenses of Prior Administrations 8.12
  - 1. Payments From Principal 8.13
  - 2. Discretion to Pay From Either Income or Principal 8.14
  - 3. Paid Equally From Income and Principal 8.15
- B. Disbursements During Administration 8.16
  - 1. Expenses Paid Half From Income, Half From Principal 8.17
  - 2. Expenses Paid 100 Percent From Principal 8.18
  - 3. Expenses Paid 100 Percent From Income 8.19
- C. Payment of Taxes
  - 1. Gift, Estate, Inheritance, and Other Similar Taxes 8.20
  - 2. Property Taxes 8.21
  - 3. Income and Capital Gains Tax 8.22
- D. Expenses of Administering Real Property 8.23
- E. Loan Payments, Payments on Trust Debts 8.24
- F. Specifically Gifted Property 8.25
V. COMMON MISTAKES
- A. Payments From Sources Other Than the Res 8.26
- B. Asset Purchases Are Not Disbursements 8.27
- C. Transfers Are Not Disbursements 8.28
VI. EXHIBITS
- A. Form: Receipts Related to Real Property 8.29
- B. Form: Amounts Disbursed in Escrow 8.30
- C. Form: Debts Associated With a Decedent’s Death Paid From Principal 8.31
- D. Form: Expenses Associated With Real Property 8.32
- E. Form: Loan Payments, Payments on Trust Debts 8.33

Distributions

I. WHEN DISTRIBUTIONS CAN BE MADE 9.1
- A. Distributions Versus Disbursements 9.2
- B. The Appearance of the Distributions Schedule 9.3
II. PREPARING THE SCHEDULE, AT A MINIMUM
- A. Account for Distributions Using Carry Value 9.4
  - 1. Example 1: Distribution of Depreciated Asset 9.5
  - 2. Example 2: Distribution of Appreciated Asset 9.6
- B. The Appearance of the Schedule: Favored Gifts First 9.7
III. ABATEMENT; PRORATION OF TAXES; SATISFACTION OF OMITTED SPOUSE, REGISTERED DOMESTIC PARTNER, OR CHILD 9.8
- A. Abatement: Which Gifts Shrink to Pay Debts and Expenses? 9.9
  - 1. Specific Gifts 9.10
  - 2. General Gifts 9.11
  - 3. Demonstrative Gifts 9.12
  - 4. General Pecuniary Gifts 9.13
  - 5. Annuity 9.14
  - 6. Residuary Gifts and Property Not Distributed by the Instrument 9.15
  - 7. Categorization of People 9.16
  - 8. Rules of Abatement 9.17
    - a. Property Not Disposed of by the Instrument 9.18
    - b. Remaining Gifts 9.19
  - 9. Gift Exonerated From Mortgage, Deed of Trust, or Other Lien 9.20
  - 10. Abatement in Action 9.21
- B. Proration of Taxes 9.22
- C. Transfers to Omitted Spouse, Registered Domestic Partner, or Child
  - 1. Omitted Spouse or Registered Domestic Partner 9.23
  - 2. Omitted Child 9.24
  - 3. Manner of Satisfying Share of Omitted Spouse, Registered Domestic Partner, or Child 9.25
IV. PRINCIPAL AND INCOME
- A. In General 9.26
- B. Allocation of Income After the Decedent’s Death or After an Income Interest in a Trust Ends
  - 1. Specific Gifts
    - a. Expenses and Receipts Attributable to Specific Gifts 9.27
      - (1) Receipts and Disbursements, at the Beginning 9.28
      - (2) Receipts and Disbursements, During the Administration 9.29
      - (3) Receipts and Disbursements, at the End 9.30
    - b. Debts and General Expenses of Administration 9.31
  - 2. General Pecuniary Gifts, Annuities, and Gifts of Maintenance 9.32
  - 3. Net Income Distributable to Residuary Beneficiaries 9.33
V. TAX ATTRIBUTES OF DISTRIBUTIONS 9.34
VI. AVOIDING COMMON MISTAKES
- A. Do Not Report Distributions Using Market Value 9.35
- B. Give Interest Where Due 9.36
VII. ABATEMENT EXAMPLES AND SELF-TESTS
- A. Abatement: Example 1 and Self-Test 9.37
- B. Abatement: Example 2 and Self-Test 9.38
- C. Abatement: Example 3 and Self-Test 9.39
- D. Abatement: Example 4 and Self-Test 9.40
- E. Abatement: Example 5 and Self-Test 9.41
- F. Abatement: Example 6 and Self-Test 9.42
VIII. EXHIBITS
- A. Form: Expenses and Receipts Applicable to a Specific Gift 9.43
- B. Form: Accounting for the Accrual of Interest on a General Pecuniary Gift 9.44

Assets on Hand—End of Period

I. SUMMARY OF THE ASSETS ON HAND—END OF PERIOD SCHEDULE 10.1
II. PREPARING THE SCHEDULE, AT A MINIMUM
- A. Ending Date
  - 1. Guardians and Conservators 10.2
  - 2. Personal Representatives 10.3
  - 3. Trustees 10.4
- B. Assets on Hand 10.5
III. BEST PRACTICES
- A. Check Beginning Schedules 10.6
- B. Personal Representatives: Check Inventories and Appraisals 10.7
IV. PRINCIPAL AND INCOME 10.8
V. COMMON MISTAKES
- A. Assets Not Inventoried 10.9
- B. Substituting Market Value for Carry Value 10.10
VI. EXHIBITS
- A. Form: Sample Assets on Hand—End of Period Schedule (Cash, Real Estate, and Receivables) 10.11
- B. Form: Sample Assets on Hand—End of Period Schedule (Cash, Equities, Corporate Bonds, Mutual Funds, a Limited Partnership, and Personal Property) 10.12

Auxiliary Schedules

I. IN GENERAL 11.1
II. THE AUXILIARY SCHEDULES, BRIEFLY
- A. Schedule of Estimated Market Value 11.2
- B. Purchases, Sales, or Other Changes in Form 11.3
- C. Allocation of Receipts and Disbursements Between Principal and Income 11.4
- D. Proposed Distributions 11.5
  - 1. Distribution to Income Beneficiary 11.6
  - 2. Specifically Devised Property 11.7
  - 3. Interest on Bequests, Gifts of Annuities, and Gifts for Maintenance 11.8
- E. Schedule of Liabilities 11.9
- F. Guardians and Conservators 11.10
III. CHANGES IN FORM OF ASSETS 11.11
- A. Disbursements and Exchanges 11.12
- B. Sale Price Equal to Asset’s Carry Value 11.13
- C. Payments of Principal From a Debtor Obligated to the Trust 11.14
- D. Transactions That Affect an Asset’s Carry Value 11.15
- E. Loans 11.15A
- F. Transfers Between Accounts 11.16
IV. EXHIBITS
- A. Form: Spreadsheet Illustrating Sale Price Equal to Asset’s Carry Value 11.17
- B. Form: Spreadsheet Showing Payments of Principal From a Debtor to the Trust 11.18
- C. Spreadsheets Showing Transactions Affecting an Asset’s Carry Value
  - 1. Form: Purchase of Bond and Reinvestment of Dividends 11.19
  - 2. Form: Disbursement of Funds to Improve Real Property 11.20
- D. Spreadsheets Showing Liabilities
  - 1. Form: Spreadsheet Accounting for Tenant Security Deposit 11.21
  - 2. Form: Spreadsheet Showing Increase in Liabilities 11.22

Summary of Account, Reconciliation

I. SUMMARY OF ACCOUNT 12.1
II. APPEARANCE OF THE SUMMARY OF ACCOUNT
- A. Statutory Form and Requirements for Summary of Account 12.2
- B. Improved Summary of Account 12.3
III. BEST PRACTICES
- A. Use the “Equals” Function 12.4
- B. Charges Equal Credits, From Time to Time 12.5
- C. What to Do When Account Will Not Balance 12.6
IV. AVOIDING COMMON MISTAKES 12.7

Adjustments Between Principal and Income

I. THE FOUR COMPONENTS OF CALIFORNIA’S UNIFORM PRINCIPAL AND INCOME ACT 13.1
II. ACCOUNTING SEPARATELY FOR A TRUST-OWNED BUSINESS 13.2
- A. Activities for Which Trustees May Account Separately 13.3
- B. Guidelines for Accounting Separately for an Activity 13.4
III. ADJUSTMENTS BETWEEN PRINCIPAL AND INCOME, GENERALLY 13.5
- A. Threshold Criteria 13.6
- B. When Prohibited 13.7
- C. Factors for Trustee to Consider 13.8
- D. Notice of Proposed Action 13.9
IV. INCREASING INCOME IN ORDER TO OBTAIN MARITAL DEDUCTION 13.10
- A. When Income Beneficiary May Compel Trustee to Make Trust Property Productive 13.11
- B. How Trustee May Respond to a Demand to Make Trust Property Productive 13.12
V. DEPRECIATION RESERVE 13.13
- A. When to Create a Depreciation Reserve 13.14
- B. How to Create a Depreciation Reserve 13.15
- C. Cash in Depreciation Reserve Cannot Be Recharacterized 13.16
VI. TRANSFERS FROM INCOME TO PRINCIPAL IN ANTICIPATION OF PRINCIPAL DISBURSEMENT 13.17
VII. ADJUSTMENTS TO OFFSET SHIFTING ECONOMIC INTERESTS OR TAX BENEFITS
- A. Mandatory Allocation of Prob C §16374 13.18
- B. Discretionary Adjustment of Prob C §16375(a) 13.19
- C. Mandatory Adjustment of Prob C §16375(b) 13.20

Court Proceedings

I. INTRODUCTION: GENERAL CONCEPTS 14.1
II. GUARDIANSHIPS, CONSERVATORSHIPS, AND DECEDENTS’ ESTATES
- A. Jurisdiction and Venue 14.2
- B. Objections to Appraisals 14.3
- C. Interim Accountings in Guardianships and Conservatorships 14.4
- D. Interim Accountings in Decedents’ Estates 14.5
- E. Compelling Production of Late Accountings
  - 1. Court’s Obligations in Guardianships and Conservatorships 14.6
  - 2. Ward’s Power to Settle Guardian’s Account and Release Guardian 14.7
  - 3. What “Late” Means in Decedents’ Estates 14.8
  - 4. Court’s Obligations in Decedents’ Estates 14.9
- F. Waivers of Account
  - 1. Guardianships and Conservatorships 14.10
  - 2. Decedents’ Estates 14.11
- G. Petition to Approve Accounts
  - 1. Uncontested Petition 14.12
  - 2. Contested Petition 14.13
III. TRUSTS
- A. Jurisdiction and Venue 14.14
- B. Court Trial 14.15
- C. Petitions to Compel Performance of Trustee’s Duties 14.16
- D. Standing
  - 1. Irrevocable Trusts 14.17
  - 2. Revocable Trusts: No Allegation of Incompetence 14.18
  - 3. Revocable Trust: Person Holding Power to Revoke Is Allegedly Incompetent 14.19
  - 4. Once-Revocable Trust: Power-Holder Deceased 14.20
- E. Recommended Procedure: Living Power-Holder Alleged to Be Incompetent
  - 1. Presumption of Capacity 14.21
  - 2. Conservatorship Rebuts Presumption of Capacity 14.22
  - 3. Uncontested Verified Petition Alleges Incapacity 14.23
  - 4. Procedure if Allegation of Incapacity Is Contested 14.24
- F. Incapacitated Settlor: To Whom Does Trustee Owe Duties? 14.25
- G. Orders the Court May Make Without Hesitation 14.26
  - 1. Trustee Must Provide Terms of Trust 14.27
  - 2. Trustee Must Report Information Relevant to Beneficiary's Interest 14.28
  - 3. Trustee Must Allow Reasonable Inspections 14.29
  - 4. Trustee Must Account 14.30
- H. Court Need Not Order Trustee to Seek Approval of Account 14.31
- I. Dismissing Trustee’s Petition to Approve Account 14.32
- J. Prob C §16460 Bars Claim Disclosed in Accounting 14.33
- K. CCP §343 Bars Late Demand for Accounting 14.34
IV. HEARING OBJECTIONS TO ACCOUNTINGS
- A. Standing
  - 1. Standing in Guardianships and Conservatorships 14.35
  - 2. Standing in Decedents’ Estates 14.36
- B. Standing in Trusts 14.37
  - 1. Hearing the Objections to an Accounting 14.38
- C. No “One Final Judgment” Rule 14.39
- D. Fee Shifting
  - 1. Penalties for Unreasonable Objections Made in Bad Faith 14.40
  - 2. Penalties for Unreasonable Defenses Made in Bad Faith 14.41
  - 3. What Constitutes an Action Taken Without Reasonable Cause and in Bad Faith? 14.42
V. UNDERUTILIZED JUDICIAL TOOLS
- A. Guardianships, Conservatorships, and Decedents’ Estates 14.43
  - 1. Examination Concerning Assets of Estate 14.44
  - 2. Accountings by Third Parties 14.45
  - 3. Supporting Documents to Limit Issues to Be Tried 14.46
  - 4. Right of Inspection to Limit Discovery Disputes 14.47
- B. Judicial References 14.48
  - 1. Voluntary Reference Under CCP §638 14.49
  - 2. Involuntary Reference Under CCP §639 14.50
  - 3. Challenges to Referee’s Decision 14.51
  - 4. Referee’s Fees 14.52
- C. Approved Accountings Are Res Judicata 14.53

Project Management; Useful Miscellanea; a Word to and About CPAs

I. INTRODUCTION 15.1
II. THE ENGAGEMENT LETTER 15.2
- A. Define the Scope of the Engagement 15.3
- B. Avoid Hyperbole 15.4
- C. Specify Responsibility for Appraising Assets 15.5
- D. Define Fiduciary’s Responsibility 15.6
- E. Be Realistic About Deadlines 15.7
- F. Ask for a Broad Array of Documents 15.8
- G. Fee Structure
  - 1. Hourly Billing 15.9
  - 2. Flat-Fee Billing 15.10
- H. Deposit for Future Services 15.11
- I. Record Retention Policy 15.12
- J. Termination Clause 15.13
- K. Wait! 15.14
III. TIPS FOR THE ACCOUNTANT
- A. Help Fiduciary Manage Documents 15.15
- B. Security Measures 15.16
- C. Powers of Attorney 15.17
- D. Software 15.18
IV. FOR ATTORNEYS: USING FIDUCIARY ACCOUNTINGS AS A CLIENT MANAGEMENT TOOL
- A. Start Early 15.19
- B. Schedule Face-to-Face Meetings 15.20
V. FOR CERTIFIED PUBLIC ACCOUNTANTS AND THOSE WHO ENGAGE THEM
- A. A Word to Attorneys, Lay People, and the Court
  - 1. The “No Assurance” Problem 15.21
  - 2. The CPA’s Relationship to the Client and the Public 15.22
  - 3. Level of Service 15.23
  - 4. The Report Generally 15.24
  - 5. The Old Litigation Exception 15.25
  - 6. After December 15, 2015; Reports, Statements, and Disclaimers 15.26
  - 7. Explaining “No Assurance” 15.26A
- B. The CPA Engaged to Prepare a Fiduciary Accounting
  - 1. Whether a Fiduciary Accounting Is a Financial Statement 15.26B
  - 2. The Engagement to Prepare a Fiduciary Accounting 15.26C
VI. FORM: SAMPLE ENGAGEMENT LETTER 15.27
VII. LIST OF DOCUMENTS NEEDED TO PREPARE FIDUCIARY ACCOUNTING 15.28
VIII. CHART: ALLOCATION OF RECEIPTS AND DISBURSEMENTS UNDER CALIFORNIA UNIFORM PRINCIPAL AND INCOME ACT 15.29

FIDUCIARY ACCOUNTING HANDBOOK

(1st Edition)

April 2018

TABLE OF CONTENTS

File Name	Book Section	Title
CH01	Chapter 1	Introduction and Sample Accountings
01-014	§1.14	Summary of Account (April Cash Trust)
	§1.15	Assets on Hand—Beginning of Period
	§1.16	Additions to Trust
	§1.17	Receipts
	§1.18	Gains on Sales
	§1.19	Disbursements
	§1.20	Losses on Sales
	§1.21	Distributions
	§1.22	Assets on Hand—End of Period
	§1.23	Changes in Form of Assets
	§1.24	Liabilities
01-040	§1.40	Summary of Account (David Jones Trust)
	§1.41	Assets on Hand—Beginning of Period
	§1.42	Receipts
	§1.43	Gains on Sales
	§1.44	Disbursements
	§1.45	Losses on Sales
	§1.46	Distributions
	§1.47	Assets on Hand—End of Period
	§1.48	Changes in Form of Assets
	§1.49	Liabilities
	§1.50	Proposed Distributions
CH03	Chapter 3	Preparing the Accounting, Step by Step
03-004a	§3.4	Setting Up the Spreadsheet (Bank Account)
		Setting Up the Spreadsheet (Investment Account)
		Setting Up the Spreadsheet (Real & Personal Property)
	§3.20	Setting Up the Spreadsheet
	§3.24	Purchases Only
	§3.25	Portion of Asset Has Been Sold
	§3.26	Purchases and Sales of Same Asset
		Purchases and Sales of Same Asset
	§3.51	Spreadsheet for a Checking Account
	§3.52	Spreadsheet for an Investment Account
	§3.53	Spreadsheet for Real Property
	§3.54	Spreadsheet for Personal Property
	§3.55	Third Pass Spreadsheet
	§3.56	Summary Reconciliation Spreadsheet
	§3.57	Summary of Account
03-030	§3.30	Reconciling the Whole Accounting
03-031	§3.31	Setting Up the Spreadsheet (Summary Reconciliation)
03-038	§3.38	Caption
03-039	§3.39	Receipts Schedule
03-040	§3.40	Additional Property Received During Period of Account Schedule
03-041	§3.41	Disbursements Schedule
03-042	§3.42	Distributions Schedule
03-043	§3.43	Gains and Losses
03-044	§3.44	Assets on Hand—End of Period
03-045	§3.45	Changes in Form of Assets
CH04	Chapter 4	Assets on Hand—Beginning of Period
04-018	§4.18	Principal and Income
	§4.33	Using Negative Numbers
	§4.34	Failing to Recognize a Thing Is an Asset
CH05	Chapter 5	Additional Property Received During Period of Account
05-008	§5.8	Additions to Trust Schedule
CH06	Chapter 6	Receipts
06-053	§6.53	Receipts Schedule
	§6.54	Receipts from Entities
	§6.55	Dividends and Capital Gains
	§6.56	Receipts from Rental Properties
	§6.57	Bank Account Interest
	§6.58	Interest on Bonds Owed to Trustee
	§6.59	Assets Listed in Prob C §16357(c)
	§6.60	Dividend Reinvestment Programs
CH07	Chapter 7	Gains and Losses
07-019	§7.19	Gains on Sales or Other Dispositions
	§7.20	Insurance Proceeds
	§7.21	Sales in Which Expenses Were Paid in the Course of the Sale
CH08	Chapter 8	Disbursements
08-004	§8.4	Sample Complete Disbursements Schedule: Cash Trust
08-005	§8.5	Sample Complete Disbursements Schedule: Real Estate Trust
	§8.29	Receipts Related to Real Property
	§8.30	Amounts Disbursed in Escrow
	§8.31	Debts Associated with a Decedent’s Death Paid from Principal
	§8.32	Expenses Associated with Real Property
	§8.33	Loan Payments, Payments on Trust Debts
CH09	Chapter 9	Distributions
09-003a	§9.3	Sample Distribution Schedule: Cash and Securities
		Sample Distribution Schedule: Speed Boat
	§9.43	Expenses and Receipts Applicable to a Specific Gift
	§9.44	Accounting for the Accrual of Interest on a General Pecuniary Gift
CH10	Chapter 10	Assets on Hand—End of Period
10-011	§10.11	Sample Assets on Hand—End of Period Schedule (Cash, Real Estate, and Receivables)
10-012	§10.12	Sample Assets on Hand—End of Period Schedule (Cash, Equities, Corporate Bonds, Mutual Funds, a Limited Partnership, and Personal Property)
CH11	Chapter 11	Auxiliary Schedules
11-017	§11.17	Spreadsheet Illustrating Sale Price Equal to Asset’s Carry Value
	§11.18	Spreadsheet Showing Payments of Principal from a Debtor to the Trust
	§11.19	Purchase of Bond and Reinvestment of Dividents
	§11.20	Disbursement of Funds to Improve Real Property
	§11.21	Spreadsheet Accounting for Tenant Security Deposit
	§11.22	Spreadsheet Showing Increase in Liabilities
CH12	Chapter 12	Summary of Account, Reconciliation
12-002	§12.2	Statutory Form and Requirements for Summary of Account
12-003	§12.3	Improved Summary of Account
CH15	Chapter 15	Project Management; Useful Miscellanea; a Word to and About CPAs
15-015	§15.15	Help Fiduciary Manage Documents
15-027	§15.27	Form: Sample Engagement Letter

Selected Developments

April 2020 Update

This book’s goals, to demystify Probate Code accountings and describe a set of best practices for their preparation, are straightforward. The path to achieving those goals is likewise straightforward but time intensive. Through continual review of the relevant literature, case law, and legislation, and biennial updates based on that review, the Fiduciary Accounting Handbook will remain useful for fiduciaries, their accountants, and their attorneys who endeavor to tell an accurate and complete story through their accountings. Below, several updates in the 2020 edition have been highlighted.

In late 2019, the Judicial Council extensively revised and renumbered Cal Rules of Ct 7.575, which addresses accountings filed by conservators and guardians. The revised rule details the information and supporting documents required in all accountings. It also explains when a fiduciary may file a simplified accounting rather than a standard accounting. Finally, it explains which Judicial Council forms to use and how and when a court may waive an accounting. See §§2.17–2.23, 2.26.

Assembly Bill 328 (Stats 2019, ch 10), effective January 1, 2020, revises Prob C §21380, to add a new category of those who may be disqualified from being a beneficiary. Now, a care custodian who marries, establishes a domestic partnership with, or cohabitates with the settlor who was a dependent adult while receiving care from the care custodian is presumed to have exerted undue influence upon the dependent adult. See Prob C §21380(a)(4). See §2.47

In Morgan v Superior Court (2018) 23 CA5th 1026, the court held that not only can a predecessor trustee not assert the attorney-client privilege against a successor trustee, any provision of a trust instrument seeking to do so violates public policy. See §2.54.

Chapter 16 is a new chapter addressing some of the questions that frequently come up when practitioners are preparing a fiduciary accounting.

About the Authors

MARGARET M. HAND (Chapters 1, 2, 4–13, and 15) is a partner with the firm Hartog, Baer & Hand in Orinda, California, and has been serving trust and probate clients in the Bay Area since 1993. Ms. Hand is a certified specialist in estate planning, trust, and probate law, and is a fellow of the American College of Trust and Estate Counsel (ACTEC). She specializes in probate and trust administration, as well as conservatorships and guardianships. In addition, she teaches fiduciary accounting for the CalCPA Education Foundation. Ms. Hand received her undergraduate degree from the University of California, San Diego, and her J.D. from the University of California, Berkeley, School of Law.

HEATHER HAMILTON (Chapter 3, “Preparing the Accounting, Step by Step”) is a principal of Fiduciary Accounting Services, LLC in Moraga. Prior to co-founding the firm in 2007, she had a 15-year career in banking, primarily serving privately held and family-owned businesses and technology companies. She is a graduate of the California State University at Chico, with a degree in Finance. She is a member of the Diablo Valley Estate Planning Council, and has served on the board of the Junior League of Oakland-East Bay, the Cancer Support Community, and the Contra Costa Ballet Foundation. She specializes in preparing accountings for trusts, estates, and conservatorships, and is widely regarded as one of the Bay Area’s most knowledgeable and skillful practitioners of this type of accounting.

DON EDWARD GREEN (Chapter 14, “Conflicts and Litigation”) received his B.A. in 1973 from California State University, Long Beach, and his J.D. in 1976 and LL.M. (Taxation) in 1983 from McGeorge Law School. He retired in 2010, having served as the Probate Commissioner, Contra Costa Superior Court, and formerly having served as probate staff attorney, Sacramento Superior Courts, from 1989 to 1998. Before working for the court, Mr. Green practiced law as a certified specialist in estate planning, trust, and probate law (suspended while serving as a judicial officer). He is a former chair of the California State Bar Trusts and Estates Section, served as an Executive Committee member for 10 years, and served as Judicial Liaison to that section. He also served as a member of the Judicial Council of California Probate and Mental Health Advisory Committee. Mr. Green is a frequent lecturer and speaker for CEB, PLI, CJER, sections of the State Bar of California, county bar associations, and various community groups and charities. He was named Pro Bono Judge of the Year 2003 by the Contra Costa County Bar Association.

About the 2018 Update Author

MARGARET M. HAND, author of chapters 1, 2, 4–13, and 15 in the first edition of this book, is the author of the 2018 update, including a rewritten chapter 14. She is a principal with the firm Hartog, Baer & Hand in Orinda, California, and has been serving trust and probate clients in the Bay Area since 1993. Ms. Hand is a certified specialist in estate planning, trust, and probate law, and is a fellow of the American College of Trust and Estate Counsel (ACTEC). She specializes in probate and trust administration, as well as conservatorships and guardianships. In addition, she teaches fiduciary accounting for the CalCPA Education Foundation. Ms. Hand received her undergraduate degree from the University of California, San Diego, and her J.D. from the University of California, Berkeley, School of Law.

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Fiduciary Accounting Handbook 2022

Introduction and Sample Accountings

Types of Fiduciaries and the Various Duties to Account

Preparing the Accounting, Step by Step

Assets on Hand—Beginning of Period

Additional Property Received During Period of Account

Receipts

Gains and Losses

Disbursements

Distributions

Assets on Hand—End of Period

Auxiliary Schedules

Summary of Account, Reconciliation

Adjustments Between Principal and Income

Court Proceedings

Project Management; Useful Miscellanea; a Word to and About CPAs

Selected Developments

About the Authors

About the 2018 Update Author

Contact Info

Information

Customer info

Help

Customer Service

Fiduciary Accounting Handbook 2022

Selected Developments

About the Authors

About the 2018 Update Author

California Trust Administration

California Trust and Probate Litigation

California Decedent Estate Practice

Contact Info

Information

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