Introduction Dear Mr. Miller: My Mom died last year. She was worth
$950,000 more or less with her condo and her bank account and stock.
There was no Probate as she owned everything in her Living Trust. My
brother and I are the only beneficiaries and he is the executor.
I received a check yesterday for $445,000. How do I know I received
what I was supposed to? I trust him but....
Biggest Problem Dear Questioning: You are not alone. This single problem is
probably responsible for more disputes then most other issues.
California, and I believe most states, have a procedure to deal with
this issue. It is called an accounting.
I usually meet early on with the person who is going to be handling
the wrapping up of the estate. This person is called an Executor or
Administrator if there is a Court Probate and a Successor Trustee if
we are dealing with a trust. Their responsibilities are almost
identical. I generally just call them both “the manager.” At that
meeting, if any beneficiary exists other than the manager, I
typically bring up the fact that at the end of the line we don’t
want the other beneficiary to feel uncomfortable in any way. In
fact, we want that other beneficiary to feel very comfortable that
everything was done in a transparent method and there is no question
that the beneficiary received his appropriate share or amount.
You Will Not Receive Your Share of the Opening Value:
In order to accomplish that task, we need to understand that even a
50% beneficiary is not going to receive 50% of the estate as it
existed on the date of death. For example, let’s say your Mom died
worth $950,000. As a 50% beneficiary you may think that you are
entitled to $475,000 (950,000/2). That is not the case. There are
almost always expenses, costs, and fees that will need to be paid,
whether there is a court probate proceeding or not.
even with a Living Trust there are costs to settle the estate. There
may be taxes, medical bills or other debts, CPA fees for tax
returns, attorney fees to help settle the estate, etc. So you will
receive 50% of what is left after those expenses are paid.
The accounting is a financial report that brings all of that
information (and more) together in one place and typically will be
provided to each beneficiary prior to that beneficiary consenting to
release the manager from liability. The best way I have seen it
explained is that an accounting “accounts” for the difference
between the value of the estate as it existed at the date of death
and the value of the estate at the point in time of the
distribution. The accounting generally consists of a number of pages
and is for a distinct period of time (generally from the date of
death or the end of the last accounting period to a specific closing
date). California’s version (different than the approach most states
take) has a summary page in front and various schedules following:
The estate assets and values for each asset as of the date of death,
all of the receipts for the period, all of the disbursements for the
period, capital gains and losses for the period, distributions to
beneficiaries during the period, and whatever assets exist (and
their values) as of the last day of that period. If less than the
entire value of the estate as of the last day is going to be
distributed, then typically you will be informed of how much is
going to be held (often referred to as a closing reserve) or how
much is going to be distributed. If you are entitled to a specific
percentage then you simply apply that percentage to the amount being
distributed and match that to the check you are given.
Review of the Accounting:
Of course, you should probably review the accounting, after all,
that’s why it was provided to you. If it were me and I had no reason
to expect the manager to be doing anything other than treat me
honestly, then I would not go over every line item. Rather I would
look at the larger numbers to see for what the disbursement was paid
and to whom. Do they appear unreasonable, are they to the manager or
his family? If so, then I might inquire further. But if not, then
typically I would be satisfied on that side of the equation. I would
then look at the receipts. Was interest paid on the cash accounts,
did an asset that was in existence on day one somehow disappear
without appearing on the gain or loss schedule and no further
explanation being offered in the accounting? And I would probably
look at the schedule of what existed on day one to make sure that
everything of which I had knowledge was listed and whether the
values seemed to make sense.
If anything seems in error I would inquire further. You are
generally entitled to see all of the supporting documents if you
wish (checks, bank statements, etc.) I, personally, would not ask
for these unless something seemed awry.
Purposes of the Accounting:
This accounting serves several purposes: It allows you as a
beneficiary to determine how much you should be receiving, it
protects the manager as it usually starts a statute of limitations
running after which it becomes much more difficult for a beneficiary
to challenge the manager’s actions, and, if one beneficiary is
receiving a particular asset such as a house, it allows the costs to
carry that asset during the administration period to be allocated to
that beneficiary’s share.