Trust Accounting
Trust accounting is a difficult concept for most tax preparers to grasp unless they also have accounting experience like CPAs. One of the primary purposes of trust accounting is to protect the interests of the corpus and income beneficiates of complex trusts and keep separate the expenses of both in a fair and equitable manner following applicable state law. Where the trust document does not specify an allocation, follow state law. Trust accounting requires:
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Tracing all deposits and disbursements.
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Taxes paid,
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Disbursements to beneficiaries,
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Gains and losses on trust assets,
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Fees and expenses paid attorneys, tax preparers, and financial advisors, and
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Compensation and expense reimbursements paid to the trust trustee.
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Detailed ledger of every financial transaction for each beneficiary.
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A journal for each account, tracking each transaction.
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Monthly reconciliation of the account.
It is recommended that trust accounting software be employed to fulfil the trust account accounting requirements.
Failure to properly perform fiduciary dutiesin administering the trust, could result in being removed as trustee. Furthermore, if the trustee fails to maintain accurate records or misleads beneficiaries with incorrect information, the trustee may be held personally liable.