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Trust Accounting -Why and When

The Trustee of an Irrevocable Trust has a legal duty to account to the beneficiaries of the Trust. This makes sense. How else will a beneficiary know if the Trustee is acting in the best interests of the Trust, according to the Trust terms? A Trustee is required to provide accountings at least annually. If the Trustee doesn't account, after a proper request, the beneficiary can bring the Trustee to Court to compel an accounting.

Apart from the legal duty, there are benefits to accountings, especially when there is a difficult or litigious beneficiary.

If a beneficiary wants to sue the Trustee for breach of trust, the beneficiary has four years to do so. This is referred to as a "statute of limitation" meaning after four years, it's too late to sue.

However, if the Trustee accounts to the beneficiary, the time for the beneficiary to sue for breach of trust is shortened to three years. The three-year statute of limitation starts to run on the date the beneficiary receives an accounting that contains sufficient information so the beneficiary knows she has a claim against the Trustee, or reasonably should have inquired into the existence of a claim against the Trustee.

The Trustee is required to account to all beneficiaries who are entitled to receive distributions from the Trust. The Trustee is not generally required to account to future beneficiaries. But, the Trustee may want to take advantage of the three-year statute of limitation by accounting to future beneficiaries, even though not required to do so. This will limit how far back a beneficiary can go in challenging the Trustee's actions.

For ultimate protection, the Trustee can submit her accounting to the Court for approval. So long as the beneficiary receives proper notice, once the accounting is approved by order of the Court and the time to file an appeal has ended, the beneficiary can no longer challenge anything disclosed in the accounting.

Of course, any Trustee or beneficiary of a Trust who has concerns about Trust accountings should get advice from her own attorney.

Planning Ahead Column

By Lisa Alexander, Esq.

Jakle, Alexander, and Patton, LLP

Direct Line: 310-656-4310

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