*This blog post is for informational purposes only and does not constitute legal advice; please consult a qualified attorney for guidance on your situation.
When someone acts as a fiduciary—whether as a trustee, executor, or guardian—they’re responsible for managing someone else’s money or property. One of the most essential parts of this role is keeping clear, accurate records, known as “accounting.” Good accounting shows how the money is managed and helps build trust with the beneficiaries or anyone involved. Here’s a straightforward look at what a fiduciary’s accounting should include and why it matters.
What is Fiduciary Accounting?
Fiduciary accounting is a detailed record of all the money going in and out of the account or estate the fiduciary manages. It’s like a personal finance report but with more detail and transparency. A fiduciary’s accounting shows what money is coming in, what’s going out, and how much is left so everyone involved can see exactly how the finances are handled.
Critical Elements of a Fiduciary Accounting
To keep it simple, here are the main things a fiduciary should include in an accounting report:
- Starting Balance: This is the amount of money or assets at the beginning of the accounting period. It shows what the fiduciary started with.
- Income and Gains: Any money received during the accounting period should be recorded. This could include interest from investments, rent payments, stock dividends, or other income sources.
- Expenses and Disbursements: These are any payments made on behalf of the trust, estate, or person being cared for. Examples include paying bills, fees, taxes, or other expenses supporting the beneficiary’s needs.
- Gains and Losses from Investments: If the fiduciary has invested any funds, they’ll also report any profits or losses.
- Ending Balance: This is the total amount left after all income, gains, expenses, and disbursements are added or subtracted. It shows what’s left to manage at the end of the accounting period.
Example of Fiduciary Accounting in Action
Imagine Mark is managing a trust for his niece, who is set to receive the money when she turns 25. Here’s how Mark might do an accounting for one year:
- Starting Balance: Mark starts the year with $100,000 in the trust.
- Income: During the year, the trust earns $2,000 in interest from a savings account and $3,000 from investments for a total income of $5,000.
- Expenses: Mark pays $1,000 for trust management fees and $500 for taxes, totaling $1,500 in expenses.
- Ending Balance: After adding the income ($5,000) and subtracting the expenses ($1,500), Mark’s ending balance for the trust is $103,500.
Mark would list each transaction in the accounting report with dates, amounts, and brief descriptions. This way, anyone reviewing the report can see exactly how each dollar was used.
Why Fiduciary Accounting Matters
Good accounting protects both the fiduciary and the beneficiary. By showing a clear record of all transactions, the fiduciary proves they acted responsibly and in the beneficiary’s best interest. It also makes it easy for beneficiaries to understand how their money or assets are managed and ensures transparency. In a conservatorship, the accounting will be filed with the court, and the accounting will be given to the beneficiaries in a trust. These accounts will usually be produced every year, but ask your lawyer.
Ultimately, accurate accounting is crucial to being a good fiduciary—it shows responsibility, builds trust, and keeps everything transparent and above board.
