Does an Executor Have to Show Accounting to Beneficiaries?
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Summary:
In most jurisdictions, the executor of a will has to show accounting to estate beneficiaries on request. However, this can happen further along in the probate process, as the list of the estate’s inventory rather than the full accounting must be submitted at the beginning. Executors can submit an informal accounting statement, but if that doesn’t suffice, they are usually legally obligated to provide a full accounting.
When a person passes away, a family can be left with a mountain of emotional and logistical issues to process. Organizing a funeral and moving family members or pets to different locations can be a huge amount of work. Then, they must deal with the logistics of what happens to the deceased’s estate. When someone dies, the executor of the estate will need to properly allocate the estate’s assets as delineated in the will. In most cases, as part of this process, the executor is legally obligated to show the estate’s accounting to beneficiaries on request.
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Does an executor have to show accounting to the beneficiary?
Yes, in most cases, the executor does have to show accounting to the beneficiaries. Many times, an informal accounting statement will suffice. In most jurisdictions, however, the executor will need to submit an official accounting statement on request via probate court.
Why does an executor need to show accounting to the beneficiaries?
- Executors have a fiduciary duty to the beneficiaries to make sure they are acting in the “best interests of the beneficiary.
- Probate courts will sometimes require an official accounting statement to be confirmed by a probate lawyer to complete the probate process. This can differ in each jurisdiction.
- Some states require beneficiaries to sign a consent document stipulating they agree with the probate court and executor’s assessment. Many times, beneficiaries will require accounting before they need to sign off on a receipt-and-release document.
- It’s generally considered good and proactive to show accounting, just so there are no hiccups down the line.
The fiduciary duty of the executor
Executors have a fiduciary duty to the beneficiaries, meaning they are legally required to act in the “best interest” of the beneficiaries. This means they must also understand the following when trying to piece together the accounting for an estate.
Assets at the time of death
All assets at the time of the death need to be accounted for, including some that might be in process. This can be particularly tricky if the deceased was in the middle of acquiring or disposing of assets mid-contract. In this case, the beneficiaries will need to decide if they will honor the contract if it has not been fulfilled. However, the financial situation within the estate and priorities within the probate court can affect the fulfillment of contracts.
Income to the estate
Many times, the process of executing a will in its entirety can take time. If the estate is still holding income-producing assets, then this needs to be accounted for and managed in the best interests of the estate.
Pro Tip
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Debts/expenses
An executor needs to manage the debts that will need to be paid by the estate, as well as any expenses. For instance, the lawyer fees (if applicable) and the probate court’s administration fees will need to be covered by the estate and accounted for.
Tax considerations
The executor of the will must also be aware of all tax considerations as it pertains to the estate. This includes complete accounting and understanding of any trust structures that the estate might hold, as well as any taxes that apply to passing assets to beneficiaries. “When it comes to estate planning with beneficiaries, a unique strategy I recommend is establishing a stretch or inherited IRA for non-spouse beneficiaries,” says John Grace, a seasoned financial advisor. This allows beneficiaries, such as children or grandchildren, to stretch the required minimum distributions (RMDs) over their lifetimes. By doing so, they can potentially maximize the tax-deferred growth of the inherited IRA.”
Estate planning requires a good look at your financial picture. These advisors can help you plan for the future with your investments.
Distribution to beneficiaries
The executor is also bound to execute and account for the distribution to beneficiaries. Speaking with beneficiaries as soon as possible is key to making sure everything goes well regarding distribution, according to Min Hwan Ahn, an attorney based in New York. “It’s always crucial to encourage honest and early communication with their beneficiaries. Unforeseen conflicts and disputes are often due to a lack of communication or misunderstanding about the estate holder’s desires. Moreover, I always emphasize reviewing and updating estate plans regularly, as life events can drastically change a person’s beneficiary intentions.”
Unforeseen conflicts and disputes are often due to a lack of communication or misunderstanding about the estate holder's desires. - attorney Min Hwan AhnClick to Tweet
Inventory vs. accounting in probate court
Once a person has passed away and a death certificate is issued, the wheels will begin to turn on the execution of the deceased’s will. This takes place in a probate court or a court whose single purpose is to handle estates.
Estate inventory
The inventory, or list of assets, of an estate is usually provided to the probate court at the beginning of the process. Below is an example of an inventory list that one might submit at the beginning of a court case.
Various estate funds
Investment accounts
Bank accounts
Real estate holdings
Retirement accounts
An estate inventory, in most cases, consists of any assets and liabilities that the estate has. Many times, these have an “estimated value” and not the actual value. For instance, if the deceased had jewelry, it will be submitted with an estimated value rather than the fair market value that a jeweler determines during the probate process.
Estate accounting
Estate accounting is submitted much later in the process and sometimes towards the end. The accounting of the estate should consist of both more accurate valuations of the assets and liabilities as well as a full accounting of the incomings and outgoings of the estate before and during the probate process.
Informal accounting vs. formal court accounting
Informal accounting
In regards to estate administration, informal accounting is simply the value of the assets and liabilities and how they are distributed among beneficiaries. As an executor is usually a trusted member of the whole circle of beneficiaries, informal accounting usually works. This doesn’t mean that the executor did not hire an official accountant to help with the execution of the will. It just means that the accounting didn’t go through a formal court-mandated accounting procedure. An estate can be settled in as little as six months with informal accounting.
Formal court accounting
A court administrator must perform formal court accounting or “judicial accounting.” A formal court accounting will take place in two scenarios and usually involve probate lawyers.
- If requested by the beneficiaries and required by the jurisdiction to provide when requested, then the beneficiaries must be granted a formal court accounting.
- If the deceased died without a will, then a formal court accounting is established automatically to decide how to divvy up assets.
A formal court accounting will tie things up longer as the accounting must be submitted pending court approval.
What about the age of the beneficiaries?
The way you handle your estate planning may depend on the age of the beneficiaries, according to Alec Kellzi, a licensed CPA. “For younger beneficiaries, creating trusts can provide financial protection and controlled distribution over time. For adult beneficiaries, open communication about the estate plan’s intentions can help manage expectations and reduce potential conflicts. I recommend clients regularly review and update their beneficiaries to ensure their estate plan aligns with their current wishes and circumstances. This approach allows clients to make informed decisions that balance their goals and the well-being of their beneficiaries.”
FAQ
Can the beneficiary ask the executor to see bank statements?
In general, no. Beneficiaries cannot ask to see individual bank statements unless they are personal representatives of the estate. The beneficiaries can request to see bank statements, but it’s possible their request could be denied or the executor could refuse. If the beneficiaries are entitled to residual income that’s related to bank statements, then it’s possible the court could order that the beneficiaries be allowed to see the statements.
Can a beneficiary demand an accounting?
Yes, and in most cases, the jurisdiction will stipulate that it must be provided. Most commonly, estate property will be accounted for using informal accounting methods. However, an official formal court accounting could be ordered to allow for more transparency with all the transactions.
What is the final accounting to beneficiaries?
The final executor accounting is done as the probate court wraps up the case. The executor will submit an inventory of the estate, along with an informal accounting statement, later down the line. They might be required to submit a final accounting statement, but that depends on the jurisdiction.
Can an executor override a beneficiary on a bank account?
No, an executor is bound to the terms of the will and cannot delete, change, or add beneficiaries.
Key takeaways
- In most cases, an executor must show accounting to beneficiaries. There are some things to consider, however.
- The executor is bound by fiduciary duty to the beneficiaries to show accounting. Furthermore, some probate courts will require a final accounting at the end to close the case.
- There are different stages when dealing with an estate in probate court, and a statement of inventory and a statement of accounting are not the same thing.
- In most cases, the executor will submit an informal accounting to satisfy the beneficiaries. In certain cases and jurisdictions, however, the estate might need to obtain a Formal Court Accounting statement.
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