Fiduciaries managing trusts must prepare estate accountings for beneficiaries at least once a year. Executors likewise present formal estate accountings for judicial review and informal accountings for beneficiaries during probate proceedings. Judges also compel fiduciaries to perform estate accountings for interested parties in will dispute litigation.
What’s important to know here is that estate accounting is a legal duty assumed by fiduciaries from the moment they agree to look after the financial interests of others.
This means if the courts assign you as a trustee or an executor, you may be personally liable if your declaration of the estate’s financial position is inaccurate or if you neglect to report estate accountings within the timelines set by the probate court.
The Smith Law Firm in Iowa wants to help you understand some estate accounting fundamentals so no matter whether your estate holds an accounting waiver or whether the courts were silent about reporting, you’ll know what to do when compelled to produce these essential financial documents during probate.
The Three Stages of Estate Accounting
Three accounting events take place during probate in Iowa, and you must execute them carefully to satisfy the legal duties you owe to the people or person you represent.
- Estate Inventory—once the court appoints you as an executor, you’ll have ninety days to take an inventory of the estate assets and present the findings to the court. An appraiser however will first need to assess the inventory, which gives the courts a sense of what the estate is worth.
- Estate Bookkeeping—you will also need to maintain accurate records while managing property, settling estate debts, and distributing assets. The revenue and expense bookings made in the estate ledger must likewise reconcile with the estate bank account (estate account) opened when proceedings commenced.
- Estate Report and Final Accounting—after collecting income, settling debts, selling real property, and distributing what remains to beneficiaries, you usually have to report a final accounting to the court. This bookkeeping ledger shows you prudently completed your fiduciary duties while executing the estate and complying Iowa Probate Code, the terms of the will or intestacy law.
Now, let’s explore these three estate accounting duties in detail to get a better sense of what each event requires:
- Perform a detailed assessment and present an estate inventory of property and assets.
Executors can have the Smith Law Firm of Iowa compile their probate report schedules and file inventory with the courts electronically.
You may however hire a certified public accountant to appraise and record inventory or register a probate inventory exemption that reflects the estate’s low market value.
Regardless of how you present your estate inventory accounting, it must contain the following information to satisfy Code 633.361(1-13):
- Personal information of the deceased and time of death.
- Whether the estate is testate or intestate.
- Contact information of the executor and surviving spouse.
- Description and value of all real estate inside and outside Iowa.
- Contact information of all beneficiaries or intestate heirs.
- Report of federal estate unified tax credit reductions available.
- Value of estate assets subject to state and federal inheritance taxes.
- Value of non-exempt and exempt personal property (insurance policies, joint assets).
Judges often task court-appointed appraisers to find the estate’s market value. The courts may surcharge you (subject you to personal liability) if you incorrectly guess an asset’s worth and inaccurately report it in your inventory accountings.
Unless the courts grant you an extension, Iowa Probate Code 633.361 affirms you’ll have you three months starting from the day the court appoints you as executor to appraise, report, and inventory the deceased’s estate accurately.
“Failure to file probate inventory and reports in a timely
fashion can result in will dispute litigation and court-ordered executor surcharges.”
– Smith Law of Iowa
- Keep meticulous records and record everything.
Precise bookkeeping when settling debts and winding down the estate is essential in estate accounting.
After taking inventory, may notice significant amounts of revenue coming in:
- Dividends from Stock and Bonds
- Rental Income
- Pension Payments
- 401K Payouts
- Interest Revenue
- Tax Refunds
You must deposit all income into the estate account you opened when proceedings began and record every receivable in your accounting ledger. Your ledger should likewise reflect how the asset (cash, stocks) increased or decreased in value since last taking inventory.
You may use the income collected during your tenure as executor to settle estate debts:
- Mortgage Payments
- Utility Bills
- Past Due Medical Bills
- Burial Costs
- Estate Liens
- Credit Cards
- Property and Income Taxes
- Real Estate Maintenance
You must likewise pay all debts before you can administer the surviving assets to beneficiaries. You further hold a fiduciary duty to discover which debt claims are legitimate and the order in which to pay them according to Probate Code § 633.425.
Sometimes the estate account will lack the funds to pay off what the deceased owes. You will need to sell assets if that happens and record the income received from sales into the estate ledger.
If you’ve settled all debts, and the estate is intestate (having no will), you will further need to convert the remaining assets to cash for disbursement among beneficiaries later.
Make sure you get receipts when selling personal property, such as jewelry or art. Sales receipts must cite the purchase date, value received, recipient name, and have a detailed description of the property sold.
You should likewise maintain a separate receipt file for each payable account in the estate ledger. For example, if you pay the electric bill, use the estate account, register the debt in the general ledger and place the payment receipt in a file named “electric bill,” separate from other receipt files.
Once you settle all legitimate debts, it’s time to distribute what remains among the heirs and beneficiaries. Administering assets and property is the most time-consuming task in estate accounting.
Interested parties may not agree with their provisions file a will challenge. You may also face unwarranted fiduciary litigation with interested parties accusing you of carelessly performing your executor duties. For this reason and more, asset distribution may take years to execute.
Again, always get receipts when distributing assets and record the liability in the estate ledger.
TIP: Income earned and expenses paid from the estate account must match the estate ledger verbatim. You may not use the account to take fees or to pay personal expenses, even if the charge relates directly to estate administration.
“Avoid commingling of assets allegations in will
contests by never using your personal account to
settle estate debts and pay expenses.”
– Smith Law of Iowa
- Present the Final Report and Accounting to the court.
Unless waived by interested parties, the courts will order a final accounting that documents the income received, debts paid, executor and legal fees charged and disbursements made.
Your final accounting must match the entries you made in the estate ledger; the probate courts will not discharge you from your fiduciary duties until after a judge accepts your final reports.
You likewise hold a duty to produce estate accountings anytime during probate proceedings if the courts compel you to do so. You may further provide informal accountings to interested parties who request them.
Iowa’s go-to estate accounting lawyers at the Smith Law Firm can help you with this and much more—so why not give them a call?