The Iowa Supreme Court recently upheld an attorney disciplinary action and issued a reprimand for “not keeping clients reasonably informed” by neglecting to offer beneficiaries accurate estate accounting reports.
This holding has sent a powerful “YES” response to the many Iowa fiduciaries out there who still debate whether heirs have a statutory right to receive full estate accounting disclosures.
The Smith Law Firm attorneys at iowaprobatelitigaion.com agree that Iowa probate code requires trustees and executors to submit accountings when the decedent’s heirs formally request them.
The law further compels personal representatives to surrender accounting reports to the courts and secure a final approval before distributing estate assets to heirs and beneficiaries.
In this news article, the probate litigators at the Smith Law Firm of Iowa discuss how fiduciaries should properly prepare estates for probate financial reporting and reveal what every estate accounting report should include to keep interested parties and probate judges reasonably informed.
Key Takeaways
– Probate law requires executors to produce estate accountings.
– Heirs and beneficiaries can demand accounting disclosures at any time during probate.
Preparing the Estate for Reporting
Testamentary documents may designate a personal representative to settle an estate, but probate cannot move forward until the courts confirm the appointment. This means executors and trustees must wait until the court assigns them official fiduciary duties before they can start preparing the estate for financial disclosure.
Once appointed, the fiduciary must procure an employer identification number (EID) from the Internal Revenue Service to replace the decedent’s tax ID (social security number) previously attached to the assets and liabilities in probate.
This will allow the personal representative to remove the decedent’s legal ownership title from estate property and re-title the assets, “In The Estate of…,” linking the new EID to the subject matter for taxing purposes.
Re-titling estate property further makes inventory tax reporting easier, and it facilitates faster title transfers when executors distribute the remaining estate property to beneficiaries.
Fiduciaries must also make sure the estate account bears the same EID used to re-title property and that it’s the only bank account they use when depositing cash or checks or settling debts during their tenures.
Any deviation from probate titling standards places personal representatives at risk of facing expensive fiduciary litigation or fiduciary removal proceedings, especially when trustees and executors use their personal accounts or tax id numbers for placing estate assets in escrow.
Key Takeaways
– Executors must re-title assets in the name of the estate.-
– All estate property should hold a unique EID for taxing purposes.
Appraising Estate Property for Accurate Bookkeeping
After re-titling all assets and property, executors must assess the estate’s fair market value and properly record the information in the estate ledger. Appraisal information is also needed for preparing the decedent’s state and federal tax returns.
Once property values are known, executors can begin sending notices to creditors, informing them that the estate has entered probate and assets are available for settling outstanding or current debts.
Executors must further ready the ledger for complicated bookkeeping entries that will show up later in complex final accounting reports and informal accounting summaries when heirs and beneficiaries demand them.
Key Takeaways
– Property and asset assessment prepares the estate for bookkeeping entries.
– Fiduciaries must discover the estate’s fair market value before reporting to the courts.
Procuring Non-Probate Assets for Inventory Reporting
Fiduciaries may remove assets and real property held under a joint tenancy with right of survivorship from probate distribution, but that doesn’t preclude the items from tax assessment and probate fees.
Personal representatives must therefore find joint bank account balances and real property that automatically transferred to surviving spouses or co-tenants after the decedent passed away and add the assets to the estate inventory for the probate court to review.
Discovering co-owned property is fairly easy, but explaining to surviving joint tenants about why they have to pay fees and taxes on assets they thought were free from probate can get complicated.
Always have an estate attorney contact surviving co-tenants to better explain how the law works—doing so may avoid unwarranted will dispute lawsuits brought by confused joint tenants seeking restitution.
Key Takeaways
– The courts assess taxes and probate fees on co-owned property.
– Executors should have estate lawyers advise joint tenants of their rights during probate proceedings.
Formal vs. Informal Estate Accountings
Formal accounting reporting usually occurs twice—once after appraising the estate and taking inventory and again before distributing assets to beneficiaries. Interested parties may also compel fiduciaries to submit formal accountings during discovery in estate dispute litigation.
The courts set the complex standards in which personal representatives must present their reports. Formal accountings offer probate judges accurate and detailed information about the estate’s market value, the liabilities requiring payment, and the individuals that the fiduciary owes duties to (i.e. heirs, gift recipients, estate attorneys, public accountants).
Contrarily, informal accountings are modest versions of formal accountings that often omit the line-item details found in formal reporting. These so-called “unofficial documents” often summarize cash and personal property values, real estate sales and acquisitions and estate liabilities.
Regardless of whether the accounting is formal or informal, the entries are the same and fiduciaries must produce both reports upon request.
Key Takeaways
– Formal accountings are complex reports that detail the estate’s financial position.
– Informal accountings summarize line items found in formal reporting.
Reconciliation and Record Citings
Entries in formal accounting statements must contain references that indicate where the courts or auditors can find hard-copy records for reconciliation purposes.
Statements from financial institutions and invoices from creditors make up most of the reconciliation citations found in formal estate accounting reports. However, any document that can explain why the fiduciary made the entry may stand as an accounting reference:
- Real Property Acquisition and Sales Receipts
- Testamentary Gifting Documentation
- Cash Receipts
- Early Distribution Receivables
The courts regularly reject estate accountings that omit proper file references. When this happens, executors end up wasting significant estate assets redoing what should have been done months or years ago—often provoking delays in settling the estate and giving cause for beneficiaries to bring fiduciary removal actions.
Key Takeaways
– Line-item citations help auditors reconcile formal accountings.
– The courts may reject reports that are missing entry notation.
Contracting Professional Services
Even when the personal representative is an accountant, he or she may not possess the skill required for complying with the stringent reporting standards found in Iowa probate law.
For this reason, the Smith Law Firm suggests personal representatives hire seasoned estate dispute lawyers to execute their estate accounting reports.
Probate attorneys understand which accounting practices judges are looking for and they’ll team up with professional bookkeepers and certified public accountants who will make sure that asset and liability entries appearing in the final report reconciles without error.
Key Takeaways
– Estate lawyers know what probate judges want to see in formal accounting reports.
– Law firms employ professionals that ensure estate accountings reconcile properly.