Record keeping

When you administer a trust or estate, you need to pay particular attention to record keeping. That may seem like an obvious statement, but too often books and records are kept poorly — or not at all.

In this podcast episode, we discuss record keeping for trustees and other fiduciaries. We talk about the importance of contemporaneous records. And we urge fiduciaries of all kinds to carefully document what they do.

Fiduciaries need to understand the tax effect of decisions they make — particularly the income tax consequences. They need to be aware of what documents the IRS and state taxing authorities will require. And they should understand that income tax problems may not arise for months or even years.

Every trustee should review the difference between trust accounting income and taxable income. Will the trust pay an income tax, or will tax liability pass through to the beneficiary (or beneficiaries)? When does the trust even need to file an income tax return?

The rules for record keeping differ among trusts, probate estates, conservatorship accounts and other fiduciary arrangements. It is important for every fiduciary to get good legal and accounting advice, and to maintain regular records. Those records should clearly identify income, expenditures, time spent by the fiduciary and tasks accomplished.

Not planning on charging a fee? It doesn’t matter. Keep contemporaneous records of what you do, how long it takes, and what information you collect. Our basic message: always act as if a judge will be looking at your files and records. Because sometimes she will.

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