California Trust Accounting Requirements: A Complete Guide for Trustees

---

Trust accounting refers to the process of maintaining and reporting financial records for a trust. The purpose of trust accounting is to provide transparency to beneficiaries, ensuring they are informed about how the trust’s assets are being managed and distributed. In California, trustees must adhere to specific legal standards and guidelines when preparing trust accountings.

---

Under California law, trustees are generally required to provide a trust accounting:

1. Annually: Trustees must provide beneficiaries with an annual accounting of the trust’s finances. (California Probate Code §16062)
2. Termination of Trust: When the purpose of the trust has been fulfilled and all trust assets have been disbursed, the trust terminates triggering the trustee’s duty to provide a trust accounting. (California Probate Code §16062)
3. Change of Trustee: When a trustee’s role ends, they must provide a final accounting covering the duration of their trusteeship. (California Probate Code §16062)
4. Upon Beneficiary Request: When a trustee fails or refuses to account, then you have to take action. Beneficiaries must demand a trust accounting in writing, and the trustee must comply within 60 days. If the trustee fails to do so, then you have the right to file a petition with the probate court under Probate Code section 17200 and ask the court to order the trustee to account. (California Probate Code §17200(b)(7)(C))
5. As Ordered by the Court: A court may order a trustee to produce an accounting upon a showing that it is reasonably likely that a material breach of the trust has occurred. (California Probate Code §16064(b))

---

California Probate Code §16063 specifies the required elements of a trust accounting. A complete trust accounting must include the following:

1. Statement of Receipts and Disbursements. A statement of receipts and disbursements of principal and income that have occurred during the last complete fiscal year of the trust or since the last account.
2. Statement of the Assets and Liabilities. A statement of the assets and liabilities of the trust as of the end of the last complete fiscal year of the trust or as of the end of the period covered by the account.
3. Trustee’s Compensation. The trustee’s compensation for the last complete fiscal year of the trust or since the last account.
4. Agents Hired by the Trustee. The agents hired by the trustee, their relationship to the trustee, if any, and their compensation, for the last complete fiscal year of the trust or since the last account.
5. Statement to Petition Court. A statement that the recipient of the account may petition the court pursuant to Section 17200 to obtain a court review of the account and of the acts of the trustee.
6. Three-Year Statute of Limitations. A statement that claims against the trustee for breach of trust may not be made after the expiration of three years from the date the beneficiary receives an account or report disclosing facts giving rise to the claim.

---

The trust accounting must be clear, organized, and easy for beneficiaries to understand. All accounts shall state the period covered by the account and contain a summary showing all the requirements of Probate Code § 1060, to the extent applicable. The summary requirements include:

1. Property on hand at the beginning of the period
2. Value of any assets received during the period
3. Amount of any receipts of income or principal
4. Net income from a trade or business
5. Gains on sales
6. Disbursements
7. Loss on sales
8. Net loss from trade or business
9. Distributions to beneficiaries
10. Property on hand at the end of the accounting period

Format should look like this:

SUMMARY OF ACCOUNT
CHARGES:
Property on hand at beginning of account (or Inventories)	$
Additional property received (or Supplemental Inventories)
Receipts (Schedule ______)
Gains on Sale or Other Disposition (Schedule _______)
Net income from trade or business (Schedule_______)
Total Charges:	$
CREDITS:
Disbursements (Schedule _______)	$
Losses on Sale or Other Disposition (Schedule _______)
Net loss from trade or business (Schedule ______)
Distributions (Schedule ______)
Property on hand at close of account (Schedule ______)
Total Credits:	$

Total charges shall equal total credits.

---

Failing to provide timely and accurate trust accountings can expose trustees to legal consequences, including removal as trustee or personal liability for financial losses. Key deadlines include:

• Providing an accounting within 60 days of a written request from a beneficiary. (California Probate Code §17200(b)(7)(C))
• Adhering to the schedule ordered by the court, if applicable

---

Trustees in California owe several fiduciary duties to the beneficiaries of the trust. These duties include:

1. Duty of Loyalty. Trustees must act in the best interests of the beneficiaries and avoid conflicts of interest. (California Probate Code §16002)
2. Duty of Care. Trustees must manage the trust assets with reasonable care, skill, and caution. (California Probate Code §16040)
3. Duty of Impartiality. Trustees must treat all beneficiaries fairly and equitably, considering their respective interests. (California Probate Code §16003)
4. Duty to Avoid Self-Dealing. Trustees cannot use trust assets for personal gain or engage in transactions that benefit themselves at the expense of the trust. (California Probate Code §16004)
5. Duty to Preserve Trust Property. Trustees must safeguard and maintain the trust property, ensuring its proper use and protection. (California Probate Code §16009)
6. Duty to Inform and Report. Trustees must keep beneficiaries informed about the trust’s administration and provide accountings as required by law. (California Probate Code §16060 & §16063)
7. Duty to Enforce and Defend Claims. Trustees have a duty to enforce claims on behalf of the trust and defend against claims that could harm the trust. (California Probate Code §16011)
8. Duty to Follow the Terms of the Trust. Trustees must administer the trust in accordance with its terms and the settlor’s intent. (California Probate Code §16001)
9. Duty Not to Delegate. Trustees must not delegate responsibilities that they are reasonably capable of performing themselves. However, they may delegate tasks requiring special skills if doing so is prudent, and they must carefully select and supervise agents. (California Probate Code §16012)

---

1.) What happens if a trustee refuses to provide an accounting?

If a trustee fails to provide an accounting when required, beneficiaries can petition the court to compel the trustee to do so. The court may impose sanctions or remove the trustee for noncompliance. (California Probate Code §16062) (California Probate Code §17200)

2.) Can a beneficiary challenge a trust accounting?

Yes, a beneficiary can contest a trust accounting if they believe it contains inaccuracies, mismanagement, or signs of trustee misconduct. Legal action may be necessary to address disputes.

3.) How long should a trustee keep trust accounting records?

Trustees should maintain accounting records for at least three years after the final distribution of the trust assets or as required by law.

4.) What expenses can be deducted from the trust?

Reasonable and necessary expenses related to trust administration, including legal fees, taxes, investment management, and trustee compensation, can typically be deducted.

5.) Can a trustee charge for their services?

Yes, trustees are entitled to reasonable compensation as outlined in the trust document or determined by state law. (California Probate Code §15681)

---

At the Law Office of Eric J. Rechsteiner, we understand the complexities of serving as a trustee. Our experience can provide guidance on fulfilling fiduciary duties, preparing trust accountings, and resolving disputes. Whether you are a trustee seeking advice or a beneficiary concerned about a breach of duty, we are here to assist.

If you’re facing questions regarding fiduciary duties, don’t wait. Contact us today for a free consultation and take the first step toward resolving your case.

---