Mark R. Gillett (Professor of Law, University of Oklahoma, College of Law), Katheleen Guzman (Orpha & Maurice Merrill Professor of Law, University of Oklahoma College of Law), and Kelly Bruns (Attorney) recently published their book, Fiduciary Accounting: Principles, Modern Application, Illustrations (ALI-ABA 2012). An overview of the book is below:
Trustees and other fiduciaries who prepare accounts must understand basic accounting concepts. The authors clearly explain those fundamental concepts for purposes of demonstrating how an estate’s principal and income accounts—and assets and liabilities—are affected by typical post-mortem transactions.
Fiduciary Accounting: Principles, Modern Applications, and Illustrations describes in detail the difference between income and principal, defines terminating income interests, explains how distributions are reflected on fiduciary accounting reports, and sets forth how to account for and explain gifts of specific assets. Most helpfully, the authors describe and illustrate how fiduciaries can account for both typical and more sophisticated investment options. The more than 150 illustrations show how to prepare specific fiduciary accounting entries. These illustrations are explained in full detail, giving fiduciary accountants a step-by-step instruction guide. Helpful forms and checklists are also included throughout the text.
Get answers to your questions and easy to follow solutions to the typical (and not-so-typical) situations you or your client will face as a fiduciary, including:
•When a Trustee has the authority to make adjustments and discretionary allocations between income and principal, given that the Uniform Prudent Investor Act may trump certain trust provisions
•How to satisfy the duty of impartiality to different classes of Beneficiaries
•Whether and when to administer in reliance on the terms of the trust, or to administer in accordance with the UPIA or Statute despite the terms of the trust
•How to gather sufficient information to inform a discretionary decision and avoid court intervention
•How to avoid liability for predecessor fiduciaries’ (such as executors’) breaches of duty
•What to include in an initial inventory of trust (or estate) assets, how to determine fiduciary acquisition values (as opposed to tax basis), and whether to include assets in principal or in income
•How to avoid liability for events occurring before the receipt of assets which were not initially included in the inventory
•How to determine what is payable as income and what is principal
•How to calculate and report the Trustee’s basis, gain, and loss on assets bought and sold by and contributed to a trust
•How best to account for liabilities of an estate
•Which items that should be included in the estate’s income tax return and not in the decedent’s final income tax return, and vice versa
•How to account for various receipts to the trust (entity receipts, mutual fund capital gain distributions, dividends, property other than money, liquidating distributions, insurance policy proceeds, deferred compensation, IRAs, derivatives and options, securities, etc.), and whether to allocate them to principal or to income
•How to reinvest dividends without unfairly and unreasonably diminishing trust income
•What a trustee may account for as a separate business from the other trust assets, which gives greater flexibility in income/principal allocations
•How to meet the obligation to make trust assets productive
•How to account and adjust principal and income for property depreciation
•When to adjust from principal to income – and when not – in accounting for bonds bought, sold, and held by the Trustee
•How to account for and report disbursements for trust administration, and which expenses to charge against income versus against principal
•Why it might be unwise to use trust income to make principal payments on debt in excess of depreciation reserves
•How to properly allocate trust taxable income charges to principal and income accounts
•How post-mortem tax planning and tax elections can inadvertently cause adverse consequences to different classes of beneficiaries, and how to adjust (and when not to adjust) principal and income to compensate
•How to avoid marital deduction reductions from taxes, expenses, and fees, and the difference between administrative and transmission fees
•How to satisfy the prerequisites for a Trustee to exercise her discretionary adjustment power to adjust between income and principal, and other important factors to consider
•How to comply with the rules for successive income interest beneficiaries
•How to calculate, account for, and allocate the net income during the administration period on property of the estate to produce a fair result
•Where tax returns should mirror trust accounting, and where they should not
•How to account for distributions from principal and from income, and which gifts are chargeable to which accounts
•How to account for gain or loss upon distribution of gifts or other assets from an estate or trust, including fractional, disproportionate, and in-kind distributions
•How to use and account for different gift funding formulae
•How a fiduciary can avoid liability for damages for breach of trust for failure to expeditiously distribute trust property
This blog, reposted with permission, was originally posted March 31, 2012, on the Wills, Trusts, & Estates Prof. Blog, edited by Prof. Gerry W. Beyer, Texas Tech University School of Law.
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What led you to OU Law? OU Law has been part of my family since the 1920s. My great uncle was Dr. Maurice Merrill, a 1922 graduate of OU Law who then earned a Doctorate in Law from Harvard University in 1925. Merrill taught at OU Law for 30 years, published numerous seminal works in oil and gas law, constitutional law, administrative law and the law of Notice. While still in his twenties, Merrill published the seminal treatise Implied Covenants in Oil and Gas Law, which has been a cornerstone of my cases. In law school, I lived with Uncle Maurice and marveled at his longhand scrawl which was literally final copy in its first draft form. In my mind, he will always be ten times the lawyer that I ever became.