Did I Receive What I Was Supposed to From Mom?
Dear Mr. Miller: My Mom died last year. She was worth $950,000 more or less with her condo and her bank account and stock. There was no Probate as she owned everything in her Living Trust. My brother and I are the only beneficiaries and he is the executor.
I received a check yesterday for $445,000. How do I know I received what I was supposed to? I trust him but….
Dear Questioning: You are not alone. This single problem is probably responsible for more disputes then most other issues. California, and I believe most states, have a procedure to deal with this issue. It is called an accounting.
I usually meet early on with the person who is going to be handling the wrapping up of the estate. This person is called an Executor or Administrator if there is a Court Probate and a Successor Trustee if we are dealing with a trust. Their responsibilities are almost identical. I generally just call them both ?the manager.? At that meeting, if any beneficiary exists other than the manager, I typically bring up the fact that at the end of the line we don?t want the other beneficiary to feel uncomfortable in any way. In fact, we want that other beneficiary to feel very comfortable that everything was done in a transparent method and there is no question that the beneficiary received his appropriate share or amount.
You Will Not Receive Your Share of the Opening Value:
In order to accomplish that task, we need to understand that even a 50% beneficiary is not going to receive 50% of the estate as it existed on the date of death. For example, let?s say your Mom died worth $950,000. As a 50% beneficiary you may think that you are entitled to $475,000 (950,000/2). That is not the case. There are almost always expenses, costs, and fees that will need to be paid, whether there is a court probate proceeding or not. That?s right, even with a Living Trust there are costs to settle the estate. There may be taxes, medical bills or other debts, CPA fees for tax returns, attorney fees to help settle the estate, etc. So you will receive 50% of what is left after those expenses are paid.
The accounting is a financial report that brings all of that information (and more) together in one place and typically will be provided to each beneficiary prior to that beneficiary consenting to release the manager from liability. The best way I have seen it explained is that an accounting ?accounts? for the difference between the value of the estate as it existed at the date of death and the value of the estate at the point in time of the distribution. The accounting generally consists of a number of pages and is for a distinct period of time (generally from the date of death or the end of the last accounting period to a specific closing date). California?s version (different than the approach most states take) has a summary page in front and various schedules following: The estate assets and values for each asset as of the date of death, all of the receipts for the period, all of the disbursements for the period, capital gains and losses for the period, distributions to beneficiaries during the period, and whatever assets exist (and their values) as of the last day of that period. If less than the entire value of the estate as of the last day is going to be distributed, then typically you will be informed of how much is going to be held (often referred to as a closing reserve) or how much is going to be distributed. If you are entitled to a specific percentage then you simply apply that percentage to the amount being distributed and match that to the check you are given.
Review of the Accounting:
Of course, you should probably review the accounting, after all, that?s why it was provided to you. If it were me and I had no reason to expect the manager to be doing anything other than treat me honestly, then I would not go over every line item. Rather I would look at the larger numbers to see for what the disbursement was paid and to whom. Do they appear unreasonable, are they to the manager or his family? If so, then I might inquire further. But if not, then typically I would be satisfied on that side of the equation. I would then look at the receipts. Was interest paid on the cash accounts, did an asset that was in existence on day one somehow disappear without appearing on the gain or loss schedule and no further explanation being offered in the accounting? And I would probably look at the schedule of what existed on day one to make sure that everything of which I had knowledge was listed and whether the values seemed to make sense.
If anything seems in error I would inquire further. You are generally entitled to see all of the supporting documents if you wish (checks, bank statements, etc.) I, personally, would not ask for these unless something seemed awry.
Purposes of the Accounting:
This accounting serves several purposes: It allows you as a beneficiary to determine how much you should be receiving, it protects the manager as it usually starts a statute of limitations running after which it becomes much more difficult for a beneficiary to challenge the manager?s actions, and, if one beneficiary is receiving a particular asset such as a house, it allows the costs to carry that asset during the administration period to be allocated to that beneficiary?s share.