Enjoy this article courtesy of STEP:
Personal representatives (PRs) and trustees, when called upon by their beneficiaries to do so, are under a legal obligation to give an account of their stewardship of the funds for which they are responsible. In particular, the obligation of PRs (the expression covers both executors and administrators) is set out in s25 of the Administration of Estates Act 1925, as amended by s9 of the Administration of Estates Act 1971. This states that the duties of PRs are:
- to collect and get in the real and personal estate of the deceased and administer it according to law;
- when required to do so by the court, to exhibit on oath a full inventory of the estate and to render an account of the administration of the estate to the court; and
- when required to do so by the High Court, to deliver up the grant of probate or administration to that court.
There is, therefore, a statutory duty to account for the administration of an estate.
‘Accurate records are necessary for the purpose of ensuring that all assets have been properly accounted for’
The preparation of accounts is also a matter of sound practice. Accurate records are necessary for the purpose of ensuring that all assets have been properly accounted for, liabilities have been duly discharged and the different beneficiaries have duly received that to which they are entitled and no more. Except in the smallest and simplest of cases, this would be impossible without the maintenance of accurate accounting records. Accurate accounts are also very helpful as a means of providing the information required to complete trustees’ and PRs’ tax returns.
All trustees and PRs are not merely entitled, but have a duty to see and approve statements of account before they are sent to beneficiaries.
All beneficiaries who have an interest in the residue of an estate are entitled to receive statements and be given satisfactory answers to any reasonable queries that they raise. A beneficiary who is only entitled to a specific asset or a defined sum of money has no interest in the rest of the estate and is not, therefore, entitled to any statement beyond one to do with the specific asset or sum of money that has been left to them. If, however, such a beneficiary is not able to receive the full amount due to them owing to an insufficiency in the estate, then they will be entitled to a full statement; so will any creditor of an insolvent estate who, as a result of the insolvency, does not receive the full amount that they were owed.
Those beneficiaries left absolute shares of residue and those who are entitled to receive the income or a share of the income have an interest in the residue of an estate. Similarly, those beneficiaries with defined interests in a trust, e.g. those who are entitled to receive the income or capital from it, are entitled to be given copies of the accounts. If such beneficiaries are minors, their parents or guardians are entitled to receive statements on their behalf. In the event of a dispute leading to a court action, the court is entitled to receive statements.
While PRs are entitled to a formal discharge from their duties by the beneficiaries, trustees have no similar entitlement and should not need a formal discharge if they have adhered strictly to the terms of the trust.
Trustees should consider carefully whether they wish to give statements to beneficiaries having an interest in a discretionary trust, especially in the light of the influential Privy Council decision in Schmidt v Rosewood Trust Ltd.
HMRC is not normally entitled to see trust and estate accounts; although, if it makes an inquiry into the trustees’ or PRs’ tax returns, it might, as part of that inquiry, require information that is contained in the accounts.