{Read in 6 minutes} A large part of what I do every day is representing fiduciaries of Estates; either Executors named under a person’s Will who receive Letters Testamentary or Administrators who receive Letters of Administration when someone dies without a Will. The Surrogate’s Court entrusts these fiduciaries to hold on to the deceased’s assets until such time as they are paid out to proper beneficiaries including funeral creditors, general creditors, and beneficiaries. Sometimes questions arise such as:
– How do these interested parties to the Estate know that the Executor has done right by them?
– If the Executor says that there is not enough money to pay a claim or if the entire balance of the Estate is only $23.40, how do the interested parties know the Executor is telling the truth?
– How do they know that the Executor hasn’t pocketed the money and run away or sold a valuable estate asset to himself or herself for pennies on the dollar, leaving them to fight over the scraps?
The answer is all of these come out in the context of an Accounting, which (1) provides insight to interested parties and (2) potentially protects the Executor from later claims of wrongdoing.
What’s in the Accounting? Basically the Accounting is a document that explains every single dollar or asset that passed through the Executor’s hands. What did the deceased own upon the date of death? What was it worth when the Executor collected it shortly thereafter upon the issuance of Letters?
Once the assets were in the Executor’s hands, what did he or she do with them? Did the Executor pay excessive legal fees (and were legal fees even necessary)? Collect all assets or are there assets that they should have collected, but did not? All of these things show up on the Accounting and at the end of the Accounting, the Executor would state what is left in his or her hands and available for distribution to creditors and beneficiaries.
Accountings can be done either formally or informally. An example of an informal accounting might be the Executor simply sitting down with the beneficiaries and showing them copies of bank account statements and check ledgers for the estate account. This is a simple way for beneficiaries to get information and potentially discharge the Executor from any further claims of wrongdoing.
A formal Accounting, however, provides the Executor a little more flexibility. A formal Accounting is prepared on the Surrogate’s Court accounting forms, and thoroughly details each and every transaction or potential transaction. The benefit of a formal Accounting is (1) that it provides more information than the informal Accounting and (2) it is already in the proper Court format if the Executor needs to file a Judicial Accounting.
A Judicial Accounting is taking the formal Accounting and actually filing it with the Court. Why would somebody do this? Well, in a formal Accounting the Executor is asking the Court to enter a Decree stating that the Executor discharged his or her duties properly, which protects against further claims of wrongdoing.
In an informal or a formal Accounting that is not filed with the Courts, the Executor is asking the beneficiaries themselves to release them from liability. The end result is potentially the same, except obviously, a Court Order bears a little more weight. Ultimately, the Executor will have some peace of mind knowing that no one will question something years later and start a new Court proceeding.
Finally, an Accounting is an important tool for beneficiaries who have not received any information or inheritance from the Executor. For example, if I know that the Surrogate’s Court appointed an Executor of my uncle’s Estate two years ago but I still have not received any information, or — as a significant beneficiary of the Estate — any money, and if that Executor is refusing to talk to me or return my telephone calls, I can go into the Surrogate’s Court and file an application, asking them to compel his Accounting using a simple form found on the Court’s website.
If the Court grants this application (which they usually will, especially under circumstances like these) the Court will order the Executor to file his or her Accounting with the Court within a certain amount of time. That will give me the opportunity to review the Executor’s Accounting and raise any concerns that I have directly with the Court. If the Executor ignores the order of the Court, the Court can hold him or her in contempt.
As you can see, the Accounting can serve as both a sword and a shield to the parties who are interested in an Estate. If you or someone you know would like more information on this topic, please contact me.
Thomas Sciacca
www.sciaccalaw.com
[email protected]
(212) 495-0317