The Difference between Commercial Accountings and Fiduciary Accountings: Part 1

Commercial and Fiduciary Accountings Part 1: General Overview

BaskinFleece lawyer Jay FleeceJoseph W. “Jay” Fleece, III, Esquire

Commercial or Business Accountings are used primarily to determine the profitability and solvency of a business. These types of accountings are better known as “financial statements” comprised of a “balance sheet” which shows the company’s assets, liabilities and ownership equity as of that report; an “income statement” or “profit & loss statement” which explains the company’s income, expenses and profits over time; and a “statement of cash flows” which is concerned with the flow of cash in and out of the business. These types of accountings benefit investors, shareholders and creditors. As part A Fiduciary Accounting is an accounting that must be rendered by a fiduciary; usually a personal representative of an estate; a trustee of a trust; an agent under a power of attorney; or a guardian.of preparing these types of accounting reports, a common set of accounting principles, standards and procedures are used to compile these reports. This common set of standards is referred to as “Generally Accepted Accounting Principles” or GAAP. GAAP provides comprehensive guidance on ways to record and report the financial information in a uniform manner for businesses.

A Fiduciary Accounting differs totally from a Commercial Accounting. A Fiduciary Accounting is an accounting that must be rendered by a fiduciary; usually a personal representative of an estate; a trustee of a trust; an agent under a power of attorney; or a guardian. Any situation where someone is holding or dealing with property of others usually creates a fiduciary relationship requiring a Fiduciary Accounting. The fiduciary is usually entrusted with the safekeeping, management, and disposition of assets on behalf of others.

A Fiduciary Accounting, rather than focusing on the profitability of the entity, focuses on the underlying assets and how the fiduciary has discharged his responsibilities to the beneficiaries in dealing with those assets.

The Fiduciary Accounting is the main, and perhaps only, way a beneficiary can determine whether the fiduciary has managed, protected and invested the underlying assets appropriately

The Fiduciary Accounting is the main, and perhaps only, way a beneficiary can determine whether the fiduciary has managed, protected and invested the underlying assets appropriately. If the fiduciary has failed to appropriately manage, protect and invest the underlying assets, then the beneficiary can hold the fiduciary accountable for breach of the multiple fiduciary duties owed to the beneficiaries. A fiduciary, knowing he is under a duty of full disclosure regarding the assets, may be less inclined to commit a breach of duty resulting in a loss to the beneficiary. A Fiduciary Accounting also allows a fiduciary to be discharged from liability for all disclosed actions in the accounting limiting a trustee’s liability. These two main objectives of fiduciary accounting are usually described as “Performance” accounting and “Discharge” accounting.

GAAP business accountingUnlike Commercial Accountings, there are no GAAP guidelines that govern the preparation of Fiduciary Accountings. That is not to say, however, that there are no guidelines which pertain to Fiduciary Accountings. The first place to look to see what guidance is provided to prepare a Fiduciary Accounting is the governing instrument. If that document does not provide guidance, then state laws should be consulted.

Over time, most of the states have adopted rules and statutes that provide guidance. Florida has adopted its variation of the Uniform Principal and Income Act, as embodied in Chapter 738 of the Florida Statutes. This statute gives guidance on what is classified as receipts and disbursements of income and principal, among other things. Rule 5.346 of the Florida Rules of Probate Procedure sets forth certain standards required for Fiduciary Accountings, at least for probate matters, but can and should be standards for all Fiduciary Accountings in Florida, as this rule was adopted the Uniform Fiduciary Accounting Principles and Model Formats as adopted by the Committee on National Fiduciary Standards of the American Bar Association.

Fiduciary Accounting must be to fully disclose and when necessary, explain the transactions in a clear and concise way so that a beneficiary can readily determine what assets are being administeredThe purpose of a Fiduciary Accounting must be to fully disclose and when necessary, explain the transactions in a clear and concise way so that a beneficiary can readily determine what assets are being administered, how each asset performed, either by income being generated by that asset, costs attributable to the carrying of that asset, and capital gain or loss on the disposition of that asset. The beneficiary should be able to readily determine how the income or principal of the trust, or probate estate, was used during the accounting period, and what the assets are still on hand at the end of the accounting period.

©2015 BaskinFleece –  Part 2 – The Fiduciary Accounting in more detail to follow at a later date.

To watch a video on the topic of the Fiduciary Duty of a Trustee, click here.

To schedule an appointment with a BaskinFleece attorney, call (727) 572-4545. For more information about BaskinFleece, visit www.BaskinFleece.com.

 

Baskin Fleece Partner Jay Fleece Recognized as Florida Legal Elite

BaskinFleece lawyer Jay FleeceBaskin Fleece partner Joseph W. “Jay” Fleece, III, has been named in the 2015 edition of Florida Trend magazine’s Florida Legal Elite™.

Members of the Florida Bar were asked to nominate Florida lawyers who they hold in the highest regard. An independent research firm compiled the results, and a panel of previous Legal Elite winners reviewed the attorneys who had the most votes.

 

The Florida Legal Elite list includes fewer than 2% of active Florida Bar members practicing in the state.The Florida Legal Elite list includes fewer than 2% of active Florida Bar members practicing in the state.

To schedule an appointment with a Baskin Fleece attorney, call (727) 572-4545. For more information, visit: www.BaskinFleece.com.

 

The 9 Most Important Duties of a Personal Representative

Trustee, personal representative duties1. Take possession of all the decedent’s assets and file an inventory including the date of death values of all assets you have in your control.

2. Start a checking account to keep accurate records of income and expenses.

3. Give notice to creditors and may give notice to interested persons by publication in the newspaper. Notice must also be given to interested persons by mail or personal service if Waiver and Consent forms cannot be obtained.

4. You may be converting assets to cash, selling real estate, running a business, insuring and keeping property in good repair.

5. Collect any income due to the decedent like interest, dividends, rent, etc., and pay bills, settle proper claims or object to claims that are not appropriate.

Symbol---Checks6. Final and fiduciary tax returns to complete. You may be required to file a closing certificate for fiduciaries from the Department of Revenue. You are encouraged to utilize the services of a competent attorney to help you with this aspect of the estate.

7. File a final accounting showing all money that came in to the estate between date of death and distribution and all money that was paid out of the estate.

Symbol-Credit-PC8. Distribute assets according to the Will and/or statutes and secure receipts from those receiving assets.

9. File a personal representative’s statement to close estate. Six months after the filing of this statement, your duties are complete.

For help or answers to will and estate related questions, you can contact BaskinFleece at 727.572.4545.

 

This list is not exclusive, but is intended to be illustrative. Some of the content of this information is courtesy of The Florida Bar and represents general legal advice. Because the law is continually changing, some provisions in this blog may be out of date. It is always best to consult an attorney about your legal rights and responsibilities in your particular case.

Proper Execution of a Will and What Happens When a Will Is Lost?

Proper Execution of a Will and What Happens When a Will Is Lost?

Attorney Sam Tracy

A will cannot dispose of any of the decedent’s property until it is admitted to probate. In order for a will to be admitted to probate, it must be executed in accordance with the formalities required by Florida law. The testator must sign his will at the end in the presence of two attesting witnesses. The attesting witnesses must sign in the presence of each other and in the presence of the testator. If the testator attaches a self-proof of will, the will may be admitted to probate without further proof. Without a self-proof of will, an oath of one of the attesting witnesses may be required before the will is admitted to probate.

Related videos: The proper signing of a will and Best Practice signing of estate documents.

willWhat Happens When a Will Is Lost? Upon the testator’s death, if a will, executed by the testator and kept in his possession, cannot be found, there is a presumption, absent other evidence, that he destroyed it with the intention of revoking it. However, this presumption may be overcome and the will may be admitted to probate if an interested person is able to establish the full and precise terms of the lost or destroyed will. The content of the lost or destroyed will may be proven with a correct copy of the will and the testimony of one disinterested witness. Without a correct copy, the content may be established through the testimony of two disinterested witnesses.

Baskin Fleece handles all aspects of estate planning, probate administration, and litigation. To schedule an appointment with a BaskinFleece attorney, call (727) 572-4545. For more information about BaskinFleece, visit www.BaskinFleece.com.

Why Joint Accounts can Bypass Your Estate Planning

Estate planning caution: Upon the passing of one of the joint owners of an account, the account automatically passes to the other person. However that can have many unintended consequences – find how in this 2 minute video:

For help or answers to will and estate related questions, you can contact BaskinFleece at 727.572.4545.

Why is probate necessary and what qualifies as probate assets?

Beneficiaries of estate planningProbate is necessary to pass ownership of the decedent’s probate assets to the decedent’s beneficiaries. If the decedent left a valid will, unless the will is admitted to probate in the court, it will be ineffective to pass ownership of probate assets to the decedent’s beneficiaries. If the decedent had no will, probate is necessary to pass ownership of the decedent’s probate assets to those persons who are to receive them under Florida law.

Probate is also necessary to wind up the decedent’s financial affairs after his or her death. Administration of the decedent’s estate ensures that the decedent’s creditors are paid if certain procedures are correctly followed.

Probate asstetsWhat are probate assets? 

Probate assets are those assets that the decedent owned in his or her sole name at death, or that were owned by the decedent and one or more co-owners and lacked a provision for automatic succession of ownership at death.

Probate asset examples:

  • Probate courtA bank account or investment account in the sole name of a decedent is a probate asset, but a bank account or investment account owned by the decedent and payable on death or transferable on death to another, or held jointly with rights of survivorship with another, is not a probate asset.
  • Probate assets includes life insurance policiesA life insurance policy, annuity contract or individual retirement account that is payable to a specific beneficiary is not a probate asset, but a life insurance policy, annuity contract or individual retirement account payable to the decedent’s estate is a probate asset.
  • Real estate as probate assetReal estate titled in the sole name of the decedent, or in the name of the decedent and another person as tenants in common, is a probate asset (unless it is homestead property), but real estate titled in the name of the decedent and one or more other persons as joint tenants with rights of survivorship is not a probate asset.

This list is not exclusive, but is intended to be illustrative.

 

Some of the content of this information is courtesy of The Florida Bar and represents general legal advice. Because the law is continually changing, some provisions in this blog may be out of date. It is always best to consult an attorney about your legal rights and responsibilities in your particular case.

Fiduciary Duty of a Trustee

In this short, but informative video below, Jay Fleece of BaskinFleece, discusses the fiduciary duty of a Trustee and the pitfalls of being a Trustee if the inform and accounting duties are not properly reported. 

FYI – Trust administration is the process whereby assets and cash which were funded into a revocable or irrevocable trust during the decedent’s lifetime or “poured into the trust after his or her passing”, are marshaled/gathered and made ready for distribution to the beneficiaries named in the trust. Trust administration also requires the filing of a notice of trust with the probate court and is the process whereby creditors are paid, and after all state and federal tax returns are filed and all creditors and other administrative expenses are paid, the trustee makes a final distribution of the trust assets and cash.

For help or answers to will and estate related questions, you can contact BaskinFleece at 727.572.4545.