When I am about to represent someone who is about to become a Fiduciary (Executor or Administrator) of an Estate, I find it helpful talk about “how an Estate finishes”.  Like many things in life, if you know where you are trying to go it is easier to make a good plan to get there.

Not every State handles “estate completion” the same way.  There are two basic approaches:  mandatory accounting vs non-mandatory accounting.

In a mandatory accounting State, some proceeding that must be filed so the the Court knows the Estate has been properly completed.  This generally involves filing forms and paying a filing fee. There are generally time constraints. I’m not going into more detail because New York (where I practice) is NOT a mandatory accounting State.

In a non-mandatory accounting State, the fiduciary is not required to file anything with the Court to show that the Estate is completed.  This raises two logical questions:

  1. What should fiduciaries do to properly complete an Estate and protect themselves?
  2. What happens (in a non-mandatory State like New York) if there is some issue or problem in completing the Estate?

What a fiduciary SHOULD do is keep good records, communicate regularly and transparently  with the beneficiaries, file any tax returns that are required, and then….SEEK TO COMPLETE THE ESTATE WITH AN INFORMAL ACCOUNTING.

This is done by showing the beneficiaries what has been done.  This can be done with a letter, or on a spreadsheet, or in any way that shows a bottom line for a proposed final distribution.  With this informal accounting we send a document called a “Receipt & Release. This essentially says “I know what you did as Fiduciary and I agree it was correct and I agree with the bottom line and I release any claims I may have about this”. The letter to the beneficiary makes clear that when the Receipt and Release is signed “then you will get your money”.

What if the beneficiaries don’t agree? Or don’t respond?

While New York is not a mandatory accounting State, the Surrogate’s Courts have an Accounting Department, where you CAN file a formal Accounting Proceeding.  Unfortunately, this happens a lot.  The Accounting Department is where the action is, and where most of the really acrimonious disputes are filed.

In a nutshell, when a Fiduciary wants approval for what they have done, or what they are proposing to do to complete the Estate, a petition for a formal accounting is filed with the Court. The Court will then issue a Citation to the interested parties, telling them essentially “The Fiduciary has filed the attached accounting and is asking the Court to approve it. Come to Court on (date) or a Decree will be issued approving the Accounting.”

If a beneficiary gets such a Citation and wants to dispute something, they file Objections to the Accounting. This then becomes a case, like any other civil litigation….discovery, motions, conferences, etc.

Generally an expensive, nasty mess.

Which is why it’s better to do a good job as fiduciary and find a way to account informally.

If you know this from the outset, and work transparently and with good communication, an informal accounting is much more likely.