What are Trust Accounts or Accountings?

 In Trustee

Photo by Lukas Blazek on Unsplash

Trust accounts or “accountings” can take a number of forms. The simplest is simply to share bank and investment information with beneficiaries and anyone else entitled to trust accounts. This is often done on an annual basis, with copies of the end of year financial statements distributed.

A second form of accounting is similar to that required by probate courts for conservatorship and probate matters. These accountings state the total value of the trust assets at the beginning of the year (or other reporting period), funds coming in, whether interest and dividends or new contributions to the trust, funds going out, whether expenses or distributions, and the value of the trust fund at the end of the year. If the starting value plus incoming funds minus outgoing funds equals the ending value, then the accounting balances. Here’s a simplified version of what this looks like:

Value of trust fund on January 1st


Incoming funds


Disbursements and expenses


Value of trust fund on December 31st


A complete accounting would list each of the investments held by the trust at the beginning and end of the accounting period, each item of incoming funds, and each expense or disbursement. An even more complete accounting would actually have two values for the beginning and end of the reporting period, showing the “book” value of each trust holding when purchased and their current market value. Testamentary trusts and other trusts that are under probate court jurisdiction must file these accountings on an annual basis.

Traditionally, trusts had a third kind of trust accounting, which was even more complicated. They would keep separate income and principal accounts, in large part because trusts often had separate income and principal beneficiaries. For instance, one person might be entitled to the trust income during her life, with the balance distributed to other beneficiaries upon her death. What gets really complicated, in terms of understanding these account statements, is when there are transfers from the income account to the principal account. For instance, the trust may receive $183 in dividends for a certain investment. This will be recorded in the income account. Subsequently, the trustee may transfer $500 from the income side of the ledger to the principal side. This will be recorded as debit on the income accounting and an addition to the principal accounting, but the total value of the trust will remain the same. Many traditional trust companies still use this form of accounting. (It also means that accounting statements are very long.)

While there are a variety of forms of trust accounting that are used by different trustees in different situations depending on the audience, whether the trustee is a professional or not, and the size of the trust, the goal is always to provide the beneficiaries with the information they need to evaluate the functioning of the trust.


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How Annual Trust Accountings Can Help Trustees Minimize Risk

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