Trust Accounting

What Is Trust Accounting?

Trust accounting is keeping track of all the money that flows in and out of a trust. Think of it like a family budget, but for the trust. Every dollar that comes in and every dollar that goes out gets written down.

When someone sets up a trust, the trust might own bank accounts, receive money from jobs or investments, or pay bills. The trustee — the person in charge — has to write all of this down so everyone can see what happened.

Why Does Trust Accounting Matter?

The trustee has a legal job to keep good records. This is not optional. If the trustee does not keep track of the money, they can get in trouble.

Beneficiaries — the people who benefit from the trust — have a right to know how their money is being handled. Good records keep everyone informed and happy. Bad records cause fights and lawsuits.

Courts also want to see records. If anyone ever asks a judge to look at the trust, the judge will want clear, organized books.

What Should You Track?

There are four main things to keep track of:

1. Money Coming In (Income)

Write down every time the trust receives money. This includes:

• Paychecks or wages the trust receives
• Interest from bank accounts
• Dividends from stocks
• Rent collected from property
• Money gifts left to the trust

For each deposit, write down the date, where the money came from, and how much it was.

2. Money Going Out (Expenses)

Write down every time the trust pays for something. This includes:

• Utility bills
• Insurance premiums
• Property taxes
• Repair costs
• Legal fees
• Accountant fees

For each payment, write down the date, who got paid, what it was for, and how much.

3. Money Given to Beneficiaries (Distributions)

A distribution is when the trustee gives money or property to a beneficiary. Every distribution needs to be recorded. Write down:

• Who got the distribution
• How much or what property
• When it happened
• Why it was given (required by the trust, requested by the beneficiary, etc.)

4. What the Trust Owns (Asset Values)

Keep a list of everything the trust owns and what it is worth. This includes bank balances, property values, stock prices, and the value of any other items. Update these values regularly because they change over time.

Basic Accounting Rules

Here are some simple rules to follow:

• Keep receipts. Save every receipt for every purchase. Put them in a folder or scan them into your computer.
• Use a spreadsheet or ledger. Write every transaction in one place. Do not scatter notes across different papers and apps.
• Separate trust money from personal money. Never mix trust money with your own money. This is very important. Use a separate bank account for the trust.
• Be consistent. Use the same system every time. If you record one transaction a certain way, record all transactions that same way.
• Reconcile regularly. Compare your records to the bank statement every month. Make sure they match. If they do not, find the mistake and fix it.

How Often Should You Update Records?

You should record transactions as they happen. Do not wait until the end of the month. The sooner you write it down, the less likely you are to forget something.

At minimum, review the trust's books once a month. Check that everything adds up and that nothing is missing.

Once a year, do a full review. Look at all the income, expenses, distributions, and asset values. Make sure everything is in order. Many trustees prepare an annual report for beneficiaries at this time.

Common Mistakes to Avoid

• Forgetting to record small transactions
• Mixing personal and trust money
• Not saving receipts
• Waiting too long to write things down
• Not telling beneficiaries about the trust's finances

Tips for Staying Organized

• Set up a filing system for receipts and statements
• Use accounting software or a simple spreadsheet
• Keep a calendar of important dates (tax deadlines, distribution schedules)
• Back up your records in more than one place
• Ask for help from an accountant if you need it