A Beneficiary’s Right to Demand an Accounting is Not Absolute – Part 1

HNWEstate Administration and Probate

  • Does a trust/estate beneficiary have a right to financial info?
  • Why would a court refuse to enforce that right?

The beneficiaries of an estate have the right to know how the estate’s funds are being handled, just as trust beneficiaries have the same right to know about funds held in trust.  The person in charge of those funds, whether an Executor, Executrix, trustee, administrator, administratrix, any of the foregoing with “CTA” appended, or personal representative, is known more generally as a fiduciary because they owe a specific set of duties to the beneficiaries and heirs.

One of those duties is the responsibility to keep accurate books and records so that the account of the trust or estate can be reconciled.  All estates in New Jersey must end in one of two ways.  First is an informal accounting, where the fiduciary shows all beneficiaries all the financial information they wish and they sign the appropriate release paperwork, or else where all beneficiaries waive their right to ask about the finances.  The second way is by a formal accounting, a unique type of court proceeding in which a fiduciary must identify all funds that have come into the trust or the estate (or both), including all income, any investments, all sales or distributions, and any losses, expenses, fees, and pending debits, resulting in a judgment providing for the corrections to an account, if any, and the amounts of all distributions.

A beneficiary’s right to review a fiduciary’s books and records is sometimes only secured by filing a complaint against the fiduciary seeking a court order requiring the fiduciary to render a formal accounting.  The right to demand a formal accounting is based out of Title 3B of New Jersey’s statutes and generally applies after the first anniversary of the fiduciary’s appointment.  At times, the language of a trust will provide separate authority for a beneficiary to demand a formal accounting.  Some estates also contain such a provision.

While sometimes an Executor will voluntarily present this financial disclosure to the court in order to gain the court’s formal approval, make the approved distributions to beneficiaries, and close the estate, other times, an Executor will be forced to render the accounting after a beneficiary files a petition with the court compelling the fiduciary to do so.  In these cases, without fail, the pleadings will point to the right of a beneficiary to have this financial transparency, either citing the appropriate statute or referencing the appropriate provision of the trust or will (or both).

It is unfortunate, then, that occasionally a litigant will take that accounting right for granted only to discover that the court will not enforce it. Litigants tend to be frustrated and confused when a court declines to enforce a right.  It runs contrary to our basic assumptions about justice.  But it happens, and in the context of demands for formal accountings brought in probate court, a denial by a court – the dismissal of an action seeking to compel a formal accounting – appears to contradict the language of the statute and, where applicable, the trust or will itself.

In practice, courts tend to dismiss a demand for a formal accounting for the same few reasons.  Generally, the common reasons are:

  • The cost of producing the accounting would be prohibitive;
  • The demand is brought in bad faith; or
  • A sufficient basis to exercise the right was not established.

Note that this is not a scientific list, it is merely observations of the author over the course of years of defending and prosecuting accounting actions, from informal accountings pre-litigation through to trial and even into appellate territory.

In Part Two of this article, we will review the reasons courts generally do or do not allow formal accounting demands to proceed.

If you are looking for additional details on this topic or if you require advice about your situation, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.

Written by Christopher Balioni, Esq. of Hanlon Niemann & Wright

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