What is an estate accounting and who can request one?- Why doesn’t every estate have a formal accounting?
The Executor (or Executrix) of an estate is required to administer the estate according to the best interests of the beneficiaries of the estate. This obligation, generally known as a fiduciary duty, includes keeping accurate books and records for the estate, keeping the beneficiaries informed, filing taxes and making decisions for the estate. Often, the Executor or Executrix is one of the beneficiaries, instead of a disinterested stranger, and will instinctively act for the collective good. Sometimes, an Executor or Executrix will put their own interests ahead of the other beneficiaries. Something as simple as taking too long to close an estate – to make distributions to the beneficiaries under the Will – could amount to a violation of the Executor’s duties and obligations.
When an Executor is not forthcoming with beneficiaries of an estate, the reason could be anything from personal antagonism, carelessness, innocent error or actual theft. Typically, the beneficiaries are not in a position to be able to determine what the issue is. For that reason, the State of New Jersey arms beneficiaries with certain abilities, the most powerful of which is the claim for an accounting.
A formal estate accounting is an independent action involving a series of financial disclosures which force the Executor to itemize each and every disbursement, to inventory all assets and any income, the investments, the debts, and all other matters impacting the value of the estate. An Executor cannot be compelled to provide a formal accounting sooner than one year after being appointed by the county surrogate, unless special circumstances warrant it in the opinion of the court. An Executor who finds that the beneficiaries are suspicious of him, despite no wrongdoing, is free to voluntarily file a formal accounting to prove that the books are in order and the proposed distributions are correct. Either way, a formal accounting is a unique, self-contained action in the chancery court.
After the Executor files the formal accounting, the beneficiaries are allowed to challenge any specific portions of the accounting through what the court calls “exceptions.”
For example, if an Executor claims $1,000 was spent out of estate funds for airfare to the Caribbean, the beneficiaries could file an exception that would require the Executor to justify how that expense benefits the estate. For another example, if the Executor failed to list an asset in the accounting and the beneficiaries can prove it was left out (either by the Executor’s mistake or by the Executor’s greed), the beneficiaries could file an “omission” and seek to have the account made accurate.
One significant drawback of a formal accounting is the cost. Typically, the estate will hire an accountant or other financial expert to compile all the estate information. Further, the accounting – because it is its own case in the chancery court – takes time, often months. For these reasons, it is important to adequately consider the advantages and disadvantages of using the tool of a formal accounting.
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 consultations if you are unable to come to our office.
Written by Christopher Balioni, Esq. of Hanlon Niemann & Wright