Why Do Formal Trust Accountings Take So Long?

In this video, partner Keith A. Davidson describes why formal Trust accountings can take much longer to reach a resolution than you may think.

The following is a transcript of this video:

In this video, I’m discussing formal trust accountings. And when you ask a trust lawyer about a formal accounting, as opposed to an informal accounting, typically what we mean is a court-filed accounting. So this is an accounting that is going to be prepared according to the Rules of the California Probate Code and it’s going to be filed in court and somebody is going to ask a judge, ultimately, to review it and approve it.

Now the judge is not going to go through and type of forensic accounting. That’s not what judges do. They will look at it - or at least their court personnel will look at – and they might spot anything that’s kind of obviously wrong, but they’re not going to go through and do the heavy lifting of doing a forensic account. That’s going to be your job, if you’re going to come in and object to what’s in the accounting.

And the reason why formal accountings take so long is because: number one, it takes a while even prepare a formal accounting. A lot of CPAs haven’t dealt with a formal trust accounting before. It’s a different animal. It’s not like preparing an accounting for a business. You don’t use Profit & Loss Statements, you don’t use Balance Sheets. Trust accountings kind of have their own format and you have prepare them in that format. And then, once you file it with the court, now you’re subject to the court process, which, of course, takes time. You have to get a court hearing. At the first court hearing, people will show up. If anybody objects, you’ll state your objection or you’ll state that you are objecting. And then the court will give you time to file written objections and then you’ll go back and you’ll have several status hearings before the matter is ultimately set for a trial where the court will hear whatever evidence you have and decide on whether or not to grant your objections.

During that period of time, when you have all those status hearings going on, you’re allowed to do discovery. So this is where you’re serving subpoenas to get financial information, you’re maybe taking depositions of the trustee and other relevant witnesses. There might be any other type of back-and-forth going on behind the scenes to gather the evidence you need to go into court. Because, remember, when you go to court, you have to have admissible evidence. You just can’t walk in there with a box full of documents and think you’re going to win the day. The judge is not going to sit and look at a box full of documents. You have to present your evidence and you have to do it in a way that’s going to be compelling and convincing because when you’re objecting to a trust accounting – you’re in a lawsuit that’s really no different than any other lawsuit. And the judge is only going to decide on whether or not your objections have merit at the time of trial. And so that’s the problem with formal trust accountings is they can take a long time, they tend to take a lot of discovery and depositions; and, ultimately, you do have to go to trial if you want the court to decide on whether you win or lose your objection.

The alternative is you go with what we call an informal accounting, which means give me an accounting, but don’t file it for court approval. Just let me see it and I’ll look at it myself. And then, if there is a problem, then you, as the beneficiary, can file a lawsuit against the trustee and ask the court to surcharge the trustee for whatever it is you think the trustee did wrong. But, again, even that is going to be a further lawsuit where you’re essentially suing the trustee for damages.

So accounting cases can be very drawn out. They can be very involved and you should just know that once you’re going into an accounting, it’s going to take you a fair amount of time and effort. Nobody else is going to do the heavy lifting for you.

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