§ 653. Trustee's Reports to the Court The statutes of practically all of the states require a testamentary trustee to file an inventory soon after his appointment. Further reports are required at intervals thereafter, most states requiring them annually. They must accomplish the same purpose as the accounting rendered by the administrator or executor. To this end they consist of a general statement of all transactions, fully supplemented by detailed schedules. These reports are discussed in detail in Chapter LXXIV. The courts of the different states use various methods of satisfying themselves of the accuracy of the trustee's reports before they are allowed. Should they contain errors which are not discovered, or should they be latently obscure, the trustee will in all probability be the loser. The beneficiary is always given the benefit of the doubt. § 654. When Executor Is Also Trustee Writers differ somewhat as to the advisability of keeping separate sets of books where one person is both executor and trustee. One of them prescribes a two-column cash book for the purpose of separating executor's cash from trustee's cash, but states that "it is useless trouble for the executor to keep a separate set of books for the trusteeship." The consensus of opinion is that because the utmost care should be exercised to preserve intact the trust funds and to keep distinct the trust transactions, and because usually the executorship is concluded before any substantial transactions on account of the trusteeship occur, it would seem advisable to open a separate set of books for the trusteeship, even though this course might necessitate the running of two sets of books during a small part of the time. There is, of course, no objection to carrying the trustee's accounts in another part of the same book with the executor's if the ruling will serve the purpose, nor to using the same loose-leaf binder when that system is employed. REVIEW QUESTIONS I. What are the first matters to which a trustee should attend? What two things should he ascertain as to the investments? 2. How do a trustee's duties compare with those of an executor? 3. What is the estate in a trustee's hands termed? 4. How is gain or loss on a sale treated in a trustee's accounts? What is the distinction made between regular income and charges and extraneous gains and losses? 5. When should repairs be charged to income and when to principal? 6. To what should a payment of interest on a mortgage be charged? If this mortgage itself was paid, to what would it be charged? What would be the entries if an assessment for permanent street improvements were paid by the trustee? 7. How are taxes charged? Insurance? The trustee's commissions? A broker's commission? How are recoveries for fire losses credited? 8. Why are fewer accounts needed by trustees than by executors? Why are the entries simpler? 9. Why must there be a separate set of accounts for each trust? 10. Are all the trusts outlined in § 652 legal in your state? II. What reports are required by a trustee in your state? 12. Why is it better for the trustee's accounts to be distinct from the executor's? CHAPTER LXXIII KEEPING THE TRUSTEES' ACCOUNTS § 655. No Need for Complicated System The accounting needs of the trustee are, as has been shown, very simple. This being the case, there is no reason for anything other than the simplest of systems in keeping a record of his transactions. Trust companies generally have come to realize this fact, but writers on accounting have seemed to prefer to develop a maze of theoretically perfect convolutions rather than to avoid all possible turns. The accounts of the trustee, like those of the administrator and executor, should be kept in such a way as to facilitate the preparation of the reports to the court. The plan which is here suggested, and which has been found entirely successful in practice, offers a means whereby the reports to the court are easily prepared. From this record trust companies using similar systems mail statements of the accounts to the beneficiaries of the trusts. These statements are prepared by a stenographer by simply copying the ledger pages of the particular trust. In this way no expensive time is required in drawing off such reports. In fact the Northern Trust Company of Chicago, instead of preparing any statements with typewriter or with ink, has photostat copies made of its ledger pages and mailed to the persons interested. This form of record furnishes a clear and continuous tabulation of the trustee's dealings, and insures care in the trusteeship. In addition, the account is always an answer to those troublesome people who are born or married into families, and commence a disturbance because they do not find so ... If a detailed cash account be required. . . it is readily made up from the statement, and all the usual interrogatories may be readily answered. . . . It enables the trustee to furnish the materials for a complete release, and further to bind the beneficiaries by obtaining their signatures to the detailed accounts. . . . It ensures the receipt of all income, and its proper distribution among the persons entitled to it, and guards against any waste of principal through inadvertence.1 § 656. Form of Records The most satisfactory way of keeping the accounts of a trustee has been found to be by the use of a synoptic as in Form 29. It will be seen that this shows only the four accounts essential for the trustee, namely, Cash, Investments, Principal, and Income. These four accounts on the synoptic cover the estate as a whole in its relations with all the trusts. Each of these four accounts of the entire estate serves as a control for the same account of each of the individual trusts, and it is necessary to post each item on the synoptic to a subsidiary record known as the trust ledger. (See Form 30.) This subsidiary ledger is in the same form as the synoptic, and contains an account with each of the trusts. It contains also an account with the undivided principal. This last account is used for all property not specifically divided among the different trusts, for any undivided property which is held to guarantee an annuity and for the residue of the principal of the estate left after providing for all trusts created in the will. § 657. Opening the Books Let us suppose that the trial balance of the books of the executor of this estate after distribution was as follows: 1 Caldicott, Executorship Accounts. Specific assets or specific sums of money have been set aside by the executor to form the trust funds. As there can never be a trust without a trust fund, the testamentary trustee, whether he is the executor or some other person, cannot assume his duties until the executor as such has specified and set the funds aside. Before making his opening entries the trustee must know what assets are set aside for the various trusts. With this information, he makes a separate entry for each trust, in the following form Investments Principal $....... $....... with a detailed explanation as shown on Form 29, Entry No. I. The valuation used must be that of the original inventory filed by the executor and approved by the court. If any cash is included in the trust fund his entry will be (No. 2): Cash Investments Principal $...... $..... He proceeds in this way until he has entered all the specific trust funds (see Entry No. 3), and then for the balance of the assets he makes Entry No. 4: Cash Investments Principal $....... $...... Income |