Reporting formats: UPIA, National Fiduciary Accounting Standards provide guidance

California CPA, Jan-Feb, 2005 by Bill Downs

The required format for an accounting report to a court for an estate or trust is quite different from traditional financial statements. And while the reporting format is not complicated, the guidance on how to prepare these reports is pretty slim.

Secs. 1060-1064 of the California Probate Code sets out the preferred format for court accounting and provides the bare-bones of what will be expected by the courts, including one "Summary of Account" example.

[ILLUSTRATION OMITTED]

CPAs will feel right at home with some features of the Summary of Account. For example, total charges must equal total credits. But our trained brains will have trouble leaving liabilities off the summary, and instead burying that detail on a supporting schedule.

These reports must be cash basis. And if you are looking for a formula, such as assets equals liabilities plus equity, this one could be beginning assets plus receipts plus gains equals losses plus disbursements plus ending assets.

The probate court wants to see all the details, listed on supporting schedules. Details of interest and dividend income are shown in the receipts schedules. Disbursements schedules show names of payees, and date and purpose of payments. Sales of assets also are presented in detail on a schedule of gains or losses.

Those are the everyday items to deal with. It's a bit trickier to deal with such items as rental income or distributions from partnerships.

In addition to Secs. 1060-1064, you also can find the Uniform Principal and Income Act (UPIA) in Secs. 16320-16375 of the Probate Code.

The Probate Code is available at www.leginfo.ca.gov/.html/prob_table_of_contents.html.

Uniform Principal and Income Act

You will want to be familiar with the Uniform Principal and Income Act, which is approximately 16 pages of very dense prose.

If you are preparing a typical estate accounting, you may not have to refer to the UPIA. But for accountings in which principal and income are being reported, the UPIA becomes enormously important.

The UPIA is the authority for determining whether an item is income or principal, unless there are provisions in the trust or will that override.

The latest version of the UPIA includes a description of how to treat distributions from partnerships and other entities.

A distribution of cash from a partnership is usually deemed income, unless the distribution is part of a series of cash distributions that constitute a liquidation, or partial liquidation, of the partnership.

How do trustees determine whether distributions are actually liquidating distributions? They will have to ask the managers of the partnership to make a determination.

The most recent version of the UPIA, which was adopted by California in 1999, is based on the national Uniform Principal and Income Act, developed in 1997 for the National Conference of Commissioners on Uniform State Laws.

Copies of all national uniform acts, including an annotated version of the UPIA, is available through the University of Pennsylvania at www.law.upenn.edu/bll/ulc/ulc.htm.

The comments appended to each section provide excellent explanation and insight into the intent of the law.

National Fiduciary Accounting Standards

Another helpful resource is the National Fiduciary Accounting Standards, a 1984 report by the Committee on National Fiduciary Accounting Standards.

The committee is a joint effort of the American Bar Association, American Bankers Association, American College of Trust and Estate Counsel and AICPA, among other groups.

The National Fiduciary Accounting Standards includes six broad principles, with detailed explanation and a sample report. However, be aware that the sample report was developed years ago, with input from trust officers in many states, and therefore it is quite different from the form presented in the California Probate Code.

Access the report at www.actec.org/public/ShowProjectsPublic.asp?Id=15. You may have access to a software program that will produce a court accounting for you. Law firms and bank trust departments will have their own preferred formats, and some accountants have developed their own reporting formats using spreadsheet programs.

Accountant's Report That Meets GAAP

One question that accountants have to answer is what type of accountant's report to use--and whether the accounting methods rise to the level of generally accepted accounting principles applicable to fiduciary accounting.

Even though you can read and download the National Fiduciary Accounting Standards report, there remains a difference of opinion as to whether this modest report constitutes "generally accepted" principles applicable to fiduciaries.

Practitioners Publishing Company addresses this question in its desk books and presents both sides of the question.

You can find more information at www.ppcnet.com.

By Bill Downs, CPA

Bill Downs, CPA is a Sherman Oaks-based sole practitioner and a member-at-large of the CalCPA Estate Planning Committee. You can reach him at wdownscpa@earthlink.net. For more information on the Estate Planning Committee, visit www.calcpaweb.org/estate.