Trust accounting is basically the same as all other types of accounting.
Not so. Principal, also known as the corpus, body or original amount, is deposited to an account. Any increase in value of the trust due to appreciation is also usually considered as part of the principal. Interest, dividends, rent and royalties are considered income, and these "cash in" items are accounted for separately in trust accounting. It is common to see one beneficiary receiving the income while someone else gets the principal. These different classes of beneficiaries usually get their money at different times. Principal and income must be tracked separately.
Beneficiaries need
a Bill of Rights.
Clearly, given actual and potential abuses in the field, trustees need to commit to a minimum standard of responsiveness they will bring to the table. In my book, Managing Family Wealth, Taking Control of Inherited Wealth, I lay out what the beneficiary ought to expect and what financial advisors can do to see that their clients receive their just desserts.
Eventually, market forces will create this kind of Bill of Rights as the use of trusts for intergenerational wealth planning, asset protection and professional management is exploding. Regulators don’t have the time, resources, ingenuity or agility to legislate a Beneficiary Bill of Rights. It is up to business people with high ethical standards to establish their own level of professional responsiveness.
Trustees also need
a Bill of Rights.
No, trustees do not need a Bill of Rights. On the contrary, they need a code of conduct. But more legislation is not the solution.
Banks are doing a much better job today than they were five or 10 years ago. With the consolidation of banks and
the depersonalization of bank services, institutions have lost tremendous amounts of trust assets to upstarts in the industry.
Traditionally, trust officers have cared about their clients, but providing high-quality service does not add much to a bank’s bottom line. The 1980s and 1990s saw an explosion of investment services offered by banks. Trust administration took a back seat to the more profitable areas of brokerage, investment advice and insurance. At the same time, employees who had talent in the investment area left trust departments in order to create their own firms.
Individual trustees, such as lawyers and accountants, are not regulated. This is where a legislative Bill of Rights on behalf of beneficiaries might be appropriate. Trustees should not be allowed to enrich their firms by guaranteeing themselves perpetual employment as paid fiduciaries. Beneficiaries should not be beholden to trustees; they should not have to come begging for distributions hat in hand. I have seen trustees, especially half- or stepsiblings, abuse their authority and deny well-documented, justifiable financial requests.
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