Fiduciary Accounting Statutes
Fiduciary duty, in the Anglo-American legal tradition, requires a fiduciary to exhibit a heightened degree of loyalty and honesty, subordinating its own interests to see to the best interest of the beneficiary group. Cornerstones of fiduciary duty are to keep a beneficiary well informed and keep intact a clear line of communication. These canons of fiduciary duty are inextricably connected to fiduciary accounting, which in turn, is governed by state statute.
Fiduciary accounting statutes must, ideally, be flexible so that creating the fiduciary account does not over-burden the fiduciary on the one hand but keeps the beneficiary group reasonably informed on the other hand. As compared to the technology available when old-style fiduciary accounting statutes were legislated, the advent of the computer now permits the achievement of a better balance of interests between the fiduciary and beneficiaries.
A fiduciary accounting can take many forms, but generally it involves a process by which a fiduciary presents to a beneficiary a record of financial transactions that have occurred during the period being accounted for. Depending on the state statutes that deal with fiduciary accounting and local customs, fiduciary accounting practices can vary widely from state to state and in some cases from one court to another in the same state. For example, it is not uncommon in the Midwestern part of the United States to have annual reports comprise the fiduciary accounting with no other reporting required. On the East Coast, charge and discharge accounting is more often found. State statutory provisions often determine the makeup and complexity of the fiduciary accounting done.
Where charge and discharge accounting is carried out, an accounting will begin with the fiduciary preparing and presenting an inventory of all initial assets. In preparation for this type of accounting, a recording system must be established by the person who will account in order to record the credit/debit cycle of the fund. Finally, depending on the state statutes, a final accounting is presented to the beneficiary group or any other interested party “as part of a process by which the fiduciary seeks discharge of responsibility for the property entrusted and release from liability for the events disclosed.”
This article examines the current status of fiduciary accounting statutes and argues that there is a need for more up-to-date legislation. Part II examines the history of fiduciary accounting statutes leading up to the Report of the National Fiduciary Accounting Study which set forth uniform principles related to fiduciary accounting. Part III focuses on how the Uniform Trust Code (“UTC”) and Restatement of Trusts 3rd (“Restatement 3rd”) treat the trustee’s duty to inform and report. Four recently adopted statutes are then analyzed based on how they were amended to change the UTC’s and Restatement of 3rd provisions. Part IV reviews suggested goals of the new generation of fiduciary accounting statutes and based on those goals, a model statute is put forward.