Estate Accounting Reports — When And Why To Choose Formal And Informal

The probate process is designed to oversee the final distribution of estates and ensure that the estates' and their heirs' best interests are put first. This includes the financial side of estates. To accomplish this goal, accurate accounting reports must be created and turned over to stakeholders and the court. These accounting reports come in two primary categories. Here's what you need to know about each. 

1. The Informal Accounting

Informal accountings are not dictated by the court, so they may look different and include different levels of detail. This is much different than the rigid structure required by court-ordered versions. At its most basic, an informal accounting would include the value of estate assets upon the death of the owner, additional assets or income brought in, expenses paid out, and the final list of assets that remain to be distributed. 

While the end result should be the same for all types of estate accounting, how you show those numbers is more relaxed in informal accounting. This also makes them less expensive and easier to produce.

If the estate is relatively simple and beneficiaries are in agreement about the accounting information, this may be all an estate executor needs to provide. But it should be made available to stakeholders upon request. 

2. The Formal Accounting

Different states refer to formal accounting by different terms, including judicial or court accounting. This is a report that the court requires and which usually must be made in a specific, court-approved format. It is the most detailed type of estate accounting and receives the most thorough inspection. 

Formal accountings are required in some cases, especially for estates that entered probate with no valid will. The court may also mandate a single formal accounting prior to approving the final distribution of remaining assets to heirs. 

The most common reason to use a formal reporting method is if a beneficiary (or potential beneficiary) makes an objection to how the estate's finances are being handled. The court may appoint an impartial administrator to ensure accurate books and no abuse of discretion. 

Where Should You Start?

Whether your estate can be managed through informal accounting reports or you must complete a formal one, the best place to start is with a skilled accountant. An accountant who specializes in estate administration will walk you through the process, create reports everyone can easily understand, and provide additional support for court requests. Make an appointment with an estate planning service today to learn how.