Administration of Estates – preparing the estate accounts
Estate accounts are the accounts that are provided to the residuary beneficiaries. They should show in a mathematical accounting form what has happed with the administration of the estate.
The obvious question that a beneficiary wants to know is “how much am I getting?”, so the estate accounts have to answer that question. Often what is produced is cash accounts and therefore the key question is what is the difference?
Cash accounts is a summary of the money that went through the executors bank account, the money that went in as an asset, the money that went out as a liability (debt paid), which leaves the remainder to be divided in accordance with the terms of the Will. These are simple accounts and therefore fairly easy to follow and although technically not estate accounts, as they give an answer to the question about how much everyone gets, beneficiaries are usually happy with them. It is often easier to have 3 sheets in a set of cash accounts, one for assets, one for liabilities and one for the maths at the end. The maths page would take the totals from the first two pages and take the liabilities from the assets, leaving the net estate. The net estate is then divided in accordance with the terms of the Will, with each named residuary beneficiary getting their share of the estate.
Estate accounts are technically what should be produced, but are more complicated. As people sometimes struggle to understand accounts, this is why cash accounts are often produced, as they are easier to understand.
Estate accounts should have the details of all the assets owned by the deceased at the date of death. Then there is an adjustment for anything that happens to the value of the asset before it is gathered and ultimately distributed. One of the most common things to change in value is the bank account that pays for the funeral. As this is paid early on and the money has already left the bank account by the time it is closed, this would not be shown in the cash accounts, as the funds would never be collected into the executor’s bank account.
Estate accounts therefore show the value of the assets at the date of death, with a column for the adjustments before the funds are collected in, which is the values used in the cash accounts. Estate accounts are therefore cash accounts, with a column that shows what was happening with the estate at the date of death and what the adjustments were prior to the collection of the asset.