Tracking The Money – Inventory And Accounting – Part 1

The heart of the administration of any Estate involves tracking the assets of the Estate and accounting for all of its financial activity. In this article and the ones to follow, I will go through the procedures that should be followed and discuss a number of the issues that often arise. First, I will deal with several general issues.

The first document in the process is the Inventory (Inventory Report in independent administration). The Inventory contains date of death values for all of the Estate’s assets and establishes the baseline for determining income, gain, or loss. The accounting begins with the values shown on the Inventory, shows the receipts and disbursements and either the assets on hand, the distribution, or both. Every account is given a number: First Account, Second Account, etc. Every account is either a current account or a final account. Thus, if an Estate is closed on the first account, that account is a “first and final account.” There may be a third current account, a second and final account, etc.

Cook County has its own more specific rules for the content and form of inventories and accounts. In general, Cook County rules require more information than might otherwise be furnished. Even in the absence of those rules, I believe it is better to provide a good deal more information than might otherwise be absolutely necessary. More disclosure usually means fewer questions. For the remainder of these articles, Cook County rules will be assumed and followed.

The recordkeeping must satisfy several different individuals/groups:

1. The interested parties in the Estate.

2. The taxing authorities.

3. The Court in supervised administration.

In determining how detailed an accounting needs to be, I usually consider who can complain about the accounting if they are not satisfied. Where an Estate has a sole legatee or beneficiary who is also the representative, the taxing authorities are usually the only ones to consider. Thus, if the representative’s records are adequate for the Estate’s accountant to prepare any necessary tax returns, the usual formalities can be ignored. However, where it likely that someone will be looking over the client’s shoulder and may complain, more detailed records must be kept, and the Inventory and account(s) should show the increased detail.

Who Keeps The Records?

You should plan for the inventory and accounting from the first time you talk to or meet with the client. Otherwise, you are likely to find yourself in the following scenario: When it is time to close the estate, you ask your client to bring in all of the Estate’s records to do the accounting. After spending hours sorting through the records and trying to make the accounting balance, you find there are discrepancies. You also find a number of “mystery items”: deposits without descriptions, checks paid without supporting bills, and more. This has been my experience even with clients who run their own businesses and would be expected to keep immaculate records. My office policy is (with limited exceptions) to do all of the recordkeeping in the office and to generate all of the checks for the disbursements. Only the client can sign the checks, and it is the client’s job to review all of the bills and forward them to me to prepare the checks. When I keep the records, it dramatically reduces the preparation time for the accounting. When the client keeps the records, it almost always takes at least 50% more time and expense to do the accounting.

Computer Programs.

All of the computer programs I know of are geared towards tax accounting rather than more simple Probate accounting. None of them generate the format and substance that are required in Cook County.

Programs such as Quicken which handle the cash transactions and calculations are helpful and can be of use (even as attachments to or supplements to parts of accountings). However, I do not believe that it is possible to force reports from those programs into the more specific formats required by the Court. I do not know if any spreadsheets can do the job right. I will thus assume for the balance of these articles that you are preparing the Inventory and Accounting “from scratch” in your word processing program or otherwise, even if you are incorporating information from spreadsheets or other recordkeeping programs.