[IMGCAP(1)]Many CPAs are asked to act as trustees or are retained to prepare fiduciary income tax returns for trusts. The CPA who is involved in trust issues must become aware of the fiduciary trust accounting rules that apply to a given trust.
Most CPE courses for CPAs throughout the United States focus on fiduciary trust income tax compliance and not necessarily on the fiduciary trust accounting issues. Perhaps the reason for this is that fiduciary trust accounting is state specific and the state CPA societies for the most part have not developed CPE programs on the state specific fiduciary trust accounting rules.
In my book “Can You Trust Your Trust,” I discussed the CPA’s need to know the specific state trust accounting rules if he or she is involved in trust issues. Here are some excerpts:
The Trustee and State Trust Laws
Over the last decade or more, most states plus the District of Columbia have adopted versions of the 1997 Uniform Principal and Income Act. The UPAIA covers a number of subject areas including definitions and fiduciary duties, the decedent’s estate or terminating income interest, the apportionment of the beginning and end of income interest, the allocation of receipts during the administration of a trust, and the allocation of disbursements during the administration of a trust.
These revised laws triggered in part the need for the American Institute of CPAs to issue a comprehensive Practice Guide for Fiduciary (Trust) Accounting in December 2007 for accountants who perform fiduciary accounting services.
This practice guide (including the appendix) is over 250 pages long. The purpose is to provide information on what issues the CPA should know about when preparing fiduciary accountings and fiduciary income tax returns.
A dedicated number of members of the AICPA spent several years developing the trust accounting practice guide. These AICPA members were members of the AICPA Trust Accounting Income (TAI) Task Force.
In 2008 amendments were adopted by the National Conference of Commissioners on Uniform State Laws to the 1997 version of the UPAIA. Each jurisdiction then decides whether or not to adopt the recommended changes in whole or in part. Most states have adopted the recommended changes, but a number of states did not. This makes life difficult since the professional advisor must constantly monitor the state trust accounting law in his or her jurisdiction to determine if any changes were made as well as the effective date of any changes.
The AICPA Task Force in an executive summary indicated, in essence, the following:
1.Since the number and size of trusts and estates are growing, there is more of a need for competent fiduciary accounting services.
2. Accountants who prepare fiduciary income tax returns must recognize that taxable income and fiduciary accounting income are not necessarily the same.
3. Accountants must be aware of the difference between taxable income and fiduciary accounting income in order to avoid legal liability problems for trustees and beneficiaries.
4. It is important for the accountant to read and understand the provisions in the trust document and/or will prior to preparing a fiduciary accounting.
5. Accountants who are engaged to provide fiduciary accounting services have to know about the trust laws and trust codes that have been adopted in the state that governs the trust. In addition, state case law may affect the administration of the trust.
6. The accountant should seek advice from competent counsel. Such counsel is an additional resource for the accountant.
Although the AICPA Task Force recommends that accountants develop the necessary expertise in order to perform fiduciary accounting services, that suggestion is easier said than done.
The problem facing the accountant is that although fiduciary accounting services are important, the subject is not easy to learn. The accountant who decides to offer fiduciary accounting services must in essence become a subspecialist.
One way for accountants to learn this area is by means of on-the-job training. The best way is to work with another accountant who is experienced in rendering fiduciary accounting services. Another approach is to do extensive reading on the subject, but only a few manuals are available.
There is also a paucity of continued professional education programs that are state-specific on the fiduciary accounting rules under the state’s trust laws. Most continuing education programs on fiduciary taxation focus on fiduciary tax return preparation and not on state-specific fiduciary accounting issues. To my knowledge, graduate tax programs generally do not offer any course in fiduciary accounting that is state specific.
A CPA who does trust compliance from only an IRS point of view or who acts as a trustee but is not familiar with state-specific fiduciary trust accounting rules may be faced with litigation issues down the road. This is especially true if the CPA holds himself or herself out as having a specialized skill or knowledge regarding trusts.
Seymour Goldberg, CPA, MBA, JD, is a senior partner in the law firm of Goldberg & Goldberg,
P.C., in Long Island, N.Y., and professor emeritus of law and taxation at Long Island University. He has taught many CLE and CPE programs at the state and national level as well as CLE courses for the New York State Bar Association, local bar associations and law schools. He is a member of the IRS Long Island Tax Practitioner Liaison Committee and the Northeast Pension Liaison Group. He was formerly associated with the Internal Revenue Service and has been involved in conducting continuing education outreach programs with the IRS. He has authored guides for the American Bar Association and the American Institute of CPAs on the trust accounting income and principal rules. This article includes an excerpt from his new book, “Can You Trust Your Trust,” published by the American Bar Association.
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