What Proper Trust Accounting Looks Like

Christina Cochran

Aug 01 2025 14:00

Introduction: A Responsibility That Deserves Clarity

 

Being named trustee is an honor, but it can also feel overwhelming. One of the most important duties you'll face is trust accounting-keeping a clear, accurate record of all financial activity connected to the trust. At Cochran Gersh Law Office, we guide trustees across Louisville, Oldham County, and Southern Indiana through the process so families stay informed and trusts stay on track.

 

 

What Is Trust Accounting?

 

Trust accounting is the process of documenting every dollar that comes in or goes out of the trust. It's not just a running balance-it's a detailed record that shows income, expenses, distributions to beneficiaries, and changes in the trust's assets.

 

In Kentucky, trustees are legally obligated to provide regular reports-often annually-to beneficiaries. These reports show how the trust is being managed and give family members peace of mind that everything is being handled properly.

 

 

Why Proper Accounting Matters

 

  • Legal Compliance: Trustees are fiduciaries. Failure to account accurately can lead to personal liability.
  • Transparency: Good records build trust with beneficiaries and prevent misunderstandings.
  • Tax Purposes: A clear accounting makes tax preparation easier and reduces mistakes.
  • Family Harmony: When beneficiaries see a detailed, consistent report, it reduces suspicion and keeps conflicts at bay.

 

 

Key Components of a Proper Trust Accounting

 

  1. Starting Inventory
    A snapshot of the trust assets when you begin-real estate, bank accounts, investments, valuables.
  2. Income Tracking
    Interest, dividends, rental income, or any other earnings must be logged clearly.
  3. Expenses & Disbursements
    Every payment-mortgage, insurance, repairs, attorney's fees, distributions to beneficiaries-needs documentation.
  4. Investment Changes
    Sales of stock, purchase of bonds, or changes in asset value must be recorded.
  5. Ending Balance
    A final statement showing the trust's current assets and available funds.
  6. Supporting Documents
    Receipts, bank statements, brokerage statements, and invoices should be organized to back up the numbers.

 

 

Common Examples

 

  • Rental Property Held in Trust: Collecting monthly rent, paying taxes and repairs, then showing the net income.
  • Investment Portfolio: Recording dividends and interest, noting each buy and sell transaction, and reflecting market value changes.
  • Family Distributions: Showing when and how each beneficiary received funds, whether for tuition, medical bills, or general support.

 

 

Pitfalls Trustees Often Face

 

  • Mixing Funds: Using personal accounts for trust expenses-this creates confusion and liability.
  • Incomplete Records: Missing receipts or vague notes can cause disputes.
  • Inconsistent Reporting: Skipping annual accountings can violate Kentucky law and erode trust with beneficiaries.
  • Tax Oversights: Forgetting to track deductible expenses or misreporting income can lead to IRS problems.

 

 

How Cochran Gersh Law Office Helps

 

We provide step-by-step guidance to trustees so they don't feel alone in the process:

 

  • Creating easy-to-follow accounting templates.
  • Reviewing reports before they're given to beneficiaries.
  • Advising on tax issues and coordinating with accountants.
  • Mediating when questions or disputes arise.

With our help, trustees stay compliant, organized, and confident in their role.

 

 

Keep Your Records-and Your Peace of Mind-In Order

 

If you're serving as trustee or expect to in the future, don't wait until questions come up to figure it out. We can help you set up a reliable system and stay compliant with Kentucky's requirements.

 

Cochran Gersh Law Office serves families across Louisville, St. Matthews, Prospect, Oldham County, Middletown, Jeffersontown, and Southern Indiana. Contact us today to learn how we can make trust administration clearer and easier for you.