If you are one of the millions of Americans who are helping manage someone else’s money, you are likely required to provide an accounting. An accounting is an itemized explanation of how you spent the money you were managing. If you are a trustee, guardian, conservator, agent under a power of attorney, or other fiduciary, you have a duty to account for the money you are managing. These are called “fiduciary accountings.”
As an elder law firm, we often help clients account for the money they manage for someone else. One of the biggest complaints our office receives about accountings (other than how difficult they can be to prepare) is how expensive they can be to prepare.
Preparing an accounting can be time consuming and costly. Not to mention, frustrating and confusing. However, costs, time, and frustration decrease the more organized you are. If you are hiring a professional to assist with preparing or reviewing an accounting, these tips will help you save money and time:
Prepare a complete and accurate draft yourself. Preparing a complete and accurate accounting yourself is less expensive than hiring an accountant or lawyer to prepare it. There are free resources available to help you prepare an accounting. These include guides produced by the Consumer Financial Protection Bureau. A WORD OF CAUTION: If you prepare the accounting yourself and it is inaccurate or contains errors, it will be far more expensive for the accountant or lawyer to fix it than if they had prepared it originally.
Keep your money separate. Never co-mingle your money, bills, income, or assets with those of the person whose money you are managing. Not only is this illegal, it is nearly impossible to sort out when preparing an accounting. Correcting this situation is expensive and time consuming.
Keep your financial information separate from that of the person whose money you are managing. It can be time consuming to sort through receipts to determine the accounts to which they belong. It is even harder to then determine who those expenses belong to. It can be difficult to correct an accounting when it is discovered your personal payments or income were included. If you have hired a professional to help you, they will charge you extra to sort through and correct these issues.
Keep all financial records organized. Do not throw all the receipts and statements you receive throughout the year in a box and hand the box over to the attorney or accountant’s office. A paralegal or assistant must go through and organized the information before the accounting can be prepared. In addition to the costs of preparing an accounting, you will be charged for the time it takes to organize financial records.
Provide copies of all bank statements and cancelled checks. This allows the attorney or accountant to easily answer questions about transactions when preparing the accounting. If these are not provided, the attorney or accountant will have to call you for additional information. This increases the costs and time of preparation.
Give an explanation of items on the bank statements or credit card statements, particularly if they are irregular or confusing. Explanations should include identifying automatic deposits or withdraws, large or irregular expenditures, or non-periodic banking fees (such as insufficient funds fees). Again, if these are not provided the attorney or accountant will have to call you for this information, increasing the costs of preparation.
Clip all relevant documents together. For example: clip together the January checking account statement, check copies and receipts for the month together. If there are several accounts or credit cards, do this with each account and each credit card for each month. This reduces the time necessary to trace transactions or identify accounts.
Use a personal banking software program such as Quicken or Microsoft Money. These programs have features that help you save time and effort when tracking income and expenses. They allow you to assign categories to transactions and create Excel compatible reports to turn over to the attorney or accountant’s office when it’s time to prepare the accounting. These reports will significantly reduce the time needed to prepare an accurate and complete accounting.
If you are managing someone else’s money and unsure about your duty to account for their money, contact an elder law attorney. An elder law attorney can advise you on your duties as a fiduciary and provide you with assistance in preparing your accounting.