Similarities between trust accounting and the accounting for an estate

The accounting for a trust is very similar to the accounting for an estate. The distinction between principal and income must be maintained through the use of trust principal and trust income accounts. The trust agreement should provide direction regarding how income is to be determined. A charge and discharge statement is required periodically for both trust principal and income.


To demonstrate adherence to the terms of the trust, the trustee must provide annual, confidential reports to income beneficiaries and remaindermen. For a testamentary trust, a report also must be rendered to the probate court of the county in which the will was admitted to probate.

The nature of the report is dependent upon the statutory requirement of the relevant state. Generally within 30 days after the end of each year, a report must be filed that shows:

1. The trust principal on hand at the beginning of the period.
2. Changes in the trust principal during the period, such as asset acquisitions or dispositions.
3. The trust principal on hand at the end of the period, its composition, and the estimated fair values of all investments.

As to trust income, the report shows:
1. The trust income on hand at the beginning of the period.
2. Trust income received during the period, detailing the sources and amounts.
3. Distributions of trust income made during the period to income beneficiaries.
4. The trust income on hand at the end of the period and how it is invested.

These requirements may be met by the periodic filing of a charge and discharge statement, provided that sufficient detail as to principal and as to income is incorporated into the report. At the time of submitting the statement to the court, many trustees prefer to close trust books to have them correspond to the annual time frame used in filing reports. Trust Principal andTrust Income are the clearing accounts used in the closing process, paralleling the procedures for closing an estate.