The judge ruled that the accounting firm had a duty to administer the trust correctly and properly pay out income for all beneficiaries and that all beneficiaries had the right to sue the accountant. "There was a fortune involved and they didn't pay out income," Goldberg said. "This case opens up a can of worms throughout the nation. It puts the accounting profession on alert."
If one of the beneficiaries of this particular trust dies before the case is settled, the IRS will force his heirs to include the income they should have received as part of his estate. For example, if the deceased was entitled to $1 million in income last year, the heir "has to pay $450,000 in estate taxes," even if he didn't receive it.
"The average accountant has a problem," Goldberg says. "First, they have to read the trust," which may have been drawn up 20 years ago. "Now, the person dies and [the accountant] has not kept up on the trust provision." A common error is that the accountant has computed commissions improperly, Goldberg says. "We find a lot of accounting and tax errors. One accountant reported the tax wrong for seven years." The bottom line, Goldberg says, is that "if an accountant files an improper tax return and it hurts the beneficiary, he will get sued."
Goldberg has written a couple of books on the subject. First came Can You Trust Your Trust? What Your Family Needs To Know (JKlasser.com, $9.95). That book, about 50 pages long, focuses on the consumer and what he needs to know about trusts, including the cost of administration and how to make sure the accountant or attorney who takes care of the administration is up to speed. He should be taking up-to-date education courses, yet very little continuing education for upgrading skills is available. "Grad law schools don't teach state-specific trust laws," Goldberg says. He adds that there are more than 200,000 lawyers in New York alone and he has trained only four or five of them.
Some bank trust departments, such as those at Wachovia and Wells Fargo, have retained Goldberg to train accountants in New York state, both in person and online, to tell them what they need to know about state laws. He's also done two-hour conference calls with CCH. "The thrust [of the book] is to make sure your accountant or lawyer who is untrained is keeping up on this stuff," Goldberg says. "This is a mess and a tremendous liability for accountants and attorneys."
In a longer version of the book, Goldberg added 80 pages for accountants and attorneys about how to keep up with state laws and how to administer the trust properly. Given the changes in beneficiary laws that followed Goldberg's work on IRAs, I think we can predict that adherence to state trust and estate laws will become a big topic for practitioners and their clients. Stay tuned.
Mary Rowland can be reached at [email protected]. She has been a business and personal finance journalist for 30 years and has written two books for financial advisors: Best Practices and In Search of the Perfect Model.