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Are you currently or going to be an executor of an estate? If so, you will be tasked with recordkeeping, something that can be challenging if you are not aware of what to do. When a person dies who has heirs, you have to provide accurate accounting records to the courts and attorneys who are handling the estate in order for the estate to be properly distributed.
I’ve been doing bookkeeping for estates and estate tax preparation and would love to share with you what I have learned in hopes that it will help you avoid any challenges that may come. To learn more, follow the link here!
For now, let’s dive into some of the things I have learned regarding estate bookkeeping.
One thing you should know is that because of the extreme difficulty in doing this correctly for somebody who is not trained, it can get very messy and people can get upset. Think about the conversations happening in other people’s lives who are expecting to receive a distribution from the estate. They won’t allow poor recordkeeping to get in the way of them receiving their fair share. If you’re trying to do the recordkeeping yourself and you’re not doing it perfectly, you can expect that their anger and frustration spurred by poorly managed recordkeeping will become something that you will have to deal with.
The way you deal with it and when you start doing something about it are the key components in determining a successful outcome. At some point after death, an executor will be assigned, and that person is often responsible for the bookkeeping. If there are assets to be sold and/or distributed, someone will be tasked with keeping records all the way until the last penny is handed out.
The right way to keep records is according to the rules of the IRS called GAAP (Generally Accepted Accounting Principles). The right way to deal with it is to do things when you can remember what those things were, usually a few weeks to a few months depending on the transaction, and not to wait until months later when you have more free time but have forgotten the small details which are often crucial to getting things into the right buckets.
The right way, according to the people who make the rules, is for recordkeeping to be able to produce sortable ledgers for each account.
What’s an account? A bank account is an account, so are credit cards, CDs, and lines of credit. But there are others, like the amount of money that one of the heirs has already received (Inheritor distribution), the legal expenses, fees to third parties like auction companies or secondhand dealers, utilities, repairs, maintenance, taxes, and mortgage payments on any real estate owned. Each of these is an account and needs to have its own ledger, which is a fancy way of saying “a list of the transactions in order with details which can be used to sort, summarize, and query along with the other accounts to come up with a complete picture”.
In order to produce sortable ledgers for each account, you have to use some kind of electronic system. Anybody who tries to keep track of an estate on paper, if they’re not making mistakes, is taking three times as long as they need to because of how precisely they would have to be doing their work on paper. These days when I see somebody keeping track of their bookkeeping on paper I immediately know the one major problem is you can’t easily check your work. If it’s electronic you can grab the whole section of numbers that you’re trying to total up, and the software tells you what the total is. You can also create formulas that will tell you if anything‘s off.
If you’re going to do it electronically, how do you keep track of all these different things?
Well, certainly you could either ask someone for help, or maybe you’re good enough with Excel or Google Sheets that you could make a column for each thing, input all the dates, and then as transactions are happening you can categorize them as to what they are. At some point down the road, if you want to see the total for this or that, you can sort them and then total up each section. This is an okay method that is used by people who don’t know how to use true accounting software, but it does require the user to have some skills with spreadsheets.
The way we do it is by using accounting software, generally Quickbooks. My mom was a bookkeeper, and she started using the early version of Quickbooks when it was released in 1983 when I was still in high school. I’ve been using this tool daily since around 2005.
Recordkeeping of transactions related to an estate or a business, or even just a person’s life, is called bookkeeping because the records used to be kept in books. Now, what do we call it? Web keeping? Net keeping? It’s an old term that probably needs a new name but for today it’s still bookkeeping.
A qualified bookkeeper will know at least generally enough about the way the IRS rules and the court’s rules are written so that they can keep the records in the right format.
So as the executor of an estate, are you also the bookkeeper?
Unless you also have a bookkeeper, then you’re it. The next question is do you have the required education or experience to do that job? If not, then you are probably going to have some rough times ahead of you. Even if you’re capable of being a perfect bookkeeper, people are still going to question your process and your numbers, and you don’t have a choice not to explain it to them. Even if you do have training in accounting, wouldn’t you rather do something else?
However, if you hire a professional – any person who’s qualified to do bookkeeping or tax prep for estates, who understands the rules of the courts and the IRS, and has sufficient knowledge to communicate with the attorneys and trustee regarding facts related to the matter – will field those questions and make sure the books are right.
If you’d rather have somebody else do the books, or you think after reading this that it probably would be better if somebody else was doing it, schedule a free consultation with us. We provide a written bookkeeping plan after your consultation which outlines the tasks which need to be done so you benefit whether you hire us or not. If you don’t want to talk to us directly, you can also ask your lawyer to contact us.
One last thing to consider is the reason to hire a company like us rather than an individual. We are a bookkeeping firm with numerous bookkeepers and estate tax preparers on staff. Sometimes estate cases can go on for a while, and bookkeepers tend to move around. They also sometimes get full with clients and cannot continue servicing everyone. With us, if the bookkeeper working on your books leaves or changes positions, you won’t even have to explain your situation again or provide access to your account records to a new person, that’s all handled in-house at no extra charge. Plus, we are insured to protect you. We also offer a guarantee that your books will be right. For any month when we were your bookkeeper, we are responsible for the integrity of that data.
I do hope this has been helpful for you in understanding the full scope of the challenges related to bookkeeping for estates.
Be sure to download my free booklet, HOW TO BE A GREAT EXECUTOR. It’s already hard enough when someone dies, why not make it easy on yourself and invest a little bit of time and energy into creating a good recordkeeping system so that later everything will work out harmoniously. It’s probably what the deceased would have wanted, so you could look at it as a way to honor that person‘s life by ensuring that the sum of their life as it relates to things in the physical world are passed along in a way that leaves everyone feeling good