Part 33

In preparing the accounts the exact relationship of the trustee to the estate (as the property in trust is called) must be kept in mind. As the owner of the property, he is a creditor of the estate (the business) just as the proprietor of the business is the creditor of that business. On the other hand, as custodian, he is a debtor, being in possession of the property of others.

In the ledger, property accounts are opened with the different classes of properties represented in the estate, which accounts are debited for the appraised value of the properties. These are known as custodian accounts.

A contra account representing the estate—sometimes called the capital—is opened under some such caption as Personal Estate Account. This account is credited with the combined values of all properties represented by the custodian accounts.

When the assets are entered and posted, the ledger accounts will appear as follows:

These asset accounts represent the value of the individual properties, while the personal estate account represents the combined values of all personal property of the estate (No. 1, No. 2, and No. 3). The personal estate is known as the corpus, distinguishing it from the real estate.

If the trustee, as the custodian, is called upon merely to distribute the estate to the beneficiaries, his accounting is a very simple problem. In many cases, however, he is called upon to take care of the income arising from the corpus or the real estate.

When he receives such income in the shape of cash, he debits himself as custodian through a cash account, and credits an income account under an appropriate title—as interest account, rent account, dividend account, etc. The account may represent the income from a specific property, or all income of a stated class. For example, rent account may represent the rents received from all properties, or there may be a separate rent account for each.

Distinguished from the income accounts, the trustee sometimes has accounts representing the sale of real estate, which must then be treated as personal property. When real estate is sold, cash is credited and an account, usually called Sale of Real Estate, is credited.

=4. Classification of Accounts.= A classification of the accounts of the executor naturally divides into: (a) Personal estate account; (b) asset accounts; and (c) distributive accounts. The personal estate account, as we have seen, is a controlling account which represents the total of all assets. It is also referred to as the capital account. It is, as well, a controlling account of the distributive accounts, and in the end exhibits a schedule of transactions in the order in which they occur.

The asset accounts, representing the different classes of properties or assets of the estate, correspond to the asset accounts of an ordinary business.

The distributive accounts may be likened to the revenue accounts of a business enterprise. These accounts are debited with all amounts distributed—as expense of administering the estate—and credited with all income or revenue other than that representing the conversion of the original estate into cash.

=5. Executors' Commissions.= While the commission allowed administrators and executors varies in different states, the amount specified by law in New York applies as a general rule. The commission allowed is 5% on the first thousand dollars received and disbursed, 2½% on the next ten thousand dollars, and 1% on all amounts above eleven thousand dollars.

If the value of the personal property is $100,000.00, or more, in excess of all debts, each executor is entitled to receive the commissions provided in case of a single executor; except that if there are more than three executors, the amount which the three would receive must be divided in proportion to the services rendered.

In cases where the will provides a specific remuneration, the executor is not entitled to a commission. He can, however, decline a legacy and in lieu thereof take the usual commission.

Commissions are not allowed on specific legacies, that is, where specific property, as household effects, automobiles, etc., are named. An annuity is a series of legacies and the commission is not allowed on its payment. However, when a beneficiary is given the use of a fund, the beneficiary is charged with the commission.

In all cases where administrators or trustees are responsible for the investment of the funds of an estate, they are entitled to receive commission on the income. The commission in all of these cases is at the regular rate, that is, 5% on the first thousand dollars received and paid out, etc.

EXAMPLES

1. Two trustees collect in one year an income of $36,000.00 for a beneficiary, the expense being $3,000.00. If each trustee receives an equal share, what commission will be paid to each, and what sum shall be paid to the beneficiary? Ans. Each trustee, $275.00; beneficiary, $3,275.00.

2. Executor X collects of the corpus of an estate $30,000.00, executor Y collects $40,000.00. Together they pay out $55,000.00. Commissions are to be divided in proportion to the amount collected by each. What commission will each receive and what is the net amount to be paid to the residuary legatee? Ans. Commissions: X, $381.43; Y, $508.57. Residuary legatee, $14,110.00.

3. Four trustees collect and pay out of an estate $350,000.00, the total debts of the estate being $135,000.00. What commission will each trustee receive? Ans. $2,767.50.

SAMPLE ACCOUNTS

=6.= Following are the transactions and accounts of David Brown, executor of the estate of Henry Snow, deceased. For keeping the accounts, the journal, cash book, and ledger are the books used.

June 1, 1908 Henry Snow died this day, naming David Brown executor.

—3— Estate inventoried and appraised as follows: Cash in bank $390.50 Mortgages 5,000.00 R. R. stocks $5,000.00 appraised @ 112 $5,600.00 Household furniture 1,000.00 Debtors to the estate Henry Alton $160.00 J. L. Lawrence 52.00 D. Pringle 75.00 F. D. Smith 84.50 371.50 ------- Interest accrued on mortgages $5,000.00 —5 mo. @ 5% 104.16 Accrued dividends on stock estimated at 3% semi-annual, payable July 1st—5 mo. accrued 137.50 --------- 12,603.66

—30— Approved the following claims: Dr. Knight bill 200.00 Funeral expenses—Undertaker 250.00 Henry Cole account 62.00 H. Dawson account 17.00 Probate expenses 100.00

—30— Additional assets discovered Geo. Smith owes the estate 50.00

July 1 Collected 6 mo. interest on mortgage at 5% 250.00

—1— Collected the following accounts: Henry Alton 160.00 D. Pringle 75.00