FIDUCIARY ACCOUNTING 1. Examples of fiduciary relations.—In the dis cussion of consignment accounts, and in the chapter which follows dealing with statements of affairs and realization and liquidation accounts, the prerogatives of persons charged with responsibility for an estate often replace those of the actual proprietors. The agent accounts to his principal; the receiver or assignee accounts to the court which appointed him. These are examples of what is lmown as the fiduciary rela tion, of which there are many other common instances: a guardian is a fiduciary charged with the adminis tration of the affairs of a ward; a commission in lunacy is charged with the management of the estate of one who is adjudged mentally incompetent; an executor is a person named in a will to whom is delegated the duty of administering and distributing the estate of a decedent in the manner provided in the will ; an ad ministrator is a person charged with the duty of ad ministering a decedent's estate, and is an officer of the court appointed to administer the estate of a de cedent who died without a will; an administrator may also be appointed where an executor named in a will cannot act; a trustee is one who manages the affairs of a beneficiary. From these instances it is possible to frame a definition of a fiduciary—a person who dis charges duties imposed by a position of trust or con fidence.
2. Legal duty of fiduciaries to make accountings. —The accounting of these various fiduciaries should show the assets with which they were intrusted, the increase or decrease in these assets during the period of the trust, and the assets at the time of the account ing. The rights and duties of each of these fiduciary positions are clearly outlined in the law, and it is im portant that the affairs of the trust shall be admin istered strictly in accordance with the provisions of the statute. Each fiduciary must account to a court of competent jurisdiction. In most states the law does not lay down any required method of bookkeep ing, nor any required method of making a fiduciary ac counting. In general, however, it will be wise for the fiduciary officer to follow the form to which the court to which he must report is accustomed.
3. General duties of all fiduciaries.—The first duty of a fiduciary is to collect the assets of the estate with which he is charged and to file an inventory with the court. He will then determine the liabilities
which are chargeable against the estate he is admin istering; in the case of an executor or administrator this schedule of liabilities is not filed at the time the inventory is filed, because the executor or adminis trator may not be at that time aware of all the debts outstanding against his trust estate.
The executor derives his authority from the will and from the letters testamentary which are issued to him by the surrogate or other court officer charged with the duty of administering the estates of dece dents. In the case of executors and administrators the law usually provides that they shall advertise for the claims of creditors, and if the estate is solvent, pay out of the assets which have been realized the amounts due., The statutes of different jurisdictions provide the order in which debts shall be paid; in most cases, debt due to the United States or to the state or munic ipality must be paid first, and next the expenses of administration. Docketed judgments are paid before unsecured claims. If there is more than enough in the estate to pay these, the unsecured debts of the decedent are then paid. When the debts have been paid, the executor will distribute the principal and income to the beneficiaries according to their interests.
4. Corpus and income most estates, there will be a certain amount of income earned during the period of trusteeship with which the executor will charge himself in his accounting. It is his duty to see that all income is collected promptly, and if the income is payable to one indi vidual and the principal or corpus of the 'estate is payable to another, it will be necessary for the execu tor to make proper separation between principal and income as of the day of death. Those assets of which the decedent died possessed are known as corpus ; all other increase in the estate is income, with this ex ception, that if any of the assets of which the de cedent died possessed are subsequently sold at an in crease over the appraised value, such increase is treated as an increase of corpus. It is interesting to note here that the Federal Income Tax law treats such increase as income of the estate upon which the in come tax must be paid by the executor.