Trust Distribution

[Alex Hill]

The trust is operating as a business, that is correct. 

The reasons for the monthly distributions are that the beneficiaries are my children, and they both have savings accounts which require a minimum deposit each month to receive interest. The monthly distributions are only small (minimum amount to receive interest) and there should be plenty of funds left over at the end of the year (especially as the business is service based so inputs are price insensitive).

So theoretically the monthly distributions are simply advanced distributions from what they would be owed at the end of the period. Would you use liability accounts for this?

Thanks for your help.
Alex
  ----- Original Message ----- 
  From: Thomas Bullock 
  To: Alex Hill 
  Cc: gnucash-user at gnucash.org 
  Sent: Thursday, October 14, 2010 1:39 AM
  Subject: Trust Distribution


  Hi Alex,

   

  From what you say in your email (below the dash line), it seems to me you are managing an ongoing activity in which you have to make distributions to recipients (beneficiaries) on a regular basis, because funds are owed them.  You also mention an income/expense activity which suggests either a business or a liquidation of assets of an estate.  

   

  What is unknown is the basis/reason dictating why you are distributing assets on a monthly basis.  The reply to your question is an accounting one.  But that accounting question activity is shaped by what dictates what you are doing.  In my experience if it is an estate that is being disbursed, that usually is not done until all liabilities to non-beneficiaries have been determined in amount and paid to those claimants.  What is left after paying creditors are net assets, of which the beneficiaries are the owners.  In that arrangement,  your notion of debiting equity and crediting cash works.  What is unknown to this list (and therefore suggests a note of risk) is why you distribute before the funds are on hand (you say they are dependent upon income, which always is problematical in advance of receipt).

   

  If you are administering a trust, then the terms of the trust must be specified in order to know what you are supposed to do when.  If income is coming in from the trust's activities, then it suggests that in the short run the trust is an ongoing activity and the amounts owed  beneficiaries are really liabilities of the trust.  If that is the reality, then you would have liabilities offsetting trust assets.

   

  If you supply a clear statement of your situation, it will be easier to determine the proper way to record the transactions you describe.

   

  HTH,

   

  Tom Bullock

  -----------------------------------------------------------------------------------------------------------------------------------------------------------------

  Date: Wed, 13 Oct 2010 08:53:13 +0800

  From: "Alex Hill" <alex_hill at arach.net.au>

  Subject: Trust Distributions

  To: <gnucash-user at gnucash.org>

  Message-ID: <4FEAACFA00154A3FAB1544ED20FC1CA2 at ToshibaLaptop>

  Content-Type: text/plain;     charset="iso-8859-1"

   

  I sent this last night but I didnt see it come through the mailing list, so my apologies is people receive it a second time.

   

  This is more of an accounting Question then a specific GnuCash question, but could do with some info on how to structure it in GnuCash anyway.

   

  I have a trust and am making monthly distributions to beneficiaries. Would I be right in doing the following:

   

  Equity (Beneficiary 1)        Dr       x

  Equity (Beneficiary 2)        Dr       y

  Cash                                Cr                 x+y

   

  (or seperate transactions for each distribution).

   

  So in this this situation the equity accounts with have a Dr balance (shown as a negative in gnucash) during the year. Then at the end of the year I would offset these accounts against the P&L Summary when closing the books like so:

   

  P&L Summary (temporary account used in closure)      Dr       x + y

  Equity (Beneficiary 1)                                                 Cr                     x

  Equity (Beneficiary 2)                                                 Cr                     y

   

  Then any residual in the P&L summary account would be distributed in a similar fashion?

   

  I think this is right, but am not quite sure.

   

  Thanks,

  Alex