Detailed data entry in CCH Trust Accounts for Probate clients

This section gives a comprehensive example of postings for a probate client in CCH Trust Accounts including creation, take on values, corrections, balancing forward, subsequent postings and appropriations.

The following section outlines the way the client should be created, and postings made to it.

Create the Client

The year-end date should be the day before the date of death. This ensures that when the client is balanced forwards the accounts period begins on the date of death.

Create the Investments

It is usually easier to create the investments through the investments accounts window as this allows both securities and properties to be added. If a broker’s valuation is available, they can be quickly added one after another.

Take on the value of the investments

The probate value of all the investments is debited to the Difference Account.

Each investment is ‘bought from the Difference Account’.

This should reduce the Difference Account to zero. To do this:

o    Set the Logged In account to the Difference account

o    Post each investment as a Purchase dated on the day before the date of death

o    At the end of this process the Difference account should come down to zero.

The effect of these postings is shown below:

Take on the Other Assets as at the Date of Death

At this stage assets that are not being recorded in the investment ledger are taken on, such as the deceased’s bank and building society accounts. The following items are also taken on:

• Dividends/Interest due as at the date of death, i.e., the dividends or interest have been paid but had not been credited to the deceased’s bank account as at the date of death. The account for Dividends/Interest is 4160.
• Interest Accrued as at the date of death. A letter from the bank generally shows the interest accrued on the deceased’s bank account at the date of death. This is the interest that had not yet been paid but had been earned up to the date of death. Some users post all these amounts to a single account, i.e., they do not itemize them on the face of the accounts. However, most users show these amounts separately. If the bank account balance is shown on account 42XX then the associated accrued income is shown on account 43XX where XX is the same for both accounts. The name of the bank needs to be entered as the long description on both accounts. It saves time to set them both up at the same time and to cut and paste the bank name from one account to the other.
• Ex-dividends due. When a share pays a dividend, the dividend is paid to all holders on the company’s register at a particular date, the ex-div date. However, the company usually pays the dividend a few weeks later on the payment date. If the holder holds the shares on the ex-div date and sells before the payment date, then the old holder still receives the dividend. The heading Ex-dividends due therefore refers to shares that the deceased held on the ex-div date, but which had not reached the payment date by the date of death. They are slightly different from Interest Accrued in that no accrual is calculated. Ex-dividends due are debited to account 4162. Some users prefer to set up a separate account for each of them to itemize them on the face of the accounts. If required, this could be done by creating a sub account for account 4162.

To take on these assets:

• Set the Logged In account to the Opening Balance Account.
• Post the assets dated on the date of death as Bank Payments:

Note: The Estate Capital Account lists the assets posted here together with their account descriptions. To speed up entering the account descriptions they can be entered during Data Entry using the option Review Nominal Descs.

Take on the Liabilities as at the Date of Death

Proceed as follows:

o    Set the Logged In account to the Opening Balance Account.

o    Post the liabilities dated on the date of death as Bank Receipts:

Corrections to the Date of Death Values

To correct a value posted to an investment account make an entry using movement code CWU or CWD for a cost write-up/down and use one of the Corrective Accounts, 9020...9030, rather than the Opening Balance account, 9010. Although the Corrective Accounts are not shown separately in the accounts, it is still useful to be able to see what the correctives were by consulting the nominal ledger. The entry should be dated on the day before the date of death.

To correct any other entry, post a journal dated on the date of death

The entry above assumes that the corrective results in an increase in the assets as at the date of death. If it results in a reduction, then the debit and credit are the other way around.

Trial Balance as at the Date of Death

Note: If a trial balance is run at this stage, it shows the net assets as at the date of death in accounts 4000...4999. The entries behind these figures are all dated either on the date of death or the day before. Since we need these balances on the Estate Capital Account, all further entries are made after the date of death.

Once the net assets as at the date of death have been posted the idea is to distribute them all as tax payments, specific and pecuniary legacies, payments to beneficiaries, transfers of assets to beneficiaries, expenses of the estate and so on. The result is that at the end of the period of administration the values on all the accounts 4000...4999 are nil. In theory the Balance Sheet shows zero values as well meaning that no assets remain in the hands of the personal representatives. In practice, there are usually small values left on the Balance Sheet and the final accounts are sent to each residuary beneficiary with a cheque for the balance due. From an accounting point of view the important point is that from now on balances on accounts 4000...4999 represent assets that have not yet been dealt with. Most of the following entries have the effect of crediting accounts 4000...4999.

Balance Forward the Client (Run the year-end)

This is the only time you run the year-end - refer back to Autoload for period options

On balancing forwards, the year start date is the date of death. The year-end date is the first date for which accounts are required. If this is not known the year-end date can be set to any date and changed later as required. It can be moved either forwards or backwards.

If an investment schedule is produced after balancing forwards, then the Opening Balance will be dated at the Date of Death and show the probate value of the investments. If the investments were entered as at the Date of Death, they will appear as acquisitions in the period of administration rather than as part of the opening balance.

If possible, leave balancing forward until all the correctives have been processed for investments. The entries can still be made even if the client has not been balanced forward. If an investment adjustment is processed after the client has been balanced forward it is a prior year entry. Prior year entries do not affect the nominal ledger for the current year; a second entry is required to bring the change forward. This is a journal entry dated as at the date of death. The postings are the same as for the original adjustment. Delaying balancing forwards avoids the need to make these entries.

Ex-divs and Accrued Interest

Ex-divs and interest accrued up to the date of death are included in the value of the estate for Inheritance Tax purposes (and consequently excluded from the income shown on the SA900).

Note: Although ex-divs are included, dividends are not accrued up to the date of death in the same way as interest. If the estate creates a life interest, i.e. beneficiaries who are entitled to the income of the estate, then the rules for deciding how much the life tenants receive are different from the tax rules.

The statutory apportionment rules require that all income is accrued up to the date of death, including dividends, rent, and interest payments; however, it is has become increasingly common for these to be excluded by the will thereby reducing the cost of administration. The notes that follow assume that they are excluded. If they are excluded, then income is defined as the income that was received after the date of death.

All this affects the accounts. The Estate Capital Account begins by following the tax treatment. It shows the net value of the estate for Inheritance Tax purposes, which includes the ex-divs and accrued interest. The purpose of the Capital Account, if a life tenancy is created, is to show how much capital the residuary beneficiaries are to receive. This does not include the ex-divs and accrued interest as they are received after the date of death. The Estate Capital Account Continued starts with an ‘Adjustment for items shown for Inheritance Tax purposes only’. This adjustment picks up accounts 1020...1049, which are part of the Capital Movement Accounts.

For ex-divs the necessary entry is:

For accrued interest the entry is:

All the above discussion assumes that it is important to maintain an accurate split between capital and income in the estate accounts. This is important if the estate creates a life interest. However, the accounts for ex-divs and accrued interest in the range 4000...4999 need to be cleared to zero at some stage. It is usually easiest to follow this approach for all estates.

Payments made after the Date of Death from the Deceased’s bank account

These are entered as normal Bank Payments. The Logged In account can be any of the deceased’s bank accounts.

Receipts after the Date of Death into the Deceased’s bank account

These are usually entered as normal Bank Receipts with the Logged In account as one of the deceased’s bank accounts. If the receipt relates to an investment, then it is posted as an investment or Property Entry.

An example of investment income is a dividend. This is posted with a movement code of DIV on the date it was received:

Transfer Bank Account Balances to Client Account

The entry is a Bank Payment from the deceased’s account to the Client Account (or some other account administered by the personal representatives).

Sales and Distributions

Sales are made in the usual way using a SAL movement code:

If investments are transferred to beneficiaries, the entry is similar to a sale, but the investments are transferred at probate value. Therefore, no gain arises. Movement code GON, Gift Out (no holdover relief) should be used. The account to be debited depends on the beneficiary. In the posting below the X represents the beneficiary number (or letter):

When an asset that is not held in the investment ledger is passed to a beneficiary a nominal ledger entry is used. This includes cash payments to beneficiaries. Again, the account to be debited is in the beneficiary range of accounts 8000...8Z99. Here a cash payment is made to a beneficiary from the client account:

Appropriations

If a trial balance is run at this stage the picture is as follows:

The figures in the Beneficiaries accounts are incomplete as they show payments made to beneficiaries and assets transferred to them, but do not show their shares of the residuary estate or the income. So, these accounts have a debit balance whereas normally they would show a credit, being the balance still due to them.

The net residuary estate is (a,9000...9499)+(a,1000...1998), i.e. the assets as at the date of death (as a credit) plus the capital movement in the estate. This is the final figure on the Estate Capital Account Continued. To distribute this amongst the beneficiaries the following entry is made for each beneficiary. The effect of these entries is to leave the range (a,9000...9499)+(a,1000...1999) with a balance of zero:

There are two possible treatments of the income. If the estate creates a life tenancy, then the income is distributed separately from the capital. This is like distributing the capital. There is one entry made for each beneficiary and the effect which is to leave the range 0000...0999 with a balance of zero.

This method can also be adopted if the estate does not create a life tenancy. However usually the net income is carried back to the Estate Capital Account Continued and then appropriated along with the capital as shown before. Carrying the net income to the Estate Capital Account Continued leaves the range 0000...0999 with a balance of zero.

There are advantages and disadvantages of these two treatments of the income, and you should decide which you prefer:

• Appropriating the income along with the capital requires fewer entries. Only one entry is required instead of one per beneficiary.
• On the other hand, appropriating the income separately means that the estate accounts are a little easier to read as the figures always carry forward from one page to a later page. The Estate Capital Account comes before the Income Account in the full accounts. So, carrying the net income to the Capital Account means that it is carried back to an earlier page.