Accounting Firm Not Required To Maintain Trust Records Or To Account For Financial Activities Of Trust
July 23, 2012
Authored by: Luke Lantta
Trustees aren’t always one-stop shops. In some states, trustees can delegate certain investment decisions. Also, most trust instruments allow trustees to hire people to help them perform certain activities, such as lawyers and accountants. Occasionally, an aggrieved party sues these people hired to help the trustee. In these circumstances, the question becomes what duty was owed by the person hired by the trustee. That question can often be answered by figuring out what that person was hired to do for the trustee.
In Taylor v. Barberino, the Appellate Court of Connecticut recently considered that question as applied to an accounting firm. A successor trustee sued an accounting firm that was engaged by the trusts to provide accounting services on the grounds that the accounting firm failed to accurately maintain records of the operation of the trusts and failed to properly account for the financial activities of the trusts. The trial court granted summary judgment to the accounting firm and the appellate court agreed. Here’s why . . .
The accounting firm wasn’t actually engaged by the trusts to maintain trust records or to manage or to account for the trusts’ financial activities. Rather, the accounting firm simply prepared trust tax returns based on historical information furnished by the trustees. In other words, the accounting firm could not be held liable for doing a job that it was never engaged to do. While the accounting firm prepared trust tax returns, it was never engaged to perform, nor did its accountants perform, bookkeeping services or the day-to-day maintenance of the trusts’ books and records.
Just another case that serves as a reminder to carefully define the scope of services being provided in connection with a trust. Those in the professional services industry often perform services that go beyond the terms of their engagement, but this case cautions us about the risk in doing so.