Can Forensic Technology Speed Up Asset Tracing?

By: Jason Olson

In a recently published Private Letter Ruling (PLR), numbered 201429009 from the Internal Revenue Service (IRS) it was concluded that the value of assets held in a family trust are not includible in a decedent's gross estate, with the exception of the value of a "5 or 5" power held by a decedent at the time of death.

Given the facts and representations as outlined in the PLR, the IRS concluded that through a forensic review of historical financial records and tracing of assets, the decedent was able to track assets and determine what should have been allocated to the family trust upon his spouse's death.

Tracing, or following the flow of money through accounts, is performed to identify the original source of funds and ultimately the use of those funds. Tracing financial transactions and assets through past financial records is a skillset of forensic accountants. Typically, the process begins by consulting with legal counsel to determine which financial records would be of assistance in tracing assets. Access to bank records, investment account records, tax returns and check registers, among other source documents, are integral components of the tracing process.

Forensic accountants are specialists in examining multiple sources of financial records and summarizing the financial activity by creating detailed workpapers accounting for the source and use of funds. Summaries of these workpapers provide a clearer picture of the financial transactions through tables, charts and graphs. These tools assist legal counsel and the triers of fact in digesting what can oftentimes be complex and voluminous financial activity.

In the past, tracing assets was a laborious process as it involved creating a database of the financial activity through manual entry. Today, technology practically eliminates the manual entry process when it comes to documenting financial activity within bank and investment accounts.

Forensic accounting technology is used to generate databases of financial activity from source records for a variety of financial investigative cases including, but not limited to, marital dissolution, employee theft, embezzlements, partnership disputes, financial exploitation investigations of vulnerable adults and arson for profit investigations. This technology results in a more effective and efficient asset tracing process, which allows forensic accounting specialists to focus more on the complex aspects of the matter.

To learn more about how forensic accounting can benefit you and your clients, please contact your Eide Bailly representative.