3
Carrying Values
and Market Values
A fiduciary assigns a carrying value to each asset under
administration. The carrying value is the yardstick used to
determine what the fiduciary received, what he has left,
and what explains the difference. An asset’s carrying value
is most often its market value when received by the fiduciary, and it generally remains unchanged throughout the
administration. The carrying value of a particular asset is
adjusted on receipt of principal distributions related thereto. When the carrying value of an asset is not based on
market value when acquired, the market value and the
basis for the carrying value used should be shown in the
fiduciary’s account.
§3.1 THE MEANING AND USE
OF CARRYING VALUES
The carrying value assigned to each asset is the unifying element needed to measure the difference between the starting
and closing balances of an account. Adjustments in the initial carrying value reflect a partial realization or change in
the form of the asset.
13
14
• Fiduciary Accounting
§3.1
The fiduciary’s account shows what he received at the
beginning of the accounting period, what he has on hand at
the end of the period, and why there is a difference. In a simple situation this could be done without assigning dollar values to noncash items. For example, a trustee of a small trust
might show that he:
Received
Sold
Distributed to beneficiary
Now on hand
ASSETS
5 shs. X Co.
1 shs. X Co. (for)
4 shs. X Co.
CASH
$100
100
-0-
If there were a large number of different security holdings,
however, this sort of account would be little more than a jumble of disconnected bits of information, and it would be difficult to navigate through a collection of separate transactions to
see whether, when investments were changed, all the proceeds
were distributed or reinvested in something else (instead of
being diverted from the trust). A unifying element is needed
to measure the difference between starting and closing balances. This unifying element is the carrying value, expressed in
dollars, and assigned to each asset.
In the model account, this carrying value is identified as
the “Fiduciary Acquisition Value.” The sum of these values at
the beginning of the accounting period must be reconciled
with the sum of those of the assets on hand at the end of the
period. Thus a very simple account might appear as follows:1
Received
100 shs. A Co. at 45
50 shs. B Co. at 18
60 shs. C Co. at 45
Starting balance
$4,500
900
$1,500
$6,900
This simple illustration follows the arrangement of the summary in
the model accounts. When there are more numerous transactions, as would
normally be the case, it is preferable to group them in separate schedules
and use only the total in the summary.
1
§3.1
Carrying Values and Market Values • 15
Less: loss on sale 100 shs. A Co.
carried at
sold for
4,500
4,000
Add gain on sale 50 shs. B Co.
sold for
carried at
1,600
900
Closing balance
Closing balance composed of:
60 shs. C Co.
125 shs. D Co. purchased for
Cash
-500
$6,400
+700
$7,100
1,500
2,500
3,100
7,100
____
This account shows at a glance how the fiduciary got
from his $6,900 starting value to his $7,100 closing value and
reveals that all the proceeds of the two sales were either reinvested in D Co. or are still on hand in the form of cash. The
key to this result is the use of a fixed carrying value for each
asset. When the asset is sold or distributed to satisfy a pecuniary gift,2 the fiduciary adds or subtracts the resulting gain or
loss—the difference between the proceeds and the carrying
value—from the total for which he is responsible.3 While the
asset is held in its original form, however, its carrying value
remains unchanged. Adjustments discussed below apply when
there is a change in the form of the holding or a partial realization on an asset that continues to be held in the account.
Carrying values are commonly assumed by lay persons to
represent actual values at the close of the account. This perception is erroneous except for those relatively rare assets that
do not fluctuate in value, such as cash, money-market funds,
“Pecuniary” gifts are gifts of a fixed amount, such as “$100,000 in
trust for A” or an amount that can be determined by formula, such as a
marital deduction gift of “the exact amount needed to eliminate all federal
estate tax.”
3
The resulting schedule of gains and losses gives a useful picture of
the fiduciary’s performance as an investment manager.
2
16
• Fiduciary Accounting
§3.2
or a demand note of a solvent maker. To counteract this impression, the model accounts show dual columns of figures for
the assets included in the closing balances, one being the
account or carrying value and the other being the current
value.
§3.2 THE CHOICE OF CARRYING VALUES
Unless there are special circumstances, the value of an asset
when it is received by the estate or trust will be the appropriate carrying value.
The carrying value of an asset will normally be its value
at the time it becomes part of the state or trust. When such a
value is not precisely determinable or circumstances suggest
that the use of another value is appropriate, the figure used for
carrying value for the asset should reflect a thoughtful decision
by the fiduciary.
To determine carrying value, the model accounts reflect
the following principles:
§3.2.1 Assets Owned by a Decedent
When the assets were owned by a decedent, the inventory values or estate tax values generally reflect date-of-death values. The trustee of a testamentary trust will normally use the
same carrying value as the executor for any assets that have
been distributed in kind. An exception would be a distribution in kind made on account of a pecuniary gift when the
assets have been revalued as of the time of distribution to
ensure that the trustee receives the full amount to which he is
entitled. This situation is analogous to a purchase of the revalued securities by the trust, and the trustee should carry the
assets at the value used for distribution purposes.
§3.2.2 Assets Received in Kind by a Trustee
from Settlor of Inter Vivos Trust
When assets are received in kind by a trustee from a settlor
of an inter vivos trust, the value is determined as of the time of