My colleague and I are trying to determine which value should be used for trust accounting/asset purposes.

When accounting for the total plan assets, should the cash/contract value or surrender value be used?

Should the contract value be used until a distribution takes place and the difference between the contract value and surrender either be forfeited or in the Gain/Loss?

Generally speaking, you would use cash surrender value for trust accounting purposes.

When it comes to distributions, then you are looking at FAIR MARKET VALUE. Be very careful, as some policies have a FMV which is different (higher) than CSV. I'd encourage you to look at past threads, as well as IRS regulations and other guidance, including Rev. Proc 2004-16, Rev. Rul. 2004-20, and Rev. Rul. 2004-21.

Also see Rev Proc 2005-25