There is no market for a bond in the trust and a sucessor trustee will not accept. The plan sponsor has instructed the prior trustee to "write off" the asset from the trust. This the prior trustee will not do, stating that it is impermissible.

Can anyone provide a specific reg section in support of Not writing the asset off? Or, is it permissible to write off the value of an asset in the trust, in which case, is there a specific reg section supporting that type of action?

Thank you

What makes you think you need specific authority to prevent you from disregarding value of an asset? I recall from physics that matter cannot be destroyed. Assets have a value, and there are accepted ways of determining value. It is possible, using acceptable methods, to determine that an asset has no value, but absence of a market does not mean the asset has no value. Your problem with the policies of the successor trustee cannot be solved by inappropriate actions or determinations of value.

Well...., it can be destroyed, by conversion to energy. (see, Einstein)
Otherwise, good answer.

It is not destroyed. As you say, it is converted, and it can be converted back. So the bond can be converted to cash, if it has value. And the cash can convert to a bond, but somewhat more slowly than at the speed of light.

I love to discuss the first law of thermodynamics whenever possible.... Really I do.

But, before we get back to that topic, QDROphile, you correctly stated "(y)our problem with the policies of the successor trustee cannot be solved by inappropriate actions or determinations of value".

Could you suggest how the problem with the successor trustee may be solved? Any advice would be appreciate...

I thought Einstein postulated that energy is just another form of matter, not that the conversion to energy destroyed matter? In fact, can the energy not be re-converted to matter, demonstrating that the matter was in fact not destroyed?

I too think QDROphile gave a good answer.

Yes, good answer.

FWIW, the duality of energy and matter (E=mc²) isn't from thermodynamics. In thermo, energy and matter do not change their forms. Energy stays energy, and matter stays matter. But I digress...

I can't think of specific reg - but fiduciary liability is the reason. Just because there is not market now does not mean there will never be one.

What you will have to do is set up an account for it with another trustee and give market value of zero and cost basis.

I suggest that this client consider using a different successor trustee entirely.

What will this successor trustee do, in the future, if one of the investments that are now acceptable, declines in value ? Periodically drop them? How many trustees might you end up with ?

If it were me, I would reconsider using a trustee who cherry picks in this manner.

Particularly since this trustee is also giving bad advice to support his/her position!

Is there no market or is it that the sucessor trustee does not want to hold the bond because it would be difficult to value? It may be that there is no market for the security on a recognized exchange or market but there woud be value to a buyer in a private sale. ML recently sold 30B of illiquid private mortgaged backed securities to a buyer for 6.7B. Obviously the parties were able to agree on the value of the securities. Can the security be written off as worthless under the IRC?

This raises the question of what is the definition of "worthless" ?

In the case of the ML sale, the illiquid securities were worth less than they were purchased for, but not worthless.

I also wonder what do you do with a security if it is "worthless" under the IRC . Destroy them??
If it were a fixed asset, say a steamroller, there comes a time when the Depreciation Schedule says that it is written off. Is that the same as "worthless"? The fully depreciated steamroller still has value and cannot be just destroyed or given away. So what is the treatment of a security that has been marked to value of $0 ? Is that even allowed ?

First.... Code Section 165, Reg Section 1.165-5

Second.... if the successor trustee wants the original trustee to "write-off" the bond because the successor won't accept the bond, then I take it to mean the successor really wants the bond to be abandoned.

The difference between being written off and being abandoned is ownership. Let's take GBurns' steamroller as an example. If I've written it off, then I still own it and it's sitting on the corner of my property and when I move to a new location, I move the steamroller with me. But if I abandon it, then when I move, I leave it behind and foresake any right to ownership.

The problem I have w/ abandoning a marketless bond is that it's not being very responsible as a fiduciary. If the asset has any potential for value, then the fiduciary has the duty to go out and try to sell it rather than abandon it.

Now, if the asset is truly worthless, then as a fiduciary, you can probably abandon it. But you have to apply the tests of worthlessness in the fullest possible way. Any number of financial websites offer discussion about determining if a security is worthless. Much of this derives from case law.

Best yet, if it's worthless or nearly so, find someone who will give nominal value and lock in the transaction.

One thought is that the bond is being held under the account (forget the terminology). How about you literally holding the certificate yourself in the old file cabinet? Since the thing is worthless, shouldn't be triggering any bonding/audit issues (assuming this is a small plan). Perhaps you could use this as wallpaper along with old Pets.com stock certificates?

And eToys. (I have a few of those...)