2. In your state, who makes the appraisement? Who is responsible for having the appraisement made? Are the values found by the appraisers final? What is done in case of small estates not subject to tax? What should be done where a non-resident has assets in a state? How many copies of the appraisal should be made?

3. What is the arrangement in your own state for the appointment of official appraisers? Give the arrangement in some other important state.

4. What qualifications should an official appraiser have? What judicial powers do they have?

5. Who must be notified of an appraisal? Why? How is notice given in your state?

6. What is the procedure in making appraisement? How do appraisers secure evidence?

7. What is the value that should be placed on property at an appraisal? At what time is the value to be taken?

8. How is the value of land ascertained?

9. How is the value of stocks and bonds ascertained? What is evidence of the value of inactive stocks and bonds?

10. What is the usual method of computing good-will?

II. How is a partnership interest valued? How can the good-will pass to the other partners without being taxed?

12. How is the value of growing crops determined?

13. When can bad debts or notes be left out?

14. How are bank deposits entered? Why are not outstanding checks deducted?

15. What is the rule as to objects of art? If the value of household effects exceeds $2,000, who must make the appraisal?

16. How are patents, trade-marks, and copyrights appraised? 17. What is the rule as to insurance policies? What is the amount of insurance that may not be taxed?

18. What is said as to all other property? Where values are complicated, what is done?

19. What forms should guide the appraisers? What should they contain?

CHAPTER XXXV

CORPUS AND INCOME

$303. Corpus and Income Defined

The principal or body of an estate, the whole value of what is actually left by the decedent at the time of death, is in law and accounting called the "corpus" of the estate.

What is afterward derived from or earned on that body, corpus, or principal, is called the "income" of the estate.

Any income accrued at the time of death forms a part of the corpus of the estate.

§ 304. The Distinction Between Principal and Increment

The first inventory rendered by the personal representative is seldom complete, even for small estates. This is, of course, sometimes due to the omission of items completely overlooked, but a very common source of error is in the failure to understand what really constitutes the assets of an estate. Good accounting requires that in all cases the records show what property was left by the decedent, that is, the body, corpus, or principal of the estate, and what is thereafter gained or lost in the handling of the property. When, however, there is a tenancy for years or for life, it becomes absolutely essential to separate the body of the estate as left by the decedent from any later profits or increments, as in such cases one person or group will be entitled to the income and another person or group to the principal.

§ 305. Administration of a Trust Dependent on a Will

When a will leaves certain property to a person as trustee to pay over the income, say, to "my wife Helen Morton for

the term of her life, and at her death, to pay the principal to my son Alfred H. Morton or his heirs," a trust has been created. Here the distinction between corpus and income is essential and must be kept up from the beginning to the end. The wife would be life tenant and the son would be the remainderman.

In such a case the trustee is under the duty of preserving the principal intact so that there can be given to the remainderman the whole of the property which was intended for him. Consequently the trustee must apply in the most careful manner, all receipts and disbursements that pass through his hands to principal or to income as the case may be, in order that the principal shall not be reduced at the expense of the remainderman or increased at the expense of the life tenant. Questions of importance and sometimes of difficulty arise in this connection. In this chapter some of the most common of these questions are considered.

Whenever a will contains trust provisions, the executor must, from the date of death, distinguish between principal and income, for although in practice the trustee enters upon his administration of the trust only when the trust funds are set aside, the trust provisions relate by law to the date of the testator's death, and the person entitled to the income from the trust is entitled to that income from the date of the death of the testator.

§ 306. Possibilities of Complication

There are numerous complex possibilities in the formation of testamentary trusts:

1. The estate may be held in trust as a whole:

(a) The income to go to one person, and the corpus.

to go to one person.

(b) The income to go to several persons proportionately, and the corpus to go to one person.

(c) The income to go to one person, and the corpus to go to several persons proportionately. 2. Or the estate may be held in trust in several distinct

parts:

(a) The income to be divided in accordance with its source, the corpus to go: (1) to one person,

or (2) to several persons by parts, or (3) to several persons in common proportionately. (b) The income to be given to one person, and the corpus to go to several persons by parts. (c) The income to be divided proportionately between several persons, and the corpus to go to several persons by parts.

It is feasible for a testator to create innumerable further complications of these basic possibilities.

§ 307. The Status of Interest Accrued at Time of Death

In arriving at the amount of the principal it should be understood that all the property belonging to the testator at the time of his or her death, after payment of all debts owed by him or her at his or her death, forms the principal of an estate.1

It may seem to be an easy matter to determine in the case of any particular asset, what amount was left by the decedent, but such is not always the case, and in the different states the laws governing the division between corpus and income are not the same.

For example, take interest received by the estate :

At common law the general rule was that sums of money payable periodically at fixed times were not apportionable during the intervening periods, and a number of court decisions have held that, in the absence of statute or express agreement,

Gottsberger, Accountants' Guide.

interest payable at stated times on government, state, county, or municipal bonds, or coupon bonds of a railroad or other semipublic corporations, not issued separately for the payment of a specific debt, but usually bought and held by way of investment, was not apportionable between interest dates.2 The principle followed in such decisions is founded entirely on English authorities and appears not to have been generally followed in this country. The English rule, too, has since been modified by statute:

All rents, annuities, dividends or other periodic payments in the nature of income shall like interest on money lent be considered as accruing from day to day and shall be apportionable in respect of time accordingly.

Commercial practice follows the latter rule. By common agreement obligations sold between interest dates are almost universally sold at a price stipulated for the obligations, plus interest accrued.

Bonds are traded in on the exchange "and interest," the purchasing broker paying interest on the principal from the last coupon date.*

Interest and similar income is said to accrue from day to day."

The latter rule has also the approval of the authorities charged with the enforcement of the Income Tax Act of Massachusetts, and is followed in federal estate tax procedure."

In other words, whatever interest or rent has been earned ("accrued" in accountancy) up to and including the date of death of the testator was his at that time and hence belongs to the corpus of the estate.

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222 Cyc. 1484; Dexter v. Phillips, 121 Mass. 178.

33 and 34 Victoria, Chapter 35.

Todman, Brokerage Accounts.

Montgomery, Auditing Theory and Practice.

Massachusetts Income Tax Instructions, §§ 2004, 2005.

Article 13 of Regulations 37, Bureau of Internal Revenue.