§ 660. Sale of Assets Let us suppose that the trustee for certain reasons and with the approval of the court decides to sell some of the securities which have been set aside for the Mary Allen Dawson trust. These must be credited to Investments account at the valuation at which they entered this account, which (see § 646) will be the valuation at which they were carried in the original inventory of the estate if they were included in that inventory, or the cost, if they were purchased after the decedent's death. The effect of this entry will be to make the books show that the securities set aside for this fund have been reduced in amount by that valuation, no matter what the cost. If the securities were sold at a profit the entry will be (No. 6): Cash (the amount received)..... Investments (the inventory value or the $...... $. If a loss resulted from the sale the entry will be (No. 7): Cash (the amount received). ... Investments (the inventory value or the $...... $....... It is vital to remember that Investments account must be credited at all times with the same value for an asset sold that was used when the asset was first entered in the account, just as the administrator and executor (see § 603) found it necessary to credit Inventory account with the inventoried value of each asset realized upon. The postings of the above entries to the trust ledger will serve to bring out the effect on the individual trusts of profit or loss on sales. The trusts are enriched or made poorer by such sales, no part of the gain or loss appearing in Income. § 661. Receipts and Disbursements of Income When income is received from interest, dividends, rents, etc., the entry will be (No. 8): Cash Income $... $....... Like all other entries in the synoptic, this must be posted to the proper account in the trust ledger. Payments of income to the tenants under the will are entered as follows (No. 9): Income Cash $....... $...... The provision of the will (see § 652) under which Mary Allen Dawson receives income from the trust fund of $100,000, "said payments of income not to exceed $5,000 per annum," creates an indefinite annuity. Income from this fund is, of course, credited to Income account. Payments to Mrs. Dawson, limited to $5,000 annually, are charged to Income ac count. Since the will directs that the excess income over $5,000 is to be transferred to the principal of the undivided estate, it is necessary at the close of each year to record this transfer on the books. Suppose that the gross income for the year was $6,230, of which $1,000 was used for expenses, leaving a net income of $5,230. In this case the following entries (Nos. 12 and 13) are needed The first of these entries is posted to the Mary Allen Dawson Trust account in the trust ledger and the second to the Undi vided Estate account. The first indicates the payment of the money from the Mary Allen Dawson trust to the undivided estate; the second records the receipt by the undivided estate of the money from the Mary Allen Dawson trust, as was provided in the will. If the will had not provided for this transfer of the excess over $5,000-in other words, if that excess had been accumulated to form a part of the principal to pass with the remainder of this fund to Mary Allen Dawson's children by the donor's brother-no such entry would have been necessary. The balance not distributed would have been accumulated in the Income account of this trust. If the will had directed that the excess income over $5,000 be disposed of by payment to someone else, such payments also would be entered in the form of Income ... Cash $....... $..... It is provided in this will that $2,400 annually is to be paid out of the income from the undivided estate to Henry G. Dawson and that such other sums as are necessary from the income of the undivided estate be paid for maintaining and educating the donor's children. These payments will be recorded as are any other distributions of income: Income Cash $....... $....... § 662. Payments of Income to Trustee by Executor It has been pointed out (see § 625) that any advances of income made by a trustee, while still acting as executor, to tenants under the will must be considered as payments of income to the trustee since the tenants have no standing during the period of executorship. If such advances have been made, their recording will necessarily have to show as the first These entries will have to be posted to the proper account in the trust ledger and the transactions must be included in the trustee's report. § 663. Expenses The payment of any expenses which are proper charges against income (see § 649) may be entered as follows (Entry No. 10): Income Cash $....... $....... Any disbursements which are charges against the principal of the estate will in the same way be entered: Principal § 664. Investment of Income $....... $...... The will which we are considering provides that out of the undivided estate a certain annuity shall be paid and that such sums as are necessary shall be expended for the maintenance and education of the donor's children. The income received in excess of these needs must be kept invested by the trustee and must not be allowed to lie idle. Any purchases of securities or other assets with the money thus made available will be entered on the books as follows (No. 11): Investments $...... $....... It will be noticed that this entry does not affect Income account but simply shows the exchange of an asset of cash for an asset of investments. The books still show the amount of income which has been earned and has not been distributed. When these income investments are sold, any profit would be a credit to Income account instead of to Principal and any loss would be a debit to Income account. § 665. Interest on Bank Accounts Trustees frequently have in certain funds balances of cash too small for ordinary investment but not likely to be needed for some time. As it is considered necessary for this cash to produce income, the general practice is to deposit it in a savings bank. Such a deposit should not be treated as an investment but should continue to be carried as cash. The interest credited on such savings accounts should be recorded on the books, like other income, by the entry: Cash Income $....... $...... If such income is on funds belonging to different trusts it will have to be prorated between the trusts. Interest received on the average daily balance in a checking account common to all the trusts will have to be prorated on the basis of the average daily balance in each. § 666. Trust Fund Passing by Will The principal of the Janet Dawson Reeves trust is to be paid over to her legatees as directed by her will, under the |