Modern trust administration carries a growing reporting burden. Most trustees prepare annual trust tax returns, financial statements, and periodic accounting for beneficiaries. But as the financial landscape becomes more complex, accounting standards are changing the way trustees measure and report trust assets.
At the end of 2023, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2023-2. The update modifies how nonprofit organizations and financial institutions measure the fair value of nonfinancial assets. For trusts, this creates new requirements that trustees must understand and implement before year-end compliance deadlines.
This is not theoretical. ASU 2023-2 removes the practical expedient that formerly allowed nonprofits and financial entities to use Level 3 inputs when measuring the fair value of nonfinancial assets. For trusts that hold real estate, business interests, investments in collectibles, or other nonfinancial assets, the new standard changes how these assets are valued on financial statements and potentially on tax returns.
If your trust holds any nonfinancial assets, this update affects your documentation, your reporting, and your compliance work before Dec 15, 2025 filing deadlines.
What ASU 2023-2 Actually Changes
The Practical Expedient It Removes
Before ASU 2023-2, organizations could apply a practical expedient that allowed them to avoid using the fair value hierarchy for most nonfinancial assets. If an asset was not commonly quoted in active markets, trustees could report it at its historical cost or book value rather than its current fair value.
This worked well for assets that were straightforward — cash, publicly traded securities, or nonfinancial assets with clearly comparable market transactions. But the expedient created ambiguity for assets where market prices were thin, subjective, or difficult to determine.
ASU 2023-2 removes that expedient. The standard now requires that nonprofit organizations and financial entities measure the fair value of nonfinancial assets using the fair value hierarchy. This means trustees must identify Level 1, Level 2, and Level 3 inputs when valuing nonfinancial assets, even if market prices are not readily observable.
The Fair Value Hierarchy in Practice
The fair value hierarchy contains three levels:
- Level 1: Quoted prices in active markets for identical assets
- Level 2: Observable inputs other than Level 1 prices
- Level 3: Unobservable inputs that reflect the entity’s own assumptions
For trusts, this generally means:
- Investment in public equities and bonds → Level 1
- Private equity and other illiquid securities → Level 2 (if observable valuations exist) or Level 3 (if valuations are based on trustee estimates)
- Real estate and tangible business interests → Level 2 (comparable sales data) or Level 3 (expert appraisals)
The impact is most visible for assets without active markets.
When Does ASU 2023-2 Apply to Your Trust?
For Charitable Trusts and Private Foundations
ASU 990-PF FAS 820 applies to taxable private foundations and certain other tax-exempt organizations. Charitable trusts that file Form 990-PF must comply with ASU 2023-2.
For fiscal years starting after December 15, 2024, entities must apply the standard prospectively — meaning they must disclose the fair value hierarchy for nonfinancial assets and ensure their reporting follows the new measurement principles.
For Revocable and Irrevocable Trusts
The FASB ASU 2023-2 framework is specific to nonprofit organizations and financial institutions. Private trusts that are not charitable do not fall under FASB rules.
However, most private trusts that are required to prepare financial statements or accounting reports to beneficiaries are governed by other accounting frameworks — typically GAAP or state-specific trust accounting rules. The key distinction is that GAAP allows entities to measure nonfinancial assets at cost or net realizable value rather than fair value unless they intend to liquidate the assets.
For most private trusts:
- If the trust intends to hold assets long-term, measurement at cost or amortized cost is acceptable
- If the trust intends to sell assets, fair value measurement is required
- If the trust distributes assets to beneficiaries, fair value measurement affects the distribution value
The relevant question for trustees is not whether ASU 2023-2 affects your trust at all — it almost certainly doesn’t. The relevant question is whether your trust prepares financial statements or accounting reports that require fair value measurement.
What Trusts with Nonfinancial Assets Need to Do
Step 1: Inventory Your Trust’s Nonfinancial Assets
Before you can measure fair value, you must identify which assets in the trust are nonfinancial. This is straightforward for some asset classes, less straightforward for others.
Nonfinancial assets include:
- Real estate and related improvements
- Operating businesses or business interests
- Partner interests in limited liability companies and partnerships
- Investment in collectibles (art, antiques, rare coins, precious metals)
- Intellectual property and royalties
- Loans or other receivables
- Tangible assets like equipment, vehicles, or inventory
Trusts that hold these assets must understand how each asset should be valued. Publicly traded securities are excluded — they are financial assets and subject to standard SEC reporting rules, not ASU 2023-2 guidance.
Step 2: Determine Whether Fair Value Measurement Is Required
Not every nonfinancial asset triggers fair value measurement. The requirement depends on your trust’s purpose and how you report on your assets.
Assess your situation with these questions:
- Does your trust prepare GAAP financial statements?
- Does your trust prepare tax-specific reports (Form 1041, state tax returns)?
- Does your trust prepare trust accounting reports for beneficiaries?
- Does your trust intend to sell or distribute specific assets in the near term?
- Are nonfinancial assets a material portion of net trust assets?
If your trust prepares financial statements or reports that require fair value measurement for assets you intend to sell or distribute, ASU 2023-2 principles apply.
Step 3: Assign Fair Value Hierarchy Levels
Once you identify which nonfinancial assets require fair value measurement, you must map each asset to a hierarchy level.
For assets that are not publicly traded:
- Level 1: No inputs available. The asset cannot be measured using market prices or observable data. Measurement must rely on discounted cash flow models, expert appraisals, or other unobservable inputs.
- Level 2: Observable inputs exist but are not directly quoted market prices. Examples include discounted cash flow analyses based on observable market assumptions, pricing models using market data.
- Level 3: No observable inputs. Valuation relies entirely on the trustee’s judgment and unobservable assumptions.
Trusts with business interests or partnership interests often end up in Level 3 because market prices for these assets are not readily observable. That is not a failure or a red flag — it is what Level 3 represents. The key is documenting the valuation assumptions and ensuring they are reasonable and disclosed.
How This Affects Your Year-End Compliance
ASU 2023-2 compliance is now part of year-end trust administration. Trustees must incorporate fair value measurement into several processes:
Accounting and Financial Statements
If your trust prepares GAAP financial statements, fair value measurement for nonfinancial assets adds complexity. Trustees may need to:
- Hire or consult with valuers for complex nonfinancial assets
- Update accounting policies to reflect fair value measurement requirements
- Enhance disclosure language to explain Level 1, Level 2, and Level 3 valuations
- Ensure consistency with prior years’ valuations
Tax Reporting
Trustees must consider whether fair value measurement affects tax filings:
- For charitable trusts and private foundations, ASU 2023-2 may affect the value of assets reported on Form 990-PF Schedule B (Participation in Certain Activities and Transactions).
- For private trusts, fair value measurement is generally required only for assets sold or distributed to beneficiaries.
- Some states require fair value measurement for trust accounting purposes, particularly in cases involving beneficiary disputes or court oversight.
Beneficiary Information
Trusts that provide periodic accounting reports to beneficiaries must reflect fair values for assets that may be distributed or sold. Trustees must explain valuation methods in the accounting reports and provide supporting documentation when beneficiaries request it.
Tools and Systems Trust Administrators Need
ASU 2023-2 introduces a practical problem for many private trustees: traditional trust accounting systems are not built for fair value measurement of nonfinancial assets.
This is where trust management software matters.
What to Look For
When evaluating whether your trust’s existing systems can handle fair value measurement:
- Asset valuation tracking: Does the system maintain historical cost and current fair value benchmarks for each asset class?
- Hierarchy documentation: Can the system store Level 1, 2, and 3 input data for nonfinancial assets?
- Audit trail: Does the system preserve the valuation assumptions, expert opinions, and calculation logic used to determine fair values?
- Reporting flexibility: Can the system generate GAAP-compliant financial statements that include fair value disclosures?
- Automation: Does the system automate fair value calculations where possible, or require manual adjustments?
The Role of Trust Management Software
TrustOffice provides a governance-first platform designed for exactly this type of complexity. With TrustOffice, you can:
- Track asset allocation by class, including financial and nonfinancial assets
- Store expert appraisals, valuation reports, and related documentation within the trust file
- Generate GAAP-compliant financial statements that include fair value disclosures
- Maintain an audit trail of valuation inputs and assumptions
- Automate fair value calculations for publicly traded assets while preserving manual controls for private assets
Trust administration increasingly requires software that is built for governance — not just basic accounting. ASU 2023-2 is one data point in a broader shift toward more rigorous reporting in trust administration.
Common Misconceptions About ASU 2023-2
Misconception 1: ASU 2023-2 Applies to All Trusts
The FASB ASU 2023-2 framework is specific to nonprofit organizations and financial institutions. Private trusts that are not charitable or government entities do not fall under FASB rules.
However, trustees must still consider state-specific trust accounting rules, which may require fair value measurement in certain circumstances — particularly when trust assets are distributed, disputes arise, or court oversight is involved.
The relevant question is not whether ASU 2023-2 applies to your trust at all. The relevant question is whether your trust prepares financial statements or reports that require fair value measurement for the assets you hold.
Misconception 2: Fair Value Measurement Is Optional
For entities subject to ASU 2023-2, fair value measurement is not optional. The standard removes the practical expedient that formerly allowed nonfinancial assets to be measured at cost or book value.
For trusts that prepare GAAP financial statements or reports that require fair value measurement, compliance is mandatory — both for the trust itself and for any beneficiaries who rely on those financial statements.
Misconception 3: Fair Value Measurement Is Too Complex
Fair value measurement for nonfinancial assets adds a layer of complexity, but it is not impossibly difficult. The key challenges are:
- Identifying which assets require fair value measurement
- Obtaining expert valuations or documented assumptions
- Ensuring consistency across years
- Maintaining transparency with beneficiaries
Modern trust management software can automate parts of this process, reducing manual work while improving accuracy and auditability.
Five Questions Trustees Should Answer Before Dec 15
Before year-end compliance deadlines approach, trust administrators should answer these five questions:
- Does my trust hold any nonfinancial assets — real estate, business interests, partnership interests, collectibles, or other nonmarketed assets?
- Does my trust prepare GAAP financial statements or require fair value measurement for assets it intends to sell or distribute?
- Do I have documented valuation methodology for nonfinancial assets?
- Do I have expert opinions or third-party valuations for complex nonfinancial assets?
- Is my trust management system capable of tracking fair value hierarchy levels and generating fair value disclosures?
If the answer to any of these questions is “yes,” you need a practical plan to comply with fair value measurement principles before your filing deadlines.
How TrustOffice Helps You Navigate ASU 2023-2
TrustOffice is built for trustees who take fiduciary duty seriously. A regular fiduciary assessment helps you confirm your reporting practices meet the standard. Fair value measurement is not unique to ASU 2023-2 — it is part of a broader trend toward more rigorous reporting in trust administration. TrustOffice provides the tools you need to manage this complexity with confidence:
- Asset valuation tracking: Track financial and nonfinancial assets with fair value benchmarks
- Documentation storage: Store expert appraisals, valuation reports, and valuation methodology within the trust file
- Audit-ready reporting: Generate GAAP-compliant financial statements that include fair value disclosures
- Audit trail preservation: Maintain the valuation inputs, assumptions, and calculation logic used to determine asset values
- Governance workflows: Embed fair value review processes into your trust governance routines
Final Thoughts
FASB ASU 2023-2 represents a meaningful shift in how nonprofits and financial institutions measure fair value. For private trustees with nonfinancial assets, the practical impact depends on whether your trust prepares financial statements or reports that require fair value measurement.
What is not debatable is that trust administration is becoming increasingly complex. Trustees today have more reporting obligations, more compliance requirements, and more fiduciary risks than ever before.
The right tools and the right documentation practices are no longer optional — they are essential for defending your fiduciary decisions and protecting your personal liability. TrustOffice is here to help you navigate this complexity with confidence.
Next Steps
If you’re unsure whether ASU 2023-2 applies to your trust, or if you need help implementing fair value measurement in your trust administration practices, schedule a demo today. We’ll walk through your trust’s specific situation and show you how TrustOffice can support compliance, governance, and peace of mind.
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