Many preneed trusts either experienced significant capital losses last year or are sitting on assets that have unrealized losses. For those trusts that have taken a Section 685 election, these losses may be carried into future years as a capital loss carryover. While everyone would prefer to avoid realizing those losses, that loss can be used to offset future trust income. With the proper individual contract accounting, the loss could be extended for a longer period than the aggregate reporting followed by many trustees. For an explanation of Section 685 and the differences between aggregate reporting and composite reporting see our August 9, 2008 post titled “The Section 685 QFT amendment: Supporting Soldiers’ Survivors”.