New York Uniform Principal and Income Act


§ 11-A-1.1 Short title

    This article may be cited as the New York uniform principal and income act.

§  11-A-1.2 Definitions

    In this article:

    (1)  “Accounting  period” means a calendar year unless another twelve-month period is selected by a fiduciary. The term includes a portion  of  a  calendar year or other twelve-month period that begins when an income  interest begins or ends when an income interest ends.

    (2) “Beneficiary” includes, in the case  of  a  decedent’s  estate, a distributee and testamentary beneficiary and, in the case of a trust, an income beneficiary and a remainder beneficiary.

    (3)  “Fiduciary”  means a personal representative or trustee. The term  includes an executor, administrator, successor personal  representative,  and a person performing substantially the same function.

    (4)  “Income”  means  money  or  property that a fiduciary receives as  current return from a principal asset. The term includes  a  portion  of

  receipts  from a sale, exchange, or liquidation of a principal asset, to  the extent provided in part 4.

    (5) “Income beneficiary” means a person to whom net income of a  trust is or may be payable.

    (6)  “Income  interest”  means  the  right of an income beneficiary to  receive all or part of net  income,  whether  the  terms  of  the  trust require  it  to  be distributed or authorize it to be distributed in the trustee’s discretion.

    (7)  “Mandatory  income  interest”  means  the  right  of  an   income beneficiary  to  receive  net income that the terms of the trust require  the fiduciary to distribute.

    (8) “Net income” means the total receipts allocated to  income  during  an accounting period minus the disbursements made from income during the  period, plus or minus transfers under this article or under subparagraph  11-2.3(b)(5) to or from income during the period.

    (9) “Person” means an individual, corporation, business trust, estate,  trust,   partnership,  limited  liability  company,  association,  joint venture,    government;    governmental    subdivision,    agency,    or  instrumentality;  public  corporation,  or any other legal or commercial  entity.

    (10) “Principal” means property held in trust for  distribution  to  a  remainder beneficiary when the trust terminates.

    (11)  “Remainder  beneficiary”  means  a  person  entitled  to receive  principal when an income interest ends.

    (12) “Terms of a trust” means the manifestation of  the  intent  of  a settlor  or  decedent  with  respect to the trust, expressed in a manner  that admits of its proof in a judicial proceeding, whether by written or spoken words or by conduct.

    (13) “Trustee” includes an original, additional, or successor trustee, whether or not appointed or confirmed by a court.

§ 11-A-1.3 Fiduciary duties; general principles

    (a)  In  allocating receipts and disbursements to or between principal and income, and with respect to any matter within the scope of  parts  2 and 3, a fiduciary:

    (1) shall administer a trust or estate in accordance with the terms of the  trust  or  the will, even if there is a different provision in this article;

    (2)  may  administer  a  trust  or  estate  by  the  exercise   of   a  discretionary  power  of  administration  given  to the fiduciary by the terms of the trust or the will,  even  if  the  exercise  of  the  power produces  a result different from a result required or permitted by this article;

    (3) shall administer a trust or estate in accordance with this article if the terms of the trust  or  the  will  do  not  contain  a  different  provision  or  do  not  give  the  fiduciary  a  discretionary  power of administration; and

    (4) shall add a receipt or charge a disbursement to principal  to  the extent  that  the terms of the trust or the will and this article do not  provide a rule for allocating the receipt or disbursement to or  between principal and income.

    (b)  In exercising a discretionary power of administration regarding a matter within the scope of this article, whether granted by the terms of a trust, a will, or this article, a fiduciary shall administer  a  trust or  estate  impartially,  based on what is fair and reasonable to all of  the beneficiaries, except to the extent that the terms of the  trust or the  will  clearly manifest an intention that the fiduciary shall or may favor one or more of the beneficiaries. A  determination  in  accordance with  this  article  is presumed to be fair and reasonable to all of the beneficiaries.


§ 11-A-2.1 Determination and distribution of net income

     After  a  decedent  dies, in the case of an estate, or after an income  interest in a trust ends, the following rules apply:

    (1) A fiduciary of an estate or of a terminating income interest shall determine the amount of net income and net principal  receipts  received from  property  specifically  given  to a beneficiary under the rules in  parts 3 through 5 which apply to trustees and  the  rules  in  paragraph

  (5).  The  fiduciary  shall  distribute the net income and net principal receipts to the beneficiary who is to receive the specific property.

    (2) A  fiduciary  shall  determine  the  remaining  net  income  of  a decedent’s  estate  or  a terminating income interest under the rules in  parts 3 through 5 which apply to trustees and by:

    (A) including in net income all income from property used to discharge liabilities;

    (B) paying from income or principal, in  the  fiduciary’s  discretion, fees  of  attorneys, accountants, and fiduciaries; court costs and other  expenses of  administration;  and  interest  on  death  taxes,  but  the fiduciary  may  pay those expenses from income and property passing to a trust for which the fiduciary claims an estate tax marital or charitable deduction only to the extent that the payment  of  those  expenses  from income will not cause the reduction or loss of the deduction; and

    (C)  paying from principal all other disbursements made or incurred in connection with the settlement of a decedent’s estate or the winding  up of  a  terminating  income  interest, including debts, funeral expenses, disposition of remains, family allowances, and death taxes  and  related  penalties  that  are  apportioned  to  the  estate or terminating income interest by the will, the terms of the trust, or applicable law.

    (3) A fiduciary shall distribute  to  a  beneficiary  who  receives  a  pecuniary  amount  outright the interest or any other amount provided by the will, the terms of the trust, or  applicable  law  from  net  income determined  under paragraph (2) or from principal to the extent that net income is insufficient. If a  beneficiary  is  to  receive  a  pecuniary  amount  outright  from  a  trust  after  an  income interest ends and no  interest or other amount is provided for by the terms of  the  trust  or applicable  law,  the  fiduciary  shall distribute the interest or other amount to which the beneficiary would be entitled under  applicable  law  if the pecuniary amount were required to be paid under a will.

    (4)  A  fiduciary  shall  distribute  the  net  income remaining after distributions required by paragraph  (3)  in  the  manner  described  in  11-A-2.2  to  all  other  beneficiaries,  including  a  beneficiary  who receives a pecuniary amount in trust, even if the beneficiary  holds  an unqualified  power  to withdraw assets from the trust or other presently exercisable general power of appointment over the trust.

    (5) A fiduciary may not  reduce  principal  or  income  receipts  from property  described  in  paragraph (1) because of a payment described in 11-A-5.1 or 11-A-5.2 to the extent that  the  will,  the  terms  of  the  trust, or applicable law requires the fiduciary to make the payment from assets  other  than  the  property  or  to the extent that the fiduciary  recovers or expects to recover the payment from a third party.  The  net income  and  principal  receipts  from  the  property  are determined by including all of the amounts the fiduciary receives or pays with respect to the property, whether those amounts accrued or became due before, on, or after the  date  of  a  decedent’s  death  or  an  income  interest’s terminating event, and by making a reasonable provision for amounts that the  fiduciary  believes  the  estate or terminating income interest may become obligated to pay after the property is distributed.

§ 11-A-2.2 Distribution to residuary and remainder beneficiaries

    (a)  Each  beneficiary described in paragraph 11-A-2.1 (4) is entitled  to receive a portion of  the  net  income  equal  to  the  beneficiary’s  fractional  interest  in undistributed principal assets, using values as of the distribution date, provided, however, that any amount allowed  as a  tax  deduction  to  the  estate  for  income  payable to a charitable organization shall  be  paid,  without  diminution  for  taxes,  to  the charitable  organization entitled to receive such income. If a fiduciary makes more than one distribution of assets to beneficiaries to whom this section applies, each beneficiary, including one who  does  not  receive part  of the distribution, is entitled, as of each distribution date, to the net income the fiduciary has received after the  date  of  death  or terminating  event  or earlier distribution date but has not distributed  as of the current distribution date.

    (b) In determining a beneficiary’s share of net income, the  following rules apply:

    (1) The beneficiary is entitled to receive a portion of the net income equal  to  the  beneficiary’s  fractional  interest in the undistributed  principal assets immediately before  the  distribution  date,  including assets that later may be sold to meet principal obligations.

    (2)   The  beneficiary’s  fractional  interest  in  the  undistributed principal  assets  must  be  calculated  without regard  to  property specifically  given  to  a  beneficiary  and  property  required  to pay pecuniary amounts not in trust.

    (3)  The  beneficiary’s  fractional  interest  in  the   undistributed principal  assets must be calculated on the basis of the aggregate value of those assets as of the distribution date without reducing  the  value by any unpaid principal obligation.

    (4) The distribution date for purposes of this section may be the date as  of  which  the  fiduciary calculates the value of the assets if that date  is  reasonably  near  the  date  on  which  assets  are   actually distributed.

    (c)  If  a  fiduciary  does  not  distribute  all of the collected but undistributed net income to each person as of a distribution  date,  the fiduciary  shall  maintain  appropriate  records showing the interest of each beneficiary in that net income.

    (d) A fiduciary may apply the rules in this  section,  to  the  extent  that  the  fiduciary  considers  it  appropriate,  to  net  gain or loss realized after the  date  of  death  or  terminating  event  or  earlier distribution  date  from  the  disposition  of a principal asset if this section applies to the income from the asset.


§ 11-A-3.1 When right to income begins and ends

    (a)  An  income beneficiary is entitled to net income from the date on which the income interest begins. An income interest begins on the  date  specified  in the terms of the trust or, if no date is specified, on the  date an asset becomes subject to a trust or successive income interest.

    (b) An asset becomes subject to a trust:

    (1) on the date it is transferred to the trust in the case of an asset  that is transferred to a trust during the transferor’s life;

    (2) on the date of a testator’s death in the case  of  an  asset  that becomes  subject  to  a  trust  by reason of a will, even if there is an intervening period of administration of the testator’s estate; or

    (3) on the date of an individual’s death in the case of an asset  that is  transferred  to  a  fiduciary  by  a  third  party  because  of  the  individual’s death.

   (c) An asset becomes subject to a successive income  interest  on  the day  after  the  preceding  income  interest  ends,  as determined under paragraph (d), even if there is an intervening period of administration  to wind up the preceding income interest.

    (d)  An  income  interest ends on the day before an income beneficiary  dies or another terminating event occurs, or on the last day of a period during which there is no beneficiary to whom a  trustee  may  distribute income.

§ 11-A-3.2 Apportionment  of  receipts  and  disbursements when decedent  dies or income interest begins

    (a) A trustee shall allocate an income receipt or  disbursement  other than one to which paragraph 11-A-2.1 (1) applies to principal if its due  date occurs before a decedent dies in the case of an estate or before an income  interest  begins  in  the  case  of a trust or successive income  interest.

    (b) A trustee shall allocate an  income  receipt  or  disbursement  to  income  if  its due date occurs on or after the date on which a decedent  dies or an income interest begins and it is  a  periodic  due  date.  An  income  receipt  or disbursement must be treated as accruing from day to day if its due date is not periodic or it has no due date.  The  portion of  the  receipt  or  disbursement  accruing  before the date on which a decedent dies  or  an  income  interest  begins  must  be  allocated  to principal and the balance must be allocated to income.

    (c) An item of income or an obligation is due on the date the payer is  required to make a payment. If a payment date is not stated, there is no due date for the purposes of this article. Distributions to shareholders or  other  owners from an entity to which 11-A-4.1 applies are deemed to be due on the date fixed by the entity for determining who  is  entitled to  receive the distribution or, if no date is fixed, on the declaration date for the distribution. A  due  date  is  periodic  for  receipts  or  disbursements that must be paid at regular intervals under a lease or an obligation   to   pay   interest  or  if  an  entity  customarily  makes distributions at regular intervals.

§ 11-A-3.3 Apportionment when income interest ends

    (a)  In this section, “undistributed income” means net income received before the date on which an income interest  ends.  The  term  does  not include  an  item  of  income  or  expense that is due or accrued or net income that has been added or is required to be added to principal under the terms of the trust.

    (b) When a mandatory income interest ends, the trustee shall pay to  a mandatory  income beneficiary who survives that date, or the estate of a deceased mandatory income beneficiary whose death causes the interest to  end, the beneficiary’s share of the undistributed  income  that  is  not disposed  of  under the terms of the trust unless the beneficiary has an unqualified power  to  revoke  more  than  five  percent  of  the  trust immediately  before  the  income  interest ends. In the latter case, the  undistributed income from the portion of the trust that may  be  revoked  must be added to principal.

    (c)  When  a  trustee’s  obligation  to pay a fixed annuity or a fixed  fraction of the value of the trust’s  assets  ends,  the  trustee  shall prorate  the  final  payment if and to the extent required by applicable law to accomplish a purpose of the trust  or  its  settlor  relating  to income, gift, estate, or other tax requirements.


§ 11-A-4.1 Character of receipts

    (a)  In  this  section,  “entity”  means  a  corporation, partnership,  limited liability company, regulated  investment  company,  real  estate  investment  trust, common trust fund, or any other organization in which  a trustee has an interest other than a trust or estate to which 11-A-4.2  applies, a business  or  activity  to  which  11-A-4.3  applies,  or  an  asset-backed security to which 11-A-4.15 applies.

    (b)  Except  as  otherwise  provided  in this section, a trustee shall  allocate to income money received from an entity.

    (c) A trustee shall allocate the following receipts from an entity  to  principal:

    (1) property other than money; provided that if a trustee receives the option  to  receive  a distribution in the form of money or property and elects to  receive  the  distribution  in  the  form  of  property  such  distribution shall be considered to be a distribution of money;

    (2)  money  received  in  one  distribution  or  a  series  of related  distributions in exchange for part or all of a trust’s interest  in  the  entity;

    (3) money received in total or partial liquidation of the entity; and

    (4)  money  received  from  an  entity  that is a regulated investment  company or a real estate investment trust if the money distributed is  a  capital gain dividend for federal income tax purposes.

    (d) Money is received in partial liquidation:

    (1)  to  the  extent  that  the  entity,  at  or  near  the  time of a  distribution,  indicates  that  it  is   a   distribution   in   partial  liquidation; or

    (2)  if  the  total  amount  of  money  and  property  received  in  a  distribution or series of related distributions is greater  than  twenty  percent  of the entity’s gross assets, as shown by the entity’s year-end  financial statements immediately preceding the initial receipt.

    (e) Money is not received in partial liquidation, nor may it be  taken into  account  under subparagraph (d)(2), to the extent that it does not  exceed the amount of income tax that a trustee or beneficiary  must  pay  on taxable income of the entity that distributes the money.

    (f)  A  trustee  may rely upon a statement made by an entity about the source or character of a distribution if the statement  is  made  at  or  near  the  time  of  distribution  by the entity’s board of directors or  other person or group of persons authorized to exercise  powers  to  pay  money  or transfer property comparable to those of a corporation’s board of directors.

  § 11-A-4.2 Distribution from trust or estate

    A   trustee   shall  allocate  to  income  an  amount  received  as  a  distribution of income from a trust or an estate in which the trust  has  an  interest  other  than  a  purchased  interest, and shall allocate to  principal an amount received as a distribution of principal from such  a  trust  or  estate. If a trustee purchases an interest in a trust that is an investment entity, or a decedent or donor transfers  an  interest  in such  a  trust  to a trustee, 11-A-4.1 or 11-A-4.15 applies to a receipt from the trust.

§ 11-A-4.3 Business and other activities conducted by trustee

    (a)  If a trustee who conducts a business or other activity determines that it is in the best interest of  all  the  beneficiaries  to  account separately  for the business or activity instead of accounting for it as part of the trust’s general accounting records, the trustee may maintainseparate accounting records for its transactions,  whether  or  not  its assets are segregated from other trust assets.

    (b) A trustee who accounts separately for a business or other activity  may determine the extent to which its net cash receipts must be retained for working capital, the acquisition or replacement of fixed assets, and  other  reasonably foreseeable needs of the business or activity, and the  extent to which the remaining net cash receipts  are  accounted  for  as  principal  or  income  in  the  trust’s general accounting records. If a  trustee sells assets of the business or other activity,  other  than  in the  ordinary  course  of  the  business  or activity, the trustee shall  account for the net amount received as principal in the trust’s  general  accounting  records to the extent the trustee determines that the amount received is no longer required in the conduct of the business.

    (c) Activities for which a trustee may  maintain  separate  accounting records include:

    (1)  retail,  manufacturing,  service,  and other traditional business  activities;

    (2) farming;

    (3) raising and selling livestock and other animals;

    (4) management of rental properties;

    (5) extraction of minerals and other natural resources;

    (6) timber operations; and

    (7) activities to which 11-A-4.14 applies.

  § 11-A-4.4 Principal receipts

    A trustee shall allocate to principal:

    (1)  to  the extent not allocated to income under this article, assets  received  from  a  transferor  during  the  transferor’s   lifetime,   a decedent’s  estate,  a  trust  with  a terminating income interest, or a  payer under a contract naming the trust or its trustee as beneficiary;

    (2)  money  or  other  property  received  from  the  sale,  exchange,  liquidation,  or change in form of a principal asset, including realized  profit, subject to this part;

    (3) amounts recovered  from  third  parties  to  reimburse  the  trust because  of  disbursements  described in subparagraph 11-A-5.2 (a)(7) or for other reasons to the extent not based on the loss of income;

    (4) proceeds of property taken by eminent domain, but a separate award  made for the loss of income with respect to an accounting period  during which  a  current  income beneficiary had a mandatory income interest is  income;

    (5) net income received in an accounting period during which there  is no beneficiary to whom a trustee may or must distribute income; and

    (6) other receipts as provided in subpart 3.

  § 11-A-4.5 Rental property

     To  the  extent  that  a  trustee  accounts  for  receipts from rental  property pursuant to this section, the trustee shall allocate to  income  an  amount  received  as rent of real or personal property, including an  amount received for cancellation  or  renewal  of  a  lease.  An  amount  received  as  a  refundable  deposit,  including a security deposit or a deposit that is to be applied as rent for future periods, must be  added to  principal  and  held  subject  to  the terms of the lease and is not available  for  distribution  to  a  beneficiary  until  the   trustee’s contractual obligations have been satisfied with respect to that amount.

  § 11-A-4.6 Obligation to pay money

    (a)  An  amount  received  as interest, whether determined at a fixed, variable, or floating rate,  on  an  obligation  to  pay  money  to  the trustee,  including  an  amount  received as consideration for prepaying principal, must  be  allocated  to  income  without  any  provision  for amortization of premium.

    (b)  A trustee shall allocate to principal an amount received from the  sale, redemption, or other disposition of an obligation to pay money  to  the  trustee.  The  increment in value of a bond or other obligation for the  payment  of  money  bearing  no  stated  interest  but  payable  or  redeemable at maturity or at a future time at an amount in excess of the amount  in consideration of which it was issued is income. If the income  accrues pursuant to a fixed schedule of  appreciation,  such  income  is  distributable  to  the beneficiary at the time the increment occurs, and the trustee may transfer the amount thereof from principal to income  on  each  such  date. Whenever unrealized increment is distributed as income but out of principal the principal shall be reimbursed from  the  income  when realized.

    (c)  This  section  does not apply to an obligation to which 11-A-4.9, 11-A-4.10, 11-A-4.11, 11-A-4.12, 11-A-4.14, or 11-A-4.15 applies.

  § 11-A-4.7 Insurance policies and similar contracts

    (a)  Except  as  otherwise  provided in paragraph (b), a trustee shall allocate to principal the proceeds of a life insurance policy  or  other  contract  in  which  the  trust  or its trustee is named as beneficiary,  including a contract that insures the trust or its trustee against  loss for  damage  to,  destruction of, or loss of title to a trust asset. The trustee shall allocate dividends on an insurance policy to income if the premiums on the policy are paid from income, and  to  principal  if  the premiums are paid from principal.

    (b)  A  trustee  shall  allocate to income proceeds of a contract that  insures the trustee against loss of occupancy or other use by an  income  beneficiary,  loss  of  income, or, subject to 11-A-4.3, loss of profits  from a business.

    (c) This section does not  apply  to  a  contract  to  which  11-A-4.9  applies.

  § 11-A-4.8 Insubstantial allocations not required

    If  a  trustee  determines  that  an  allocation between principal and income  required  by  11-A-4.9,  11-A-4.10,  11-A-4.11,  11-A-4.12,   or  11-A-4.15  is  insubstantial, the trustee may allocate the entire amount to principal unless one of the circumstances described  in  subparagraph  11-2.3  (b)(5) applies to the allocation. This power may be exercised by  a cotrustee in the circumstances described in subparagraph 11-2.3 (b)(5)  and may be released for the reasons and in the manner described in  that section. An allocation is presumed to be insubstantial if:

    (1) the amount of the allocation would increase or decrease net income in  an  accounting  period, as determined before the allocation, by less than ten percent; or

    (2) the value of  the  asset  producing  the  receipt  for  which  the  allocation  would be made is less than ten percent of the total value of  the trust’s assets at the beginning of the accounting period.

  § 11-A-4.9 Deferred compensation, annuities, and similar payments

    (a)  In  this  section,  “payment”  means a payment that a trustee may  receive over a fixed number of years or during the life of one  or  more  individuals  because of services rendered or property transferred to the  payer in exchange for future payments. The term includes a payment  made in  money or property from the payer’s general assets or from a separate fund created by the payer, including a private or commercial annuity, an individual  retirement   account,   and   a   pension,   profit-sharing,  stock-bonus, or stock-ownership plan.

    (b)  To  the  extent  that a payment is characterized as interest or a  dividend or a payment made in lieu of interest or a dividend, a  trustee  shall allocate it to income. The trustee shall allocate to principal the balance  of  the  payment  and  any  other  payment received in the same accounting period that is not characterized as interest, a dividend,  or  an equivalent payment.

    (c)  If no part of a payment is characterized as interest, a dividend,  or an equivalent payment, and all or part of the payment is required  to  be made, a trustee shall allocate to income ten percent of the part that  is  required  to be made during the accounting period and the balance to  principal. If no part of a payment is required to be made or the payment received is the entire amount to which  the  trustee  is  entitled,  the  trustee  shall allocate the entire payment to principal. For purposes of  this paragraph, a payment is not “required to be  made”  to  the  extent  that it is made because the trustee exercises a right of withdrawal.

    (d)  If,  to  obtain  an  estate  tax marital deduction for a trust, a trustee must allocate more of a payment to income than provided  for  by this section, the trustee shall allocate to income the additional amount  necessary to obtain the marital deduction.

    (e)  This  section  does  not  apply  to  payments  to which 11-A-4.10 applies.

§ 11-A-4.10 Liquidating asset

    (a)  In  this  section, “liquidating asset” means an asset whose value  will diminish or terminate because the  asset  is  expected  to  produce receipts  for  a  period  of  limited  duration.  The  term  includes  a leasehold, patent,  copyright,  royalty  right,  and  right  to  receive payments during a period of more than one year under an arrangement that does  not provide for the payment of interest on the unpaid balance. The term does not include a payment subject to 11-A-4.9,  resources  subject  to  11-A-4.11,  timber  subject  to  11-A-4.12,  an  activity subject to 11-A-4.14, an asset subject to 11-A-4.15, or any  asset  for  which  the  trustee establishes a reserve for depreciation under 11-A-5.3.

    (b)  A  trustee  shall  allocate to income ten percent of the receipts  from a liquidating asset and the balance to principal.

  § 11-A-4.11 Minerals, water, and other natural resources

    (a)  To  the  extent  that  a  trustee  accounts  for receipts from an interest in  minerals  or  other  natural  resources  pursuant  to  this  section, the trustee shall allocate them as follows:

    (1)  If  received  as nominal delay rental or nominal annual rent on a lease, a receipt must be allocated to income.

    (2) If received from a production payment, a receipt must be allocated  to income  if  and  to  the  extent  that  the  agreement  creating  the  production payment provides a factor for interest or its equivalent. The balance must be allocated to principal.

    (3)  If  an  amount  received  as  a  royalty,  shut-in-well  payment,  take-or-pay payment, bonus, or delay rental is more than nominal, ninety percent must be allocated to principal and the balance to income.

    (4) If an amount is received from a  working  interest  or  any  other interest  not  provided  for  in  subparagraph  (1), (2), or (3), ninety  percent of the net amount received must be allocated  to  principal  and the balance to income.

    (b)  An  amount  received  on  account of an interest in water that is  renewable must be allocated to income. If the water  is  not  renewable,  ninety  percent  of  the  amount  must be allocated to principal and the  balance to income.

    (c) This article applies whether  or  not  a  decedent  or  donor  was  extracting  minerals,  water,  or  other  natural  resources  before the interest became subject to the trust.

    (d) If a trust owns an interest in minerals, water, or  other  natural  resources  on  the  effective  date  of  this  article,  the trustee may  allocate receipts from the interest as provided in this  article  or  inthe  manner  used  by  the  trustee  before  the  effective date of this  article. If the trust acquires an interest in minerals, water, or  other natural  resources after the effective date of this article, the trustee shall allocate receipts from the interest as provided in this article.

§ 11-A-4.12 Timber

    (a)  To  the extent that a trustee accounts for receipts from the sale  of timber and related products pursuant to  this  section,  the  trustee  shall allocate the net receipts:

    (1) to income to the extent that the amount of timber removed from the land  does  not  exceed  the  rate  of  growth  of the timber during the accounting periods  in  which  a  beneficiary  has  a  mandatory  income  interest;

    (2)  to principal to the extent that the amount of timber removed from  the land exceeds the rate of growth of the timber or  the  net  receipts are from the sale of standing timber;

    (3)  to  or  between income and principal if the net receipts are from  the lease of timberland or from a contract to cut timber from land owned by a trust, by determining the amount of timber removed  from  the  land under  the lease or contract and applying the rules in subparagraphs (1) and (2); or

    (4) to principal to the extent that  advance  payments,  bonuses,  and other  payments  are not allocated pursuant to subparagraph (1), (2), or  (3).

    (b) In determining net receipts to be allocated pursuant to  paragraph  (a),  a  trustee  shall  deduct  and  transfer to principal a reasonable amount for depletion.

    (c) This article applies whether or not a decedent or  transferor  was harvesting  timber  from  the  property  before it became subject to the trust.

    (d) If a trust owns an interest in timberland on the effective date of this article, the trustee may allocate net receipts  from  the  sale  of timber and related products as provided in this article or in the manner used  by  the  trustee before the effective date of this article. If the trust acquires an interest in timberland after  the  effective  date  of this  article,  the trustee shall allocate net receipts from the sale of  timber and related products as provided in this article.

§ 11-A-4.13 Property not productive of income

    (a)  If  a gift tax or estate tax marital deduction is allowed for all

  or part of a trust whose assets consist substantially of  property  that does  not  provide  the spouse with sufficient income from or use of the trust assets, and  if  the  amounts  that  the  trustee  transfers  from principal to income under paragraph 11-2.3 (b)(5) and distributes to the spouse   from   principal  pursuant  to  the  terms  of  the  trust  are insufficient  to  provide  the  spouse  with  the  beneficial  enjoyment required to  obtain  the  marital deduction, the spouse may require the  trustee to make property productive of income, convert property within a reasonable time, or exercise the power  conferred  by  paragraph  11-2.3

  (b)(5). The trustee may decide which action or combination of actions to  take.

    (b)  In cases not governed by paragraph (a), proceeds from the sale or other disposition of an asset are principal without regard to the amount  of income the asset produces during any accounting period.

§ 11-A-4.14 Derivatives and options

    (a)  In  this  section,  “derivative”  means  a  contract or financial  instrument or a combination of contracts and financial instruments which  gives a trust the right or obligation to  participate  in  some  or  all  changes  in  the  price  of  a  tangible or intangible asset or group of  assets, or changes in a rate, an index of  prices  or  rates,  or  other  market indicator for an asset or a group of assets.

    (b)  To  the extent that a trustee does not account under 11-A-4.3 for  transactions in derivatives, the trustee  shall  allocate  to  principal receipts   from   and   disbursements  made  in  connection  with  those transactions.

    (c) If a trustee grants an option to  buy  property  from  the  trust, whether  or  not the trust owns the property when the option is granted, grants an option that permits another person to  sell  property  to  the trust,  or acquires an option to buy property for the trust or an option to sell an asset owned by the trust, and the trustee or other  owner  of the  asset  is required to deliver the asset if the option is exercised, an amount  received  for  granting  the  option  must  be  allocated  to principal.  An  amount  paid  to  acquire  the  option must be paid from principal. A gain or loss realized  upon  the  exercise  of  an  option,  including  an  option  granted  to  a  settlor of the trust for services rendered, must be allocated to principal.

  § 11-A-4.15 Asset-backed securities

    (a)  In  this  section,  “asset-backed  security” means an asset whose value  is  based  upon  the  right  it  gives  the  owner   to   receive distributions  from  the  proceeds  of  financial  assets  that  provide collateral for the security. The term includes an asset that  gives  the  owner the right to receive from the collateral financial assets only the interest  or  other  current  return  or  only  the  proceeds other than interest or current return. The term does not include an asset to  which 11-A-4.1 or 11-A-4.9 applies.

    (b)  If  a  trust  receives  a  payment from interest or other current return and from other proceeds of the collateral financial  assets,  the  trustee  shall  allocate  to income the portion of the payment which the payer identifies as being from interest  or  other  current  return  and shall allocate the balance of the payment to principal.

    (c)  If  a  trust  receives  one  or more payments in exchange for the trust’s entire interest in an asset-backed security  in  one  accounting period,  the  trustee  shall  allocate  the  payments to principal. If a payment is one  of  a  series  of  payments  that  will  result  in  the liquidation  of  the trust’s interest in the security over more than one accounting period, the trustee shall allocate ten percent of the payment to income and the balance to principal.


  § 11-A-5.1 Disbursements from income

    A  trustee  shall  make the following disbursements from income to the  extent that they are not disbursements to  which  subparagraph  11-A-2.1

  (2)(B) or (C) applies:

    (1)  one-third  of  the  regular  compensation of any person providing  investment advisory or custodial services to the trustee;

    (2) if the court shall find that  any  judicial  proceeding  primarily concerns  income  and that it is equitable to charge the expense of such  proceeding, or a part thereof, to income, the court may direct that  all or  a  specified  part  of  the  expense  of  such proceeding, including attorney’s fees, shall be charged to income;

    (3) all of the other ordinary expenses incurred in connection with the administration, management, or preservation of trust  property  and  the distribution  of income, including interest, ordinary repairs, regularly recurring taxes assessed against principal; and

    (4) recurring premiums on insurance covering the loss of  a  principal asset or the loss of income from or use of the asset.

  § 11-A-5.2 Disbursements from principal

    (a) A trustee shall make the following disbursements from principal:

    (1)  the  remaining  two-thirds  of  the  disbursements  described  in  paragraph 11-A-5.1 (1);

    (2) all of the trustee’s compensation calculated on principal as a fee for acceptance, distribution, or termination, and disbursements made  to prepare property for sale;

    (3) payments on the principal of a trust debt;

    (4)  except  as  provided  in paragraph 11-A-5.1 (2), all expenses for accountings, judicial proceedings or other matters that involve both the  income and remainder interests  or  that  concern  primarily  principal, including  a proceeding to construe the trust or to protect the trust or its property;

    (5) premiums paid on a policy of insurance not described in  paragraph

  11-A-5.1 (4) of which the trust is the owner and beneficiary;

    (6)   estate,   inheritance,   and  other  transfer  taxes,  including  penalties, apportioned to the trust; and

    (7)  disbursements  related  to   environmental   matters,   including reclamation,  assessing environmental conditions, remedying and removing  environmental contamination,  monitoring  remedial  activities  and  the release   of   substances,  preventing  future  releases  of  substances  collecting amounts from persons liable or  potentially  liable  for  the  costs of those activities, penalties imposed under environmental laws or regulations  and  other  payments  made  to  comply  with  those laws or regulations, statutory or  common  law  claims  by  third  parties,  and  defending claims based on environmental matters.

    (b)  If  a  principal  asset  is  encumbered  with  an obligation that requires income from that asset to be paid directly to the creditor, the  trustee shall transfer from principal to income an amount equal  to  the income paid to the creditor in reduction of the principal balance of the obligation.

§ 11-A-5.3 Transfers from income to principal for depreciation

    (a)  In this section, “depreciation” means a reduction in value due to wear, tear, decay, corrosion, or gradual obsolescence of a  fixed  asset  having a useful life of more than one year.

    (b) A trustee may transfer to principal a reasonable amount of the net  cash  receipts  from  a principal asset that is subject to depreciation, but may not transfer any amount for depreciation:

    (1) of that portion of real property used or available for  use  by  a  beneficiary as a residence or of tangible personal property held or made available for the personal use or enjoyment of a beneficiary;

    (2) during the administration of a decedent’s estate; or

    (3) under this section if the trustee is accounting under 11-A-4.3 for  the business or activity in which the asset is used.

    (c)  An amount transferred to principal need not be held as a separate  fund.

§ 11-A-5.4 Transfers from income to reimburse principal

    (a)  If  a  trustee  makes or expects to make a principal disbursement described in this section,  the  trustee  may  transfer  an  appropriate  amount  from  income  to  principal in one or more accounting periods to reimburse principal  or  to  provide  a  reserve  for  future  principal  disbursements.

    (b) Principal disbursements to which paragraph (a) applies include the  following, but only to the extent that the trustee has not been and does not expect to be reimbursed by a third party:

    (1)  an amount chargeable to income but paid from principal because it is unusually large, including extraordinary repairs;

    (2) a capital improvement to a principal asset, whether in the form of changes to an existing  asset  or  the  construction  of  a  new  asset,  including special assessments;

    (3)  disbursements  made  to  prepare  property  for rental, including tenant allowances, leasehold improvements, and broker’s commissions;

    (4) periodic payments on an obligation secured by a principal asset to  the extent that the amount transferred  from  income  to  principal  for  depreciation is less than the periodic payments; and

    (5) disbursements described in subparagraph 11-A-5.2 (a)(7).

    (c)  If  the  asset  whose  ownership  gives rise to the disbursements  becomes subject to a successive income interest after an income interest  ends, a  trustee  may  continue  to  transfer  amounts  from  income  to principal as provided in paragraph (a).

§ 11-A-5.5 Income taxes

    (a) A tax required to be paid by a trustee based on receipts allocated to income must be paid from income.

    (b) A tax required to be paid by a trustee based on receipts allocated to  principal  must be paid from principal, even if the tax is called an  income tax by the taxing authority.

    (c) A tax required to be paid by a trustee on the trust’s share of  an entity’s taxable income must be paid proportionately:

    (1)  from  income  to  the  extent  that  receipts from the entity are allocated to income; and

    (2) from principal to the extent that:

    (A) receipts from the entity are allocated to principal; and

    (B) the trust’s share of the entity’s taxable income exceeds the total  receipts described in subparagraph (1) and clause (A).

    (d) For purposes of this section, receipt allocated  to  principal  or  income  must  be reduced by the amount distributed to a beneficiary from  principal or  income  for  which  the  trust  receives  a  deduction  in  calculating the tax.

  § 11-A-5.6 Adjustments between principal and income because of taxes

     A  fiduciary  may  make  adjustments  between  principal and income to offset the shifting of economic interests or tax benefits between income beneficiaries and remainder beneficiaries which arise from:

    (1) elections and decisions that the fiduciary makes from time to time  regarding tax matters;

    (2) an income tax or any other tax that is imposed upon the  fiduciary  or   a  beneficiary  as  a  result  of  a  transaction  involving  or  a distribution from the estate or trust; or

    (3) the ownership by an estate or trust of an interest  in  an  entity whose  taxable  income, whether or not distributed, is includable in the taxable income of the estate, trust, or a beneficiary.


  § 11-A-6.1 Uniformity of application and construction

    In  applying  and construing this article, consideration must be given  to the need to promote uniformity of the law with respect to its subject matter among states that enact it.

 § 11-A-6.2 Severability clause

    If  any  provision of this article or its application to any person or circumstance is held invalid,  the  invalidity  does  not  affect  other  provisions  or  applications  of  this article which can be given effect without the invalid provision  or  application,  and  to  this  end  the provisions of this article are severable.

§ 11-A-6.3 Effective date

    This article takes effect on January first, two thousand two.

 § 11-A-6.4 Application of article

    Except  as specifically provided in the trust instrument, the will, or  in this article, this article shall apply  to  any  receipt  or  expense  received  or  incurred  on  or  after its effective date by any trust or  decedent’s estate established before its effective date and whether  the  asset involved was acquired by the trustee before or after its effective date.  This  article  shall also apply to any trust or decedent’s estate established on or after its effective date except to the extent that the  trust instrument or the will provides otherwise, or unless  an  election  or  court  decision  is made pursuant to 11-2.4 to make this article not  apply to such trust.

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