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S1023................................................by JUDICIARY AND RULES UNIFORM PRINCIPAL AND INCOME ACT - Repeals and adds to existing law to enact the "Uniform Principal and Income Act." 01/18 Senate intro - 1st rdg - to printing 01/19 Rpt prt - to Com/HuRes 02/07 Rpt out - rec d/p - to 2nd rdg 02/08 2nd rdg - to 3rd rdg 02/15 3rd rdg - PASSED - 27-1-7 AYES -- Bartlett, Boatright, Branch(Bartlett), Brandt, Bunderson, Burtenshaw, Danielson, Darrington, Davis, Deide, Dunklin, Frasure, Goedde, Ingram, Ipsen, Keough, Lodge, Noh, Risch, Sandy, Schroeder, Sims, Sorensen, Stegner, Thorne, Wheeler, Whitworth, Williams, NAYS -- Hawkins Absent and excused -- Andreason, Cameron, Geddes, King-Barrutia, Lee, Richardson, Stennett Floor Sponsor -- Davis Title apvd - to House 02/16 House intro - 1st rdg - to Jud 03/22 Rpt out - rec d/p - to 2nd rdg 03/23 2nd rdg - to 3rd rdg 03/28 3rd rdg - PASSED - 65-0-5 AYES -- Barraclough, Barrett, Bedke, Bell, Bieter, Black, Boe, Bolz, Bradford, Bruneel, Callister, Campbell, Chase, Clark, Collins, Cuddy, Deal, Denney, Ellis, Ellsworth, Eskridge, Field(13), Field(20), Gagner, Hadley, Hammond, Hansen, Harwood, Henbest(Farley), Higgins, Hornbeck, Jaquet, Jones, Kendell, Lake, Langford, Loertscher, Mader, Marley, McKague, Meyer, Montgomery, Mortensen, Moss, Moyle, Pearce, Pomeroy, Raybould, Ridinger, Roberts, Robison, Sali, Schaefer, Sellman, Shepherd, Smith, Smylie, Stevenson, Stone, Tilman, Trail, Wheeler, Wood, Young(Young), Mr. Speaker NAYS -- None Absent and excused -- Crow, Gould, Kellogg, Kunz, Pischner Floor Sponsor -- Clark Title apvd - to Senate 03/29 To enrol Rpt enrol - Pres signed 03/30 Sp signed - to Governor 03/31 Governor signed Session Law Chapter 261 Effective: 07/01/01
|||| LEGISLATURE OF THE STATE OF IDAHO |||| Fifty-sixth Legislature First Regular Session - 2001IN THE SENATE SENATE BILL NO. 1023 BY JUDICIARY AND RULES COMMITTEE 1 AN ACT 2 RELATING TO THE UNIFORM PRINCIPAL AND INCOME ACT; REPEALING CHAPTER 10, TITLE 3 68, IDAHO CODE; AMENDING TITLE 68, IDAHO CODE, BY THE ADDITION OF A NEW 4 CHAPTER 10, TITLE 68, IDAHO CODE, TO PROVIDE A NEW UNIFORM PRINCIPAL AND 5 INCOME ACT, TO PROVIDE A SHORT TITLE, TO PROVIDE DEFINITIONS, TO PROVIDE 6 FIDUCIARY DUTIES AND GENERAL PRINCIPLES, TO PROVIDE A TRUSTEE'S POWER TO 7 ADJUST, TO PROVIDE FOR NOTICE OF PROPOSED ACTION, TO PROVIDE FOR DETERMI- 8 NATION AND DISTRIBUTION OF NET INCOME, TO PROVIDE FOR DISTRIBUTION TO 9 RESIDUARY AND REMAINDER BENEFICIARIES, TO PROVIDE WHEN THE RIGHT TO INCOME 10 BEGINS AND ENDS, TO PROVIDE FOR APPORTIONMENT OF RECEIPTS AND DISBURSE- 11 MENTS WHEN DECEDENT DIES OR INCOME INTEREST BEGINS, TO PROVIDE FOR APPOR- 12 TIONMENT WHEN INCOME INTEREST ENDS, TO PROVIDE FOR CHARACTER OF RECEIPTS, 13 TO PROVIDE FOR DISTRIBUTION FROM A TRUST OR ESTATE, TO PROVIDE FOR BUSI- 14 NESS AND OTHER ACTIVITIES CONDUCTED BY A TRUSTEE, TO PROVIDE FOR PRINCIPAL 15 RECEIPTS, TO PROVIDE FOR RENTAL PROPERTY, TO PROVIDE FOR AN OBLIGATION TO 16 PAY MONEY, TO PROVIDE FOR INSURANCE POLICIES AND SIMILAR CONTRACTS, TO 17 PROVIDE THAT INSUBSTANTIAL ALLOCATIONS ARE NOT REQUIRED, TO PROVIDE FOR 18 DEFERRED COMPENSATION, ANNUITIES, AND SIMILAR PAYMENTS, TO PROVIDE FOR 19 LIQUIDATING AN ASSET, TO PROVIDE FOR MINERALS, WATER, AND OTHER NATURAL 20 RESOURCES, TO PROVIDE FOR TIMBER, TO PROVIDE FOR PROPERTY NOT PRODUCTIVE 21 OF INCOME, TO PROVIDE FOR DERIVATIVES AND OPTIONS, TO PROVIDE FOR ASSET- 22 BACKED SECURITIES, TO PROVIDE FOR DISBURSEMENTS FROM INCOME, TO PROVIDE 23 FOR DISBURSEMENTS FROM PRINCIPAL, TO PROVIDE FOR TRANSFERS FROM INCOME TO 24 PRINCIPAL FOR DEPRECIATION, TO PROVIDE FOR TRANSFERS FROM INCOME TO REIM- 25 BURSE PRINCIPAL, TO PROVIDE FOR INCOME TAXES, TO PROVIDE FOR ADJUSTMENTS 26 BETWEEN PRINCIPAL AND INCOME BECAUSE OF TAXES, TO PROVIDE FOR UNIFORM 27 APPLICATION AND CONSTRUCTION, TO PROVIDE SEVERABILITY AND TO PROVIDE FOR 28 APPLICATION TO EXISTING TRUSTS AND ESTATES. 29 Be It Enacted by the Legislature of the State of Idaho: 30 SECTION 1. That Chapter 10, Title 68, Idaho Code, be, and the same is 31 hereby repealed. 32 SECTION 2. That Title 68, Idaho Code, be, and the same is hereby amended 33 by the addition thereto of a NEW CHAPTER, to be known and designated as Chap- 34 ter 10, Title 68, Idaho Code, and to read as follows: 35 CHAPTER 10 36 UNIFORM PRINCIPAL AND INCOME ACT 37 PART 1. 38 DEFINITIONS AND FIDUCIARY DUTIES 39 68-10-101. SHORT TITLE. This chapter may be cited as the "Uniform Princi- 40 pal and Income Act." 2 1 68-10-102. DEFINITIONS. In this chapter: 2 (1) "Accounting period" means a calendar year unless another twelve (12) 3 month period is selected by a fiduciary. The term includes a portion of a cal- 4 endar year or other twelve (12) month period that begins when an income inter- 5 est begins or ends when an income interest ends. 6 (2) "Beneficiary" includes, in the case of a decedent's estate, an heir 7 and devisee and, in the case of a trust, an income beneficiary and a remainder 8 beneficiary. 9 (3) "Fiduciary" means a personal representative or a trustee. The term 10 includes an executor, administrator, successor personal representative, spe- 11 cial administrator, and a person performing substantially the same function. 12 (4) "Income" means money or property that a fiduciary receives as current 13 return from a principal asset. The term includes a portion of receipts from a 14 sale, exchange, or liquidation of a principal asset, to the extent provided in 15 part 4 of this chapter. 16 (5) "Income beneficiary" means a person to whom net income of a trust is 17 or may be payable. 18 (6) "Income interest" means the right of an income beneficiary to receive 19 all or part of net income, whether the terms of the trust require it to be 20 distributed or authorize it to be distributed in the trustee's discretion. 21 (7) "Mandatory income interest" means the right of an income beneficiary 22 to receive net income that the terms of the trust require the fiduciary to 23 distribute. 24 (8) "Net income" means the total receipts allocated to income during an 25 accounting period minus the disbursements made from income during the period, 26 plus or minus transfers under this chapter to or from income during the 27 period. 28 (9) "Person" means: an individual, corporation, business trust, estate, 29 trust, partnership, limited liability company, association, joint venture, 30 government; governmental subdivision, agency or instrumentality; public corpo- 31 ration, or any other legal or commercial entity. 32 (10) "Principal" means property held in trust for distribution to a 33 remainder beneficiary when the trust terminates. 34 (11) "Remainder beneficiary" means a person entitled to receive principal 35 when an income interest ends. 36 (12) "Terms of a trust" means the manifestation of the intent of a trustor 37 or decedent with respect to the trust, expressed in a manner that admits of 38 its proof in a judicial proceeding, whether by written or spoken words or by 39 conduct. Nothing herein shall require a trustee to look beyond the terms of a 40 written instrument for the manifestation of the intent of a trustor. 41 (13) "Trustee" includes an original, additional or successor trustee, 42 whether or not appointed or confirmed by a court. 43 68-10-103. FIDUCIARY DUTIES -- GENERAL PRINCIPLES. (a) In allocating 44 receipts and disbursements to or between principal and income, and with 45 respect to any matter within the scope of parts 2 and 3 of this chapter, a 46 fiduciary: 47 (1) Shall administer a trust or estate in accordance with the terms of 48 the trust or the will, even if there is a different provision in this 49 chapter; 50 (2) May administer a trust or estate by the exercise of a discretionary 51 power of administration given to the fiduciary by the terms of the trust 52 or the will, even if the exercise of the power produces a result different 53 from a result required or permitted by this chapter, and no inference that 54 the fiduciary has improperly exercised the discretion arises from the fact 3 1 that the fiduciary has made an allocation contrary to a provision of this 2 chapter; 3 (3) Shall administer a trust or estate in accordance with this chapter if 4 the terms of the trust or the will do not contain a different provision or 5 do not give the fiduciary a discretionary power of administration; and 6 (4) Shall add a receipt or charge a disbursement to principal to the 7 extent that the terms of the trust and this chapter do not provide a rule 8 for allocating the receipt or disbursement to or between principal and 9 income. 10 (b) In exercising the power to adjust under section 68-10-104(a), Idaho 11 Code, or a discretionary power of administration regarding a matter within the 12 scope of this chapter, whether granted by the terms of a trust, a will, or 13 this chapter, a fiduciary shall administer a trust or estate impartially, 14 based on what is fair and reasonable to all of the beneficiaries, except to 15 the extent that the terms of the trust or the will clearly manifest an inten- 16 tion that the fiduciary shall or may favor one (1) or more of the beneficia- 17 ries. A determination in accordance with this chapter is presumed to be fair 18 and reasonable to all of the beneficiaries. 19 68-10-104. TRUSTEE'S POWER TO ADJUST. (a) A trustee may adjust between 20 principal and income to the extent the trustee considers necessary if the 21 trustee invests and manages trust assets as a prudent investor in accordance 22 with the Idaho uniform prudent investor act, the terms of the trust describe 23 the amount that may or must be distributed to a beneficiary by referring to 24 the trust's income, and the trustee determines, after applying the rules in 25 section 68-10-103(a), Idaho Code, that the trustee is unable to comply with 26 section 68-10-103(b), Idaho Code. 27 (b) In deciding whether and to what extent to exercise the power con- 28 ferred by subsection (a) of this section, a trustee shall consider all factors 29 relevant to the trust and its beneficiaries, including the following factors 30 to the extent they are relevant: 31 (1) The nature, purpose and expected duration of the trust; 32 (2) The intent of the trustor; 33 (3) The identity and circumstances of the beneficiaries; 34 (4) The needs for liquidity, regularity of income and preservation and 35 appreciation of capital; 36 (5) The assets held in the trust; the extent to which they consist of 37 financial assets, interests in closely held enterprises, tangible and 38 intangible personal property, or real property; the extent to which an 39 asset is used by a beneficiary; and whether an asset was purchased by the 40 trustee or received from the trustor; 41 (6) The net amount allocated to income under the other sections of this 42 chapter and the increase or decrease in the value of the principal assets, 43 which the trustee may estimate as to assets for which market values are 44 not readily available; 45 (7) Whether and to what extent the terms of the trust give the trustee 46 the power to invade principal or accumulate income or prohibit the trustee 47 from invading principal or accumulating income, and the extent to which 48 the trustee has exercised a power from time to time to invade principal or 49 accumulate income; 50 (8) The actual and anticipated effect of economic conditions on principal 51 and income and effects of inflation and deflation; and 52 (9) The anticipated tax consequences of an adjustment. 53 (c) A trustee may not make an adjustment: 54 (1) That diminishes the income interest in a trust that requires all of 4 1 the income to be paid at least annually to a spouse and for which an 2 estate tax or gift tax marital deduction would be allowed, in whole or in 3 part, if the trustee did not have the power to make the adjustment; 4 (2) That reduces the actuarial value of the income interest in a trust to 5 which a person transfers property with the intent to qualify for a gift 6 tax exclusion; 7 (3) That changes the amount payable to a beneficiary as a fixed annuity 8 or a fixed fraction of the value of the trust assets; 9 (4) From any amount that is permanently set aside for charitable purposes 10 under a will or the terms of a trust unless both income and principal are 11 so set aside; 12 (5) If possessing or exercising the power to make an adjustment causes an 13 individual to be treated as the owner of all or part of the trust for 14 income tax purposes, and the individual would not be treated as the owner 15 if the trustee did not possess the power to make an adjustment; 16 (6) If possessing or exercising the power to make an adjustment causes 17 all or part of the trust assets to be included for estate tax purposes in 18 the estate of an individual who is the trustee or has the power to remove 19 a trustee or appoint a trustee, or both, and the assets would not be 20 included in the estate of the individual if the trustee did not possess 21 the power to make an adjustment; or 22 (7) If the trustee is a beneficiary of the trust. 23 (d) If subsection (c)(5), (6) or (7) of this section applies to a trustee 24 and there is more than one (1) trustee, a cotrustee to whom the provision does 25 not apply may make the adjustment unless the exercise of the power by the 26 remaining trustee or trustees is not permitted by the terms of the trust. 27 (e) A trustee may release the entire power conferred by subsection (a) of 28 this section or may release only the power to adjust from income to principal 29 or the power to adjust from principal to income if the trustee is uncertain 30 about whether possessing or exercising the power will cause a result described 31 in subsection (c)(1) through (6) of this section or if the trustee determines 32 that possessing or exercising the power will or may deprive the trust of a tax 33 benefit or impose a tax burden not described in subsection (c) of this sec- 34 tion. The release may be permanent or for a specified period, including a 35 period measured by the life of an individual. 36 (f) Terms of a trust that limit the power of a trustee to make an adjust- 37 ment between principal and income do not affect the application of this sec- 38 tion unless it is clear from the terms of the trust that the terms are 39 intended to deny the trustee the power of adjustment conferred by subsection 40 (a) of this section. 41 (g) Unless a request has been made by a beneficiary that the trustee con- 42 sider an adjustment, nothing in this section or in this chapter is intended to 43 create or imply a duty to make an adjustment, and a trustee is not liable for 44 not considering whether to make an adjustment or for choosing not to make an 45 adjustment. 46 68-10-105. NOTICE OF PROPOSED ACTION. (a) A trustee may give a notice of 47 proposed action regarding a matter governed by this chapter as provided in 48 this section. For the purpose of this section, a proposed action includes a 49 course of action and a decision not to take action. 50 (b) The trustee shall mail notice of the proposed action to all adult 51 beneficiaries who are receiving, or are entitled to receive, income under the 52 trust or to receive a distribution of principal if the trust were terminated 53 at the time the notice is given. If all beneficiaries of the trust are inca- 54 pacitated persons, then notice shall be mailed to each of the incapacitated 5 1 person's guardians or conservators who are appointed in accordance with chap- 2 ter 5, title 15, Idaho Code. 3 (c) Notice of proposed action need not be given to any person who con- 4 sents in writing to the proposed action. The consent may be executed at any 5 time before or after the proposed action is taken. 6 (d) The notice of proposed action shall state that it is given pursuant 7 to this section and shall include all of the following: 8 (1) The name and mailing address of the trustee; 9 (2) A copy of the trust instrument, if any; 10 (3) A description of the action proposed to be taken and an explanation 11 of the reasons for the action; 12 (4) The time within which objections to the proposed action can be made, 13 which shall be at least thirty (30) days from the mailing of the notice of 14 proposed action; 15 (5) The date on or after which the proposed action may be taken or is 16 effective; 17 (6) A statement that the recipient may petition for a judicial determina- 18 tion of the proposed action; 19 (7) A form on which consent or objection to the proposed action may be 20 indicated. 21 (e) A beneficiary may object or consent to the proposed action by mailing 22 a written objection or consent to the trustee at the address stated in the 23 notice of proposed action within the time period specified in the notice of 24 proposed action. 25 (f) A trustee is not liable to a beneficiary for an action regarding a 26 matter governed by this chapter if the trustee does not receive a written 27 objection to the proposed action from the beneficiary within the applicable 28 period and the other requirements of this section are satisfied. If no benefi- 29 ciary entitled to notice objects under this section, the trustee is not liable 30 to any current or future beneficiary with respect to the proposed action. 31 (g) If the trustee receives a written objection within the applicable 32 period, either the trustee or a beneficiary may petition the court to have the 33 proposed action taken as proposed, taken with modifications, or denied. In the 34 proceeding, a beneficiary objecting to the proposed action has the burden of 35 proving that the trustee's proposed action should not be taken. A beneficiary 36 who has not objected is not estopped from opposing the proposed action in the 37 proceeding. If the trustee decides not to implement the proposed action, the 38 trustee shall notify the beneficiaries of the decision not to take the action 39 and the reasons for the decision, and the trustee's decision not to implement 40 the proposed action does not itself give rise to liability to any current or 41 future beneficiary. A beneficiary may petition the court to have the action 42 taken, and has the burden of proving that it should be taken. 43 PART 2. 44 DECEDENT'S ESTATE OR TERMINATING INCOME INTEREST 45 68-10-201. DETERMINATION AND DISTRIBUTION OF NET INCOME. After a decedent 46 dies, in the case of an estate, or after an income interest in a trust ends, 47 the following rules apply: 48 (1) A fiduciary of an estate or of a terminating income interest shall 49 determine the amount of net income and net principal receipts received from 50 property specifically given to a beneficiary under the rules in parts 3 51 through 5 of this chapter which apply to trustees and the rules in subsection 52 (5) of this section. The fiduciary shall distribute the net income and net 53 principal receipts to the beneficiary who is to receive the specific property. 6 1 (2) A fiduciary shall determine the remaining net income of a decedent's 2 estate or a terminating income interest under the rules in parts 3 through 5 3 of this chapter which apply to trustees and by: 4 (A) Including in net income all income from property used to discharge 5 liabilities; 6 (B) Paying from income or principal, in the fiduciary's discretion, fees 7 of attorneys, accountants and fiduciaries; court costs and other expenses 8 of administration; and interest on death taxes, but the fiduciary may pay 9 those expenses from income of property passing to a trust for which the 10 fiduciary claims an estate tax marital or charitable deduction only to the 11 extent that the payment of those expenses from income will not cause the 12 reduction or loss of the deduction; and 13 (C) Paying from principal all other disbursements made or incurred in 14 connection with the settlement of a decedent's estate or the winding up of 15 a terminating income interest, including debts, funeral expenses, disposi- 16 tion of remains, family allowances, and death taxes and related penalties 17 that are apportioned to the estate or terminating income interest by the 18 will, the terms of the trust, or applicable law. 19 (3) A fiduciary shall distribute to a beneficiary who receives a pecuni- 20 ary amount outright the interest or any other amount provided by the will, the 21 terms of the trust, or applicable law from net income determined under subsec- 22 tion (2) of this section or from principal to the extent that net income is 23 insufficient. If a beneficiary is to receive a pecuniary amount outright from 24 a trust after an income interest ends and no interest or other amount is pro- 25 vided for by the terms of the trust or applicable law, the fiduciary shall 26 distribute the interest or other amount to which the beneficiary would be 27 entitled under applicable law if the pecuniary amount were required to be paid 28 under a will. 29 (4) A fiduciary shall distribute the net income remaining after distribu- 30 tions required by subsection (3) of this section in the manner described in 31 section 68-10-202, Idaho Code, to all other beneficiaries, including a benefi- 32 ciary who receives a pecuniary amount in trust, even if the beneficiary holds 33 an unqualified power to withdraw assets from the trust or other presently 34 exercisable general power of appointment over the trust. 35 (5) A fiduciary may not reduce principal or income receipts from property 36 described in subsection (1) of this section because of a payment described in 37 section 68-10-501 or 68-10-502, Idaho Code, to the extent that the will, the 38 terms of the trust, or applicable law requires the fiduciary to make the pay- 39 ment from assets other than the property or to the extent that the fiduciary 40 recovers or expects to recover the payment from a third party. The net income 41 and principal receipts from the property are determined by including all of 42 the amounts the fiduciary receives or pays with respect to the property, 43 whether those amounts accrued or became due before, on, or after the date of a 44 decedent's death or an income interest's terminating event, and by making a 45 reasonable provision for amounts that the fiduciary believes the estate or 46 terminating income interest may become obligated to pay after the property is 47 distributed. 48 68-10-202. DISTRIBUTION TO RESIDUARY AND REMAINDER BENEFICIARIES. (a) 49 Each beneficiary described in section 68-10-201(4), Idaho Code, is entitled to 50 receive a portion of the net income equal to the beneficiary's fractional 51 interest in undistributed principal assets, using values as of the distribu- 52 tion date. If a fiduciary makes more than one (1) distribution of assets to 53 beneficiaries to whom this section applies, each beneficiary, including one 54 who does not receive part of the distribution, is entitled, as of each distri- 7 1 bution date, to the net income the fiduciary has received after the date of 2 death or terminating event or earlier distribution date but has not distrib- 3 uted as of the current distribution date. 4 (b) In determining a beneficiary's share of net income, the following 5 rules apply: 6 (1) The beneficiary is entitled to receive a portion of the net income 7 equal to the beneficiary's fractional interest in the undistributed prin- 8 cipal assets immediately before the distribution date, including assets 9 that later may be sold to meet principal obligations. 10 (2) The beneficiary's fractional interest in the undistributed principal 11 assets must be calculated without regard to property specifically given to 12 a beneficiary and property required to pay pecuniary amounts not in trust. 13 (3) The beneficiary's fractional interest in the undistributed principal 14 assets must be calculated on the basis of the aggregate value of those 15 assets as of the distribution date without reducing the value by any 16 unpaid principal obligation. 17 (4) The distribution date for purposes of this section may be the date as 18 of which the fiduciary calculates the value of the assets if that date is 19 reasonably near the date on which assets are actually distributed. 20 (c) If a fiduciary does not distribute all of the collected but undis- 21 tributed net income to each person as of a distribution date, the fiduciary 22 shall maintain appropriate records showing the interest of each beneficiary in 23 that net income. 24 (d) A fiduciary may apply the rules in this section, to the extent that 25 the fiduciary considers it appropriate, to net gain or loss realized after the 26 date of death or terminating event or earlier distribution date from the dis- 27 position of a principal asset if this section applies to the income from the 28 asset. 29 PART 3. 30 APPORTIONMENT AT BEGINNING AND END OF INCOME INTEREST 31 68-10-301. WHEN RIGHT TO INCOME BEGINS AND ENDS. (a) An income benefi- 32 ciary is entitled to net income from the date on which the income interest 33 begins. An income interest begins on the date specified in the terms of the 34 trust or, if no date is specified, on the date an asset becomes subject to a 35 trust or successive income interest. 36 (b) An asset becomes subject to a trust: 37 (1) On the date it is transferred to the trust in the case of an asset 38 that is transferred to a trust during the transferor's life; 39 (2) On the date of a testator's death in the case of an asset that 40 becomes subject to a trust by reason of a will, even if there is an inter- 41 vening period of administration of the testator's estate; or 42 (3) On the date of an individual's death in the case of an asset that is 43 transferred to a fiduciary by a third party because of the individual's 44 death. 45 (c) An asset becomes subject to a successive income interest on the day 46 after the preceding income interest ends, as determined under subsection (d) 47 of this section, even if there is an intervening period of administration to 48 wind up the preceding income interest. 49 (d) An income interest ends on the day before an income beneficiary dies 50 or another terminating event occurs, or on the last day of a period during 51 which there is no beneficiary to whom a trustee may distribute income. 52 68-10-302. APPORTIONMENT OF RECEIPTS AND DISBURSEMENTS WHEN DECEDENT DIES 8 1 OR INCOME INTEREST BEGINS. (a) A trustee shall allocate an income receipt or 2 disbursement other than one to which section 68-10-201(1), Idaho Code, applies 3 to principal if its due date occurs before a decedent dies in the case of an 4 estate or before an income interest begins in the case of a trust or succes- 5 sive income interest. 6 (b) A trustee shall allocate an income receipt or disbursement to income 7 if its due date occurs on or after the date on which a decedent dies or an 8 income interest begins and it is a periodic due date. An income receipt or 9 disbursement must be treated as accruing from day to day if its due date is 10 not periodic or it has no due date. The portion of the receipt or disbursement 11 accruing before the date on which a decedent dies or an income interest begins 12 must be allocated to principal and the balance must be allocated to income. 13 (c) An item of income or an obligation is due on the date the payer is 14 required to make a payment. If a payment date is not stated, there is no due 15 date for the purposes of this chapter. Distributions to shareholders or other 16 owners from an entity to which section 68-10-401, Idaho Code, applies are 17 deemed to be due on the date fixed by the entity for determining who is enti- 18 tled to receive the distribution or, if no date is fixed, on the declaration 19 date for the distribution. A due date is periodic for receipts or disburse- 20 ments that must be paid at regular intervals under a lease or an obligation to 21 pay interest or if an entity customarily makes distributions at regular inter- 22 vals. 23 68-10-303. APPORTIONMENT WHEN INCOME INTEREST ENDS. (a) In this section, 24 "undistributed income" means net income received before the date on which an 25 income interest ends. The term does not include an item of income or expense 26 that is due or accrued or net income that has been added or is required to be 27 added to principal under the terms of the trust. 28 (b) When a mandatory income interest ends, the trustee shall pay to a 29 mandatory income beneficiary who survives that date, or the estate of a 30 deceased mandatory income beneficiary whose death causes the interest to end, 31 the beneficiary's share of the undistributed income that is not disposed of 32 under the terms of the trust unless the beneficiary has an unqualified power 33 to revoke more than five percent (5%) of the trust immediately before the 34 income interest ends. In the latter case, the undistributed income from the 35 portion of the trust that may be revoked must be added to principal. 36 (c) When a trustee's obligation to pay a fixed annuity or a fixed frac- 37 tion of the value of the trust's assets ends, the trustee shall prorate the 38 final payment if and to the extent required by applicable law to accomplish a 39 purpose of the trust or its trustor relating to income, gift, estate, or other 40 tax requirements. 41 PART 4. 42 ALLOCATION OF RECEIPTS DURING ADMINISTRATION OF TRUST 43 68-10-401. CHARACTER OF RECEIPTS. (a) In this section, "entity" means a 44 corporation, partnership, limited liability company, regulated investment com- 45 pany, real estate investment trust, common trust fund, or any other organiza- 46 tion in which a trustee has an interest other than a trust or estate to which 47 section 68-10-402, Idaho Code, applies, a business or activity to which sec- 48 tion 68-10-413, Idaho Code, applies, or an asset-backed security to which sec- 49 tion 68-10-415, Idaho Code, applies. 50 (b) Except as otherwise provided in this section, a trustee shall allo- 51 cate to income money received from an entity. 52 (c) A trustee shall allocate the following receipts from an entity to 9 1 principal: 2 (1) Property other than money; 3 (2) Money received in one (1) distribution or a series of related distri- 4 butions in exchange for part or all of a trust's interest in the entity; 5 (3) Money received in total or partial liquidation of the entity; and 6 (4) Money received from an entity that is a regulated investment company 7 or a real estate investment trust if the money distributed is a capital 8 gain dividend for federal income tax purposes. 9 (d) Money is received in partial liquidation: 10 (1) To the extent that the entity, at or near the time of a distribution, 11 indicates that it is a distribution in partial liquidation; or 12 (2) If the total amount of money and property received in a distribution 13 or series of related distributions is greater than twenty percent (20%) of 14 the entity's gross assets, as shown by the entity's year-end financial 15 statements immediately preceding the initial receipt. 16 (e) Money is not received in partial liquidation, nor may it be taken 17 into account under subsection (d)(2) of this section, to the extent that it 18 does not exceed the amount of income tax that a trustee or beneficiary must 19 pay on taxable income of the entity that distributes the money. 20 (f) A trustee may rely upon a statement made by an entity about the 21 source or character of a distribution if the statement is made at or near the 22 time of distribution by the entity's board of directors or other person or 23 group of persons authorized to exercise powers to pay money or transfer prop- 24 erty comparable to those of a corporation's board of directors. 25 68-10-402. DISTRIBUTION FROM TRUST OR ESTATE. A trustee shall allocate to 26 income an amount received as a distribution of income from a trust or an 27 estate in which the trust has an interest other than a purchased interest, and 28 shall allocate to principal an amount received as a distribution of principal 29 from such a trust or estate. If a trustee purchases an interest in a trust 30 that is an investment entity, or a decedent or donor transfers an interest in 31 such a trust to a trustee, section 68-10-401 or 68-10-415, Idaho Code, applies 32 to a receipt from the trust. 33 68-10-403. BUSINESS AND OTHER ACTIVITIES CONDUCTED BY TRUSTEE. (a) If a 34 trustee who conducts a business or other activity determines that it is in the 35 best interest of all the beneficiaries to account separately for the business 36 or activity instead of accounting for it as part of the trust's general 37 accounting records, the trustee may maintain separate accounting records for 38 its transactions, whether or not its assets are segregated from other trust 39 assets. 40 (b) A trustee who accounts separately for a business or other activity 41 may determine the extent to which its net cash receipts must be retained for 42 working capital, the acquisition or replacement of fixed assets, and other 43 reasonably foreseeable needs of the business or activity, and the extent to 44 which the remaining net cash receipts are accounted for as principal or income 45 in the trust's general accounting records. If a trustee sells assets of the 46 business or other activity, other than in the ordinary course of the business 47 or activity, the trustee shall account for the net amount received as princi- 48 pal in the trust's general accounting records to the extent the trustee deter- 49 mines that the amount received is no longer required in the conduct of the 50 business. 51 (c) Activities for which a trustee may maintain separate accounting 52 records include: 53 (1) Retail, manufacturing, service and other traditional business activi- 10 1 ties; 2 (2) Farming; 3 (3) Raising and selling livestock and other animals; 4 (4) Management of rental properties; 5 (5) Extraction of minerals and other natural resources; 6 (6) Timber operations; and 7 (7) Activities to which section 68-10-414, Idaho Code, applies. 8 68-10-404. PRINCIPAL RECEIPTS. A trustee shall allocate to principal: 9 (1) To the extent not allocated to income under this chapter, assets 10 received from a transferor during the transferor's lifetime, a decedent's 11 estate, a trust with a terminating income interest, or a payer under a con- 12 tract naming the trust or its trustee as beneficiary; 13 (2) Money or other property received from the sale, exchange, liquida- 14 tion, or change in form of a principal asset, including realized profit, sub- 15 ject to this part; 16 (3) Amounts recovered from third parties to reimburse the trust because 17 of disbursements described in section 68-10-502(a)(7), Idaho Code, or for 18 other reasons to the extent not based on the loss of income; 19 (4) Proceeds of property taken by eminent domain, but a separate award 20 made for the loss of income with respect to an accounting period during which 21 a current income beneficiary had a mandatory income interest is income; 22 (5) Net income received in an accounting period during which there is no 23 beneficiary to whom a trustee may or must distribute income; and 24 (6) Other receipts as provided in sections 68-10-408 through 68-10-415, 25 Idaho Code. 26 68-10-405. RENTAL PROPERTY. To the extent that a trustee accounts for 27 receipts from rental property pursuant to this section, the trustee shall 28 allocate to income an amount received as rent of real or personal property, 29 including an amount received for cancellation or renewal of a lease. An amount 30 received as a refundable deposit, including a security deposit or a deposit 31 that is to be applied as rent for future periods, must be added to principal 32 and held subject to the terms of the lease and is not available for distribu- 33 tion to a beneficiary until the trustee's contractual obligations have been 34 satisfied with respect to that amount. 35 68-10-406. OBLIGATION TO PAY MONEY. (a) An amount received as interest, 36 whether determined at a fixed, variable or floating rate, on an obligation to 37 pay money to the trustee, including an amount received as consideration for 38 prepaying principal, must be allocated to income without any provision for 39 amortization of premium. 40 (b) A trustee shall allocate to principal an amount received from the 41 sale, redemption, or other disposition of an obligation to pay money to the 42 trustee more than one (1) year after it is purchased or acquired by the 43 trustee, including an obligation whose purchase price or value when it is 44 acquired is less than its value at maturity. If the obligation matures within 45 one (1) year after it is purchased or acquired by the trustee, an amount 46 received in excess of its purchase price or its value when acquired by the 47 trust must be allocated to income. 48 (c) This section does not apply to an obligation to which section 49 68-10-409, 68-10-410, 68-10-411, 68-10-412, 68-10-414 or 68-10-415, Idaho 50 Code, applies. 51 68-10-407. INSURANCE POLICIES AND SIMILAR CONTRACTS. (a) Except as other- 11 1 wise provided in subsection (b) of this section, a trustee shall allocate to 2 principal the proceeds of a life insurance policy or other contract in which 3 the trust or its trustee is named as beneficiary, including a contract that 4 insures the trust or its trustee against loss for damage to, destruction of, 5 or loss of title to a trust asset. The trustee shall allocate dividends on an 6 insurance policy to income if the premiums on the policy are paid from income, 7 and to principal if the premiums are paid from principal. 8 (b) A trustee shall allocate to income proceeds of a contract that 9 insures the trustee against loss of occupancy or other use by an income bene- 10 ficiary, loss of income or, subject to section 68-10-403, Idaho Code, loss of 11 profits from a business. 12 (c) This section does not apply to a contract to which section 68-10-409, 13 Idaho Code, applies. 14 68-10-408. INSUBSTANTIAL ALLOCATIONS NOT REQUIRED. If a trustee deter- 15 mines that an allocation between principal and income required by section 16 68-10-409, 68-10-410, 68-10-411, 68-10-412 or 68-10-415, Idaho Code, is insub- 17 stantial, the trustee may allocate the entire amount to principal unless one 18 (1) of the circumstances described in section 68-10-104(c), Idaho Code, 19 applies to the allocation. This power may be exercised by a cotrustee in the 20 circumstances described in section 68-10-104(d), Idaho Code, and may be 21 released for the reasons and in the manner described in section 68-10-104(e), 22 Idaho Code. An allocation is presumed to be insubstantial if: 23 (1) The amount of the allocation would increase or decrease net income in 24 an accounting period, as determined before the allocation, by less than ten 25 percent (10%); or 26 (2) The value of the asset producing the receipt for which the allocation 27 would be made is less than ten percent (10%) of the total value of the trust's 28 assets at the beginning of the accounting period. 29 68-10-409. DEFERRED COMPENSATION, ANNUITIES, AND SIMILAR PAYMENTS. (a) In 30 this section, "payment" means a payment that a trustee may receive over a 31 fixed number of years or during the life of one (1) or more individuals 32 because of services rendered or property transferred to the payer in exchange 33 for future payments. The term includes a payment made in money or property 34 from the payer's general assets or from a separate fund created by the payer, 35 including a private or commercial annuity, an individual retirement account, 36 and a pension, profit-sharing, stock-bonus or stock-ownership plan. 37 (b) To the extent that a payment is characterized as interest or a divi- 38 dend or a payment made in lieu of interest or a dividend, a trustee shall 39 allocate it to income. The trustee shall allocate to principal the balance of 40 the payment and any other payment received in the same accounting period that 41 is not characterized as interest, a dividend or an equivalent payment. 42 (c) If no part of a payment is characterized as interest, a dividend or 43 an equivalent payment, and all or part of the payment is required to be made, 44 a trustee shall allocate to income ten percent (10%) of the part that is 45 required to be made during the accounting period and the balance to principal. 46 If no part of a payment is required to be made or the payment received is the 47 entire amount to which the trustee is entitled, the trustee shall allocate the 48 entire payment to principal. For purposes of this subsection, a payment is not 49 "required to be made" to the extent that it is made because the trustee exer- 50 cises a right of withdrawal. 51 (d) If, to obtain an estate tax marital deduction for a trust, a trustee 52 must allocate more of a payment to income than provided for by this section, 53 the trustee shall allocate to income the additional amount necessary to obtain 12 1 the marital deduction. 2 (e) This section does not apply to payments to which section 68-10-410, 3 Idaho Code, applies. 4 68-10-410. LIQUIDATING ASSET. (a) In this section, "liquidating asset" 5 means an asset whose value will diminish or terminate because the asset is 6 expected to produce receipts for a period of limited duration. The term 7 includes a leasehold, patent, copyright, royalty right and right to receive 8 payments during a period of more than one (1) year under an arrangement that 9 does not provide for the payment of interest on the unpaid balance. The term 10 does not include a payment subject to section 68-10-409, Idaho Code, resources 11 subject to section 68-10-411, Idaho Code, timber subject to section 68-10-412, 12 Idaho Code, an activity subject to section 68-10-414, Idaho Code, an asset 13 subject to section 68-10-415, Idaho Code, or any asset for which the trustee 14 establishes a reserve for depreciation under section 68-10-503, Idaho Code. 15 (b) A trustee shall allocate to income ten percent (10%) of the receipts 16 from a liquidating asset and the balance to principal. 17 68-10-411. MINERALS, WATER AND OTHER NATURAL RESOURCES. (a) To the extent 18 that a trustee accounts for receipts from an interest in minerals or other 19 natural resources pursuant to this section, the trustee shall allocate them as 20 follows: 21 (1) If received as nominal delay rental or nominal annual rent on a 22 lease, a receipt must be allocated to income; 23 (2) If received from a production payment, a receipt must be allocated to 24 income if and to the extent that the agreement creating the production 25 payment provides a factor for interest or its equivalent. The balance 26 must be allocated to principal; 27 (3) If an amount received as a royalty, shut-in-well payment, take-or-pay 28 payment, bonus, or delay rental is more than nominal, ninety percent (90%) 29 must be allocated to principal and the balance to income; 30 (4) If an amount is received from a working interest or any other inter- 31 est not provided for in paragraph (1), (2) or (3) of this subsection, 32 ninety percent (90%) of the net amount received must be allocated to prin- 33 cipal and the balance to income. 34 (b) An amount received on account of an interest in water that is renew- 35 able must be allocated to income. If the water is not renewable, ninety per- 36 cent (90%) of the amount must be allocated to principal and the balance to 37 income. 38 (c) This chapter applies whether or not a decedent or donor was extract- 39 ing minerals, water, or other natural resources before the interest became 40 subject to the trust. 41 (d) If a trust owns an interest in minerals, water or other natural 42 resources on the effective date of this chapter, the trustee may allocate 43 receipts from the interest as provided in this chapter or in the manner used 44 by the trustee before the effective date of this chapter. If the trust 45 acquires an interest in minerals, water or other natural resources after the 46 effective date of this chapter, the trustee shall allocate receipts from the 47 interest as provided in this chapter. 48 68-10-412. TIMBER. (a) To the extent that a trustee accounts for receipts 49 from the sale of timber and related products pursuant to this section, the 50 trustee shall allocate the net receipts: 51 (1) To income to the extent that the amount of timber removed from the 52 land does not exceed the rate of growth of the timber during the account- 13 1 ing periods in which a beneficiary has a mandatory income interest; 2 (2) To principal to the extent that the amount of timber removed from the 3 land exceeds the rate of growth of the timber or the net receipts are from 4 the sale of standing timber; 5 (3) To or between income and principal if the net receipts are from the 6 lease of timberland or from a contract to cut timber from land owned by a 7 trust, by determining the amount of timber removed from the land under the 8 lease or contract and applying the rules in paragraphs (1) and (2) of this 9 subsection; or 10 (4) To principal to the extent that advance payments, bonuses, and other 11 payments are not allocated pursuant to paragraph (1), (2) or (3) of this 12 subsection. 13 (b) In determining net receipts to be allocated pursuant to subsection 14 (a) of this section, a trustee shall deduct and transfer to principal a rea- 15 sonable amount for depletion. 16 (c) This chapter applies whether or not a decedent or transferor was har- 17 vesting timber from the property before it became subject to the trust. 18 (d) If a trust owns an interest in timberland on the effective date of 19 this chapter, the trustee may allocate net receipts from the sale of timber 20 and related products as provided in this chapter or in the manner used by the 21 trustee before the effective date of this chapter. If the trust acquires an 22 interest in timberland after the effective date of this chapter, the trustee 23 shall allocate net receipts from the sale of timber and related products as 24 provided in this chapter. 25 68-10-413. PROPERTY NOT PRODUCTIVE OF INCOME. (a) If a marital deduction 26 is allowed for all or part of a trust whose assets consist substantially of 27 property that does not provide the spouse with sufficient income from or use 28 of the trust assets, and if the amounts that the trustee transfers from prin- 29 cipal to income under section 68-10-104, Idaho Code, and distributes to the 30 spouse from principal pursuant to the terms of the trust are insufficient to 31 provide the spouse with the beneficial enjoyment required to obtain the mari- 32 tal deduction, the spouse may require the trustee to make property productive 33 of income, convert property within a reasonable time, or exercise the power 34 conferred by section 68-10-104(a), Idaho Code. The trustee may decide which 35 action or combination of actions to take. 36 (b) In cases not governed by subsection (a) of this section, proceeds 37 from the sale or other disposition of an asset are principal without regard to 38 the amount of income the asset produces during any accounting period. 39 68-10-414. DERIVATIVES AND OPTIONS. (a) In this section, "derivative" 40 means a contract or financial instrument or a combination of contracts and 41 financial instruments which give a trust the right or obligation to partici- 42 pate in some or all changes in the price of a tangible or intangible asset or 43 group of assets, or changes in a rate, an index of prices or rates, or other 44 market indicator for an asset or a group of assets. 45 (b) To the extent that a trustee does not account under section 46 68-10-403, Idaho Code, for transactions in derivatives, the trustee shall 47 allocate to principal receipts from and disbursements made in connection with 48 those transactions. 49 (c) If a trustee grants an option to buy property from the trust, whether 50 or not the trust owns the property when the option is granted, grants an 51 option that permits another person to sell property to the trust, or acquires 52 an option to buy property for the trust or an option to sell an asset owned by 53 the trust, and the trustee or other owner of the asset is required to deliver 14 1 the asset if the option is exercised, an amount received for granting the 2 option must be allocated to principal. An amount paid to acquire the option 3 must be paid from principal. A gain or loss realized upon the exercise of an 4 option, including an option granted to a trustor of the trust for services 5 rendered, must be allocated to principal. 6 68-10-415. ASSET-BACKED SECURITIES. (a) In this section, "asset-backed 7 security" means an asset whose value is based upon the right it gives the 8 owner to receive distributions from the proceeds of financial assets that pro- 9 vide collateral for the security. The term includes an asset that gives the 10 owner the right to receive from the collateral financial assets only the 11 interest or other current return or only the proceeds other than interest or 12 current return. The term does not include an asset to which section 68-10-401 13 or 68-10-409, Idaho Code, applies. 14 (b) If a trust receives a payment from interest or other current return 15 and from other proceeds of the collateral financial assets, the trustee shall 16 allocate to income the portion of the payment which the payer identifies as 17 being from interest or other current return and shall allocate the balance of 18 the payment to principal. 19 (c) If a trust receives one (1) or more payments in exchange for the 20 trust's entire interest in an asset-backed security in one (1) accounting 21 period, the trustee shall allocate the payments to principal. If a payment is 22 one (1) of a series of payments that will result in the liquidation of the 23 trust's interest in the security over more than one (1) accounting period, the 24 trustee shall allocate ten percent (10%) of the payment to income and the bal- 25 ance to principal. 26 PART 5. 27 ALLOCATION OF DISBURSEMENTS DURING ADMINISTRATION OF TRUST 28 68-10-501. DISBURSEMENTS FROM INCOME. A trustee shall make the following 29 disbursements from income to the extent that they are not disbursements to 30 which section 68-10-201(2)(B) or (2)(C), Idaho Code, applies: 31 (1) One-half (1/2) of the regular compensation of the trustee and of any 32 person providing investment advisory or custodial services to the trustee; 33 (2) One-half (1/2) of all expenses for accountings, judicial proceedings, 34 or other matters that involve both the income and remainder interests; 35 (3) All of the other ordinary expenses incurred in connection with the 36 administration, management, or preservation of trust property and the distri- 37 bution of income, including interest, ordinary repairs, regularly recurring 38 taxes assessed against principal, and expenses of a proceeding or other matter 39 that concerns primarily the income interest; and 40 (4) Recurring premiums on insurance covering the loss of a principal 41 asset or the loss of income from or use of the asset. 42 68-10-502. DISBURSEMENTS FROM PRINCIPAL. (a) A trustee shall make the 43 following disbursements from principal: 44 (1) The remaining one-half (1/2) of the disbursements described in sec- 45 tion 68-10-501(1) and (2), Idaho Code; 46 (2) All of the trustee's compensation calculated on principal as a fee 47 for acceptance, distribution or termination, and disbursements made to 48 prepare property for sale; 49 (3) Payments on the principal of a trust debt; 50 (4) Expenses of a proceeding that concerns primarily principal, including 51 a proceeding to construe the trust or to protect the trust or its prop- 15 1 erty; 2 (5) Premiums paid on a policy of insurance not described in section 3 68-10-501(4), Idaho Code, of which the trust is the owner and beneficiary; 4 (6) Estate, inheritance and other transfer taxes, including penalties, 5 apportioned to the trust; and 6 (7) Disbursements related to environmental matters, including reclama- 7 tion, assessing environmental conditions, remedying and removing environ- 8 mental contamination, monitoring remedial activities and the release of 9 substances, preventing future releases of substances, collecting amounts 10 from persons liable or potentially liable for the costs of those activi- 11 ties, penalties imposed under environmental laws, rules or regulations and 12 other payments made to comply with those laws, rules or regulations, stat- 13 utory or common law claims by third parties, and defending claims based on 14 environmental matters. 15 (b) If a principal asset is encumbered with an obligation that requires 16 income from that asset to be paid directly to the creditor, the trustee shall 17 transfer from principal to income an amount equal to the income paid to the 18 creditor in reduction of the principal balance of the obligation. 19 68-10-503. TRANSFERS FROM INCOME TO PRINCIPAL FOR DEPRECIATION. (a) In 20 this section, "depreciation" means a reduction in value due to wear, tear, 21 decay, corrosion or gradual obsolescence of a fixed asset having a useful life 22 of more than one (1) year. 23 (b) A trustee may transfer to principal a reasonable amount of the net 24 cash receipts from a principal asset that is subject to depreciation, but may 25 not transfer any amount for depreciation: 26 (1) Of that portion of real property used or available for use by a bene- 27 ficiary as a residence or of tangible personal property held or made 28 available for the personal use or enjoyment of a beneficiary; 29 (2) During the administration of a decedent's estate; or 30 (3) Under this section if the trustee is accounting under section 31 68-10-403, Idaho Code, for the business or activity in which the asset is 32 used. 33 (c) An amount transferred to principal need not be held as a separate 34 fund. 35 68-10-504. TRANSFERS FROM INCOME TO REIMBURSE PRINCIPAL. (a) If a trustee 36 makes or expects to make a principal disbursement described in this section, 37 the trustee may transfer an appropriate amount from income to principal in one 38 (1) or more accounting periods to reimburse principal or to provide a reserve 39 for future principal disbursements. 40 (b) Principal disbursements to which subsection (a) of this section 41 applies include the following, but only to the extent that the trustee has not 42 been and does not expect to be reimbursed by a third party: 43 (1) An amount chargeable to income but paid from principal because it is 44 unusually large, including extraordinary repairs; 45 (2) A capital improvement to a principal asset, whether in the form of 46 changes to an existing asset or the construction of a new asset, including 47 special assessments; 48 (3) Disbursements made to prepare property for rental, including tenant 49 allowances, leasehold improvements and broker's commissions; 50 (4) Periodic payments on an obligation secured by a principal asset to 51 the extent that the amount transferred from income to principal for depre- 52 ciation is less than the periodic payments; and 53 (5) Disbursements described in section 68-10-502(a)(7), Idaho Code. 16 1 (c) If the asset whose ownership gives rise to the disbursements becomes 2 subject to a successive income interest after an income interest ends, a 3 trustee may continue to transfer amounts from income to principal as provided 4 in subsection (a) of this section. 5 68-10-505. INCOME TAXES. (a) A tax required to be paid by a trustee based 6 on receipts allocated to income must be paid from income. 7 (b) A tax required to be paid by a trustee based on receipts allocated to 8 principal must be paid from principal, even if the tax is called an income tax 9 by the taxing authority. 10 (c) A tax required to be paid by a trustee on the trust's share of an 11 entity's taxable income must be paid proportionately: 12 (1) From income to the extent that receipts from the entity are allocated 13 to income; and 14 (2) From principal to the extent that: 15 (A) Receipts from the entity are allocated to principal; and 16 (B) The trust's share of the entity's taxable income exceeds the 17 total receipts described in paragraphs (1) and (2)(A) of this subsec- 18 tion. 19 (d) For purposes of this section, receipts allocated to principal or 20 income must be reduced by the amount distributed to a beneficiary from princi- 21 pal or income for which the trust receives a deduction in calculating the tax. 22 68-10-506. ADJUSTMENTS BETWEEN PRINCIPAL AND INCOME BECAUSE OF TAXES. (a) 23 A fiduciary may make adjustments between principal and income to offset the 24 shifting of economic interests or tax benefits between income beneficiaries 25 and remainder beneficiaries which arise from: 26 (1) Elections and decisions, other than those described in subsection (b) 27 of this section, that the fiduciary makes from time to time regarding tax 28 matters; 29 (2) An income tax or any other tax that is imposed upon the fiduciary or 30 a beneficiary as a result of a transaction involving, or a distribution 31 from, the estate or trust; or 32 (3) The ownership by an estate or trust of an interest in an entity whose 33 taxable income, whether or not distributed, is includable in the taxable 34 income of the estate, trust or beneficiary. 35 (b) If the amount of an estate tax marital deduction or charitable con- 36 tribution deduction is reduced because a fiduciary deducts an amount paid from 37 principal for income tax purposes instead of deducting it for estate tax pur- 38 poses, and as a result estate taxes paid from principal are increased and 39 income taxes paid by an estate, trust or beneficiary are decreased, each 40 estate, trust or beneficiary that benefits from the decrease in income tax 41 shall reimburse the principal from which the increase in estate tax is paid. 42 The total reimbursement must equal the increase in the estate tax to the 43 extent that the principal used to pay the increase would have qualified for a 44 marital deduction or charitable contribution deduction but for the payment. 45 The proportionate share of the reimbursement for each estate, trust or benefi- 46 ciary whose income taxes are reduced must be the same as its proportionate 47 share of the total decrease in income tax. An estate or trust shall reimburse 48 principal from income. 17 1 PART 6. 2 MISCELLANEOUS PROVISIONS 3 68-10-601. UNIFORMITY OF APPLICATION AND CONSTRUCTION. In applying and 4 construing this chapter, consideration must be given to the need to promote 5 uniformity of the law with respect to its subject matter among states that 6 enact it. 7 68-10-602. SEVERABILITY CLAUSE. If any provision of this chapter or its 8 application to any person or circumstance is held invalid, the invalidity does 9 not affect other provisions or applications of this chapter which can be given 10 effect without the invalid provision or application, and to this end the pro- 11 visions of this chapter are severable. 12 68-10-603. [RESERVED.] 13 68-10-604. [RESERVED.] 14 68-10-605. APPLICATION OF CHAPTER TO EXISTING TRUSTS AND ESTATES. This 15 chapter applies to every trust or decedent's estate existing on the effective 16 date of this chapter except as otherwise expressly provided in the will or 17 terms of the trust or in this chapter.
STATEMENT OF PURPOSE RS 10568C1 The Uniform Principal and Income Act was originally promulgated by the National Conference of Commissioners on Uniform state Laws (the "Conference") in 1931. In 1962, the act was revised. In 1963, Idaho adopted the 1962 revision of the act and has since that date retained that act on the books virtually unamended. The 1931 act or the 1962 revision have been adopted in 41 states. Recently, however, the Conference determined that the act must be revised to adapt it more effectively to modern practices. The act before you is the result of that process, promulgated by the Conference in 1997. The act provides procedures to separate principal from income for trustees, administering an estate. The basic purpose of the present act, like the 1931 and the 1962 versions, is to ensure that the intent of the trust creator is the guiding principle for the trustee. Like its predecessors, this revised act distinguishes between property that is principal, which will be distributed to remainder beneficiaries (Persons entitled to receive principal when an income interest ends) and property that is income, distributed to income beneficiaries. It is important to know that he uniform act has consistently provided the default rules for such allocations and operates only when the governing instrument is silent. The following are some of the ways in which the new act facilitates and enhances the purposes of the original Uniform Principal and Income Act: The traditional income and allocation rules have been updated to address changes required in the application of modern trust investment theory. The new act provides the means for implementing a transition to an investment program based on principles embodied in the Uniform Prudent Investor Act, especially the principle of investing for total return instead of merely attempting to achieve a certain level of income. This act clarifies allocations of acquired assets, such as those from corporate distributions. An "unincorporated entity" concept has been introduced here to deal with businesses operated by a trustee, including farming and livestock operations and the management of investment activities in rental real estate, natural resources and timber. The new act provides direction for dealing with investment techniques not in existence in 1962, such as the use of derivatives, options, deferred payment obligations and synthetic financial assets. This act contains a new provision dealing with the problems of disbursements made because of the effect of environmental laws. Also included are new provisions which deal with imbalances resulting from application of the tax laws. The act in its present form provides the trustee under certain circumstances the power to make adjustments between principal and income to correct inequities caused by tax elections or by the peculiarities in the way the fiduciary income tax rules apply. The revised Uniform Principal and Income Act provides answers to ong-standing problems in reconciling modern portfolio management with traditional rules of income allocation. It is therefore extremely important, given the interstate investment environment in this country, that uniformity be achieved as quickly as possible. As of July of 2000, thirteen (13) states have adopted this act and in 2000 there were additional introductions in nine other states. FISCAL IMPACT: none Name:Willis Sullivan 1423 Tyrell Lane Boise, ID 83706 Phone: (208) 344-8035 S1023