2001 Legislation
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SENATE BILL NO. 1023 – Uniform Principal and Income Act

SENATE BILL NO. 1023

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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

Bill Text


                                                                        
                                                                        
  ||||              LEGISLATURE OF THE STATE OF IDAHO             ||||
 Fifty-sixth Legislature                  First Regular Session - 2001
                                                                        
                                                                        
                                       IN 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 / Fiscal Impact




                         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