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S.B. 131 Enrolled
LONG TITLE
General Description:
This bill revises the Uniform Principal and Income Act enacted in 1979.
Highlighted Provisions:
This bill:
. applies probate administration rules to revocable living trusts;
. provides for the allocation of net income from partnership interests under specific
circumstances;
. allocates between principal and income the income from harvesting and selling
timber;
. allocates between principal and income the receipts from derivatives, options, and
asset-backed securities;
. deals with disbursements made because of environmental laws;
. specifically addresses deferred compensation in greater detail than the previous
version;
. changes the percentage used to allocate amounts received from oil and gas; and
. eliminates the unproductive property rule for trusts other than marital deduction
trusts.
Monies Appropriated in this Bill:
None
Other Special Clauses:
None
Utah Code Sections Affected:
ENACTS:
22-3-101, Utah Code Annotated 1953
22-3-102, Utah Code Annotated 1953
22-3-103, Utah Code Annotated 1953
22-3-104, Utah Code Annotated 1953
22-3-105, Utah Code Annotated 1953
22-3-106, Utah Code Annotated 1953
22-3-107, Utah Code Annotated 1953
22-3-201, Utah Code Annotated 1953
22-3-202, Utah Code Annotated 1953
22-3-301, Utah Code Annotated 1953
22-3-302, Utah Code Annotated 1953
22-3-303, Utah Code Annotated 1953
22-3-401, Utah Code Annotated 1953
22-3-402, Utah Code Annotated 1953
22-3-403, Utah Code Annotated 1953
22-3-404, Utah Code Annotated 1953
22-3-405, Utah Code Annotated 1953
22-3-406, Utah Code Annotated 1953
22-3-407, Utah Code Annotated 1953
22-3-408, Utah Code Annotated 1953
22-3-409, Utah Code Annotated 1953
22-3-410, Utah Code Annotated 1953
22-3-411, Utah Code Annotated 1953
22-3-412, Utah Code Annotated 1953
22-3-413, Utah Code Annotated 1953
22-3-414, Utah Code Annotated 1953
22-3-415, Utah Code Annotated 1953
22-3-501, Utah Code Annotated 1953
22-3-502, Utah Code Annotated 1953
22-3-503, Utah Code Annotated 1953
22-3-504, Utah Code Annotated 1953
22-3-505, Utah Code Annotated 1953
22-3-506, Utah Code Annotated 1953
22-3-601, Utah Code Annotated 1953
22-3-602, Utah Code Annotated 1953
22-3-603, Utah Code Annotated 1953
REPEALS:
22-3-1, as enacted by Chapter 89, Laws of Utah 1979
22-3-2, as enacted by Chapter 89, Laws of Utah 1979
22-3-3, as enacted by Chapter 89, Laws of Utah 1979
22-3-4, as enacted by Chapter 89, Laws of Utah 1979
22-3-5, as enacted by Chapter 89, Laws of Utah 1979
22-3-6, as enacted by Chapter 89, Laws of Utah 1979
22-3-7, as enacted by Chapter 89, Laws of Utah 1979
22-3-8, as enacted by Chapter 89, Laws of Utah 1979
22-3-9, as enacted by Chapter 89, Laws of Utah 1979
22-3-10, as enacted by Chapter 89, Laws of Utah 1979
22-3-11, as enacted by Chapter 89, Laws of Utah 1979
22-3-12, as enacted by Chapter 89, Laws of Utah 1979
22-3-13, as enacted by Chapter 89, Laws of Utah 1979
22-3-14, as enacted by Chapter 89, Laws of Utah 1979
22-3-15, as enacted by Chapter 89, Laws of Utah 1979
22-3-16, as enacted by Chapter 89, Laws of Utah 1979
Be it enacted by the Legislature of the state of Utah:
Section 1. Section 22-3-101 is enacted to read:
22-3-101. Title.
This chapter is known as the "Uniform Principal and Income Act."
Section 2. Section 22-3-102 is enacted to read:
22-3-102. Definitions.
In this chapter:
(1) "Accounting period" means a calendar year unless another 12-month period is
selected by a fiduciary. The term includes a portion of a calendar year or other 12-month period
that begins when an income interest begins or ends when an income interest ends.
(2) "Beneficiary" includes, in the case of a decedent's estate, an heir and devisee and, in
the case of a trust, an income beneficiary and a remainder beneficiary.
(3) "Fiduciary" means a personal representative or a trustee. The term includes an
executor, administrator, successor personal representative, special administrator, and a person
performing substantially the same function.
(4) "Income" means money or property that a fiduciary receives as current return from a
principal asset. The term includes a portion of receipts from a sale, exchange, or liquidation of a
principal asset, to the extent provided in Part 4, Allocation of Receipts During Administration of
Trust.
(5) "Income beneficiary" means a person to whom net income of a trust is or may be
payable.
(6) "Income interest" means the right of an income beneficiary to receive all or part of net
income, whether the terms of the trust require it to be distributed or authorize it to be distributed
in the trustee's discretion.
(7) "Mandatory income interest" means the right of an income beneficiary to receive net
income that the terms of the trust require the fiduciary to distribute.
(8) "Net income" means the total receipts allocated to income during an accounting
period minus the disbursements made from income during the period, plus or minus transfers
under this chapter to or from income during the period.
(9) "Person" means an individual, corporation, business trust, estate, trust, partnership,
limited liability company, association, joint venture, government; governmental subdivision,
agency, or instrumentality; public corporation, or any other legal or commercial entity.
(10) "Principal" means property held in trust for distribution to a remainder beneficiary
when the trust terminates.
(11) "Remainder beneficiary" means a person entitled to receive principal when an income
interest ends.
(12) "Terms of a trust" means the manifestation of the intent of a settlor or decedent with
respect to the trust, expressed in a manner that admits of its proof in a judicial proceeding,
whether by written or spoken words or by conduct.
(13) "Trustee" includes an original, additional, or successor trustee, whether or not
appointed or confirmed by a court.
Section 3. Section 22-3-103 is enacted to read:
22-3-103. Fiduciary duties -- General principles.
(1) In allocating receipts and disbursements to or between principal and income, and with
respect to any matter within the scope of Parts 2 and 3, a fiduciary:
(a) shall administer a trust or estate in accordance with the terms of the trust or the will,
even if there is a different provision in this chapter;
(b) may administer a trust or estate by the exercise of a discretionary power of
administration given to the fiduciary by the terms of the trust or the will, even if the exercise of
the power produces a result different from a result required or permitted by this chapter;
(c) shall administer a trust or estate in accordance with this chapter if the terms of the
trust or the will do not contain a different provision or do not give the fiduciary a discretionary
power of administration; and
(d) shall add a receipt or charge a disbursement to principal to the extent that the terms of
the trust and this chapter do not provide a rule for allocating the receipt or disbursement to or
between principal and income.
(2) In exercising the power to adjust under Subsection 22-3-104 (1) or a discretionary
power of administration regarding a matter within the scope of this chapter, whether granted by
the terms of a trust, a will, or this chapter, a fiduciary shall administer a trust or estate impartially,
based on what is fair and reasonable to all of the beneficiaries, except to the extent that the terms
of the trust or the will clearly manifest an intention that the fiduciary shall or may favor one or
more of the beneficiaries. A determination in accordance with this chapter is presumed to be fair
and reasonable to all of the beneficiaries.
Section 4. Section 22-3-104 is enacted to read:
22-3-104. Trustee's power to adjust.
(1) A trustee may adjust between principal and income to the extent the trustee considers
necessary if the trustee invests and manages trust assets as a prudent investor, the terms of the
trust describe the amount that may or must be distributed to a beneficiary by referring to the
trust's income, and the trustee determines, after applying the rules in Subsection 22-3-103 (1), that
the trustee is unable to comply with Subsection 22-3-103 (2).
(2) In deciding whether and to what extent to exercise the power conferred by Subsection
(1), a trustee shall consider all factors relevant to the trust and its beneficiaries, including the
following factors to the extent they are relevant:
(a) the nature, purpose, and expected duration of the trust;
(b) the intent of the settlor;
(c) the identity and circumstances of the beneficiaries;
(d) the needs for liquidity, regularity of income, and preservation and appreciation of
capital;
(e) the assets held in the trust; the extent to which they consist of financial assets,
interests in closely held enterprises, tangible and intangible personal property, or real property; the
extent to which an asset is used by a beneficiary; and whether an asset was purchased by the
trustee or received from the settlor;
(f) the net amount allocated to income under the other sections of this chapter and the
increase or decrease in the value of the principal assets, which the trustee may estimate as to
assets for which market values are not readily available;
(g) whether and to what extent the terms of the trust give the trustee the power to invade
principal or accumulate income or prohibit the trustee from invading principal or accumulating
income, and the extent to which the trustee has exercised a power from time to time to invade
principal or accumulate income;
(h) the actual and anticipated effect of economic conditions on principal and income and
effects of inflation and deflation; and
(i) the anticipated tax consequences of an adjustment.
(3) A trustee may not make an adjustment:
(a) that diminishes the income interest in a trust that requires all of the income to be paid
at least annually to a spouse and for which an estate tax or gift tax marital deduction would be
allowed, in whole or in part, if the trustee did not have the power to make the adjustment;
(b) that reduces the actuarial value of the income interest in a trust to which a person
transfers property with the intent to qualify for a gift tax exclusion;
(c) that changes the amount payable to a beneficiary as a fixed annuity or a fixed fraction
of the value of the trust assets;
(d) from any amount that is permanently set aside for charitable purposes under a will or
the terms of a trust unless both income and principal are so set aside;
(e) if possessing or exercising the power to make an adjustment causes an individual to be
treated as the owner of all or part of the trust for income tax purposes, and the individual would
not be treated as the owner if the trustee did not possess the power to make an adjustment;
(f) if possessing or exercising the power to make an adjustment causes all or part of the
trust assets to be included for estate tax purposes in the estate of an individual who has the power
to remove a trustee or appoint a trustee, or both, and the assets would not be included in the
estate of the individual if the trustee did not possess the power to make an adjustment;
(g) if the trustee is a beneficiary of the trust; or
(h) if the trustee is not a beneficiary, but the adjustment would benefit the trustee directly
or indirectly.
(4) If Subsection (3)(e), (f), (g), or (h) applies to a trustee and there is more than one
trustee, a cotrustee to whom the provision does not apply may make the adjustment unless the
exercise of the power by the remaining trustee or trustees is not permitted by the terms of the
trust.
(5) A trustee may release the entire power conferred by Subsection (1) or may release
only the power to adjust from income to principal or the power to adjust from principal to income
if the trustee is uncertain about whether possessing or exercising the power will cause a result
described in Subsections (3)(a) through (f) or Subsection (3)(h) or if the trustee determines that
possessing or exercising the power will or may deprive the trust of a tax benefit or impose a tax
burden not described in Subsection (3). The release may be permanent or for a specified period,
including a period measured by the life of an individual.
(6) Terms of a trust that limit the power of a trustee to make an adjustment between
principal and income do not affect the application of this section unless it is clear from the terms
of the trust that the terms are intended to deny the trustee the power of adjustment conferred by
Subsection (1).
Section 5. Section 22-3-105 is enacted to read:
22-3-105. Judicial control of discretionary power.
(1) The court may not order a fiduciary to change a decision to exercise or not to exercise
a discretionary power conferred by this chapter unless it determines that the decision was an abuse
of the fiduciary's discretion. A fiduciary's decision is not an abuse of discretion merely because
the court would have exercised the power in a different manner or would not have exercised the
power.
(2) The decisions to which Subsection (1) applies include:
(a) A decision under Subsection 22-3-104 (1) as to whether and to what extent an amount
should be transferred from principal to income or from income to principal.
(b) A decision regarding the factors that are relevant to the trust and its beneficiaries, the
extent to which the factors are relevant, and the weight, if any, to be given to those factors, in
deciding whether and to what extent to exercise the discretionary power conferred by Subsection
22-3-104 (1).
(3) If the court determines that a fiduciary has abused the fiduciary's discretion, the court
may place the income and remainder beneficiaries in the positions they would have occupied if the
discretion had not been abused, according to the following rules:
(a) To the extent that the abuse of discretion has resulted in no distribution to a
beneficiary or in a distribution that is too small, the court shall order the fiduciary to distribute
from the trust to the beneficiary an amount that the court determines will restore the beneficiary,
in whole or in part, to the beneficiary's appropriate position.
(b) To the extent that the abuse of discretion has resulted in a distribution to a beneficiary
which is too large, the court shall place the beneficiaries, the trust, or both, in whole or in part, in
their appropriate positions by ordering the fiduciary to withhold an amount from one or more
future distributions to the beneficiary who received the distribution that was too large or ordering
that beneficiary to return some or all of the distribution to the trust.
(c) To the extent that the court is unable, after applying Subsections (3)(a) and (b), to
place the beneficiaries, the trust, or both, in the positions they would have occupied if the
discretion had not been abused, the court may order the fiduciary to pay an appropriate amount
from its own funds to one or more of the beneficiaries or the trust or both.
(4) Upon petition by the fiduciary, the court having jurisdiction over a trust or estate shall
determine whether a proposed exercise or nonexercise by the fiduciary of a discretionary power
conferred by this chapter will result in an abuse of the fiduciary's discretion. If the petition
describes the proposed exercise or nonexercise of the power and contains sufficient information to
inform the beneficiaries of the reasons for the proposal, the facts upon which the fiduciary relies,
and an explanation of how the income and remainder beneficiaries will be affected by the
proposed exercise or nonexercise of the power, a beneficiary who challenges the proposed
exercise or nonexercise has the burden of establishing that it will result in an abuse of discretion.
Section 6. Section 22-3-106 is enacted to read:
22-3-106. Adjustments.
Nothing in this chapter is intended to create or imply a duty to make an adjustment, and a
trustee is not liable for not considering whether to make an adjustment or for choosing not to
make an adjustment.
Section 7. Section 22-3-107 is enacted to read:
22-3-107. Notice of proposed action -- Objections by beneficiary -- Liability of
trustee -- Proceedings.
(1) A trustee may give a notice of proposed action regarding a matter governed by this
chapter as provided in this section. For the purpose of this section, a proposed action includes a
course of action and a decision not to take action.
(2) The trustee shall mail notice of the proposed action to all adult beneficiaries who are
receiving, or are entitled to receive, income under the trust or to receive a distribution of principal
if the trust were terminated at the time the notice is given.
(3) Notice of proposed action need not be given to any person who consents in writing to
the proposed action. The consent may be executed at any time before or after the proposed
action is taken.
(4) The notice of proposed action shall state that it is given pursuant to this section and
the following:
(a) the name and mailing address of the trustee;
(b) the name and telephone number of a person who may be contacted for additional
information;
(c) a description of the action proposed to be taken and an explanation of the reasons for
the action;
(d) the time within which objections to the proposed action can be made, which shall be
at least 30 days from the mailing of the notice of proposed action; and
(e) the date on or after which the proposed action may be taken or is effective.
(5) A beneficiary may object to the proposed action by mailing a written objection to the
trustee at the address stated in the notice of proposed action within the time period specified in
the notice of proposed action.
(6) A trustee is not liable to a beneficiary for an action regarding a matter governed by
this chapter if the trustee does not receive a written objection to the proposed action from a
beneficiary within the applicable period and the other requirements of this section are satisfied. If
no beneficiary entitled to notice objects under this section, the trustee is not liable to any current
or future beneficiary with respect to the proposed action.
(7) If the trustee receives a written objection within the applicable period, either the
trustee or a beneficiary may petition the court to have the proposed action taken as proposed,
taken with modifications, or denied. In the proceeding, a beneficiary objecting to the proposed
action has the burden of proving that the trustee's proposed action should not be taken. A
beneficiary who has not objected is not estopped from opposing the proposed action in the
proceeding.
(8) If the trustee decides not to implement the proposed action, the trustee shall notify the
beneficiaries of the decision not to take the action and the reasons for the decision. The trustee's
decision not to implement the proposed action does not give rise to liability to any current or
future beneficiary.
(9) A beneficiary may petition the court to have the action taken, and has the burden of
proving that it should be taken.
Section 8. Section 22-3-201 is enacted to read:
22-3-201. Determination and distribution of net income.
After a decedent dies, in the case of an estate, or after an income interest in a trust ends,
the following rules apply:
(1) A fiduciary of an estate or of a terminating income interest shall determine the amount
of net income and net principal receipts received from property specifically given to a beneficiary
under the rules in Parts 3 through 5 which apply to trustees and the rules in Subsection (5). The
fiduciary shall distribute the net income and net principal receipts to the beneficiary who is to
receive the specific property.
(2) A fiduciary shall determine the remaining net income of a decedent's estate or a
terminating income interest under the rules in Parts 3 through 5 which apply to trustees and by:
(a) including in net income all income from property used to discharge liabilities;
(b) paying from income or principal, in the fiduciary's discretion, fees of attorneys,
accountants, and fiduciaries; court costs and other expenses of administration; and interest on
death taxes, but the fiduciary may pay those expenses from income of property passing to a trust
for which the fiduciary claims an estate tax marital or charitable deduction only to the extent that
the payment of those expenses from income will not cause the reduction or loss of the deduction;
and
(c) paying from principal all other disbursements made or incurred in connection with the
settlement of a decedent's estate or the winding up of a terminating income interest, including
debts, funeral expenses, disposition of remains, family allowances, and death taxes and related
penalties that are apportioned to the estate or terminating income interest by the will, the terms of
the trust, or applicable law.
(3) A fiduciary shall distribute to a beneficiary who receives a pecuniary amount outright,
the interest or any other amount provided by the will, the terms of the trust, or applicable law
from net income determined under Subsection (2) or from principal to the extent that net income
is insufficient. If a beneficiary is to receive a pecuniary amount outright from a trust after an
income interest ends and no interest or other amount is provided for by the terms of the trust or
applicable law, the fiduciary shall distribute the interest or other amount to which the beneficiary
would be entitled under applicable law if the pecuniary amount were required to be paid under a
will.
(4) A fiduciary shall distribute the net income remaining after distributions required by
Subsection (3) in the manner described in Section 22-3-202 to all other beneficiaries, including a
beneficiary who receives a pecuniary amount in trust, even if the beneficiary holds an unqualified
power to withdraw assets from the trust or other presently exercisable general power of
appointment over the trust.
(5) A fiduciary may not reduce principal or income receipts from property described in
Subsection (1) because of a payment described in Section 22-3-501 or 22-3-502 to the extent that
the will, the terms of the trust, or applicable law requires the fiduciary to make the payment from
assets other than the property or to the extent that the fiduciary recovers or expects to recover the
payment from a third party. The net income and principal receipts from the property are
determined by including all of the amounts the fiduciary receives or pays with respect to the
property, whether those amounts accrued or became due before, on, or after the date of a
decedent's death or an income interest's terminating event, and by making a reasonable provision
for amounts that the fiduciary believes the estate or terminating income interest may become
obligated to pay after the property is distributed.
Section 9. Section 22-3-202 is enacted to read:
22-3-202. Distribution to residuary and remainder beneficiaries.
(1) Each beneficiary described in Subsection 22-3-201 (4) is entitled to receive a portion
of the net income equal to the beneficiary's fractional interest in undistributed principal assets,
using values as of the distribution date. If a fiduciary makes more than one distribution of assets
to beneficiaries to whom this section applies, each beneficiary, including one who does not receive
part of the distribution, is entitled, as of each distribution date, to the net income the fiduciary has
received after the date of death or terminating event or earlier distribution date but has not
distributed as of the current distribution date.
(2) In determining a beneficiary's share of net income, the following rules apply:
(a) The beneficiary is entitled to receive a portion of the net income equal to the
beneficiary's fractional interest in the undistributed principal assets immediately before the
distribution date, including assets that later may be sold to meet principal obligations.
(b) The beneficiary's fractional interest in the undistributed principal assets must be
calculated without regard to property specifically given to a beneficiary and property required to
pay pecuniary amounts not in trust.
(c) The beneficiary's fractional interest in the undistributed principal assets must be
calculated on the basis of the aggregate value of those assets as of the distribution date without
reducing the value by any unpaid principal obligation.
(d) The distribution date for purposes of this section may be the date as of which the
fiduciary calculates the value of the assets if that date is reasonably near the date on which assets
are actually distributed.
(3) If a fiduciary does not distribute all of the collected but undistributed net income to
each person as of a distribution date, the fiduciary shall maintain appropriate records showing the
interest of each beneficiary in that net income.
(4) A fiduciary may apply the rules in this section, to the extent that the fiduciary
considers it appropriate, to net gain or loss realized after the date of death or terminating event or
earlier distribution date from the disposition of a principal asset if this section applies to the
income from the asset.
Section 10. Section 22-3-301 is enacted to read:
22-3-301. When right to income begins and ends.
(1) An income beneficiary is entitled to net income from the date on which the income
interest begins. An income interest begins on the date specified in the terms of the trust or, if no
date is specified, on the date an asset becomes subject to a trust or successive income interest.
(2) An asset becomes subject to a trust:
(a) on the date it is transferred to the trust in the case of an asset that is transferred to a
trust during the transferor's life;
(b) on the date of a testator's death in the case of an asset that becomes subject to a trust
by reason of a will, even if there is an intervening period of administration of the testator's estate;
or
(c) on the date of an individual's death in the case of an asset that is transferred to a
fiduciary by a third party because of the individual's death.
(3) An asset becomes subject to a successive income interest on the day after the
preceding income interest ends, as determined under Subsection (4), even if there is an intervening
period of administration to wind up the preceding income interest.
(4) An income interest ends on the day before an income beneficiary dies or another
terminating event occurs, or on the last day of a period during which there is no beneficiary to
whom a trustee may distribute income.
Section 11. Section 22-3-302 is enacted to read:
22-3-302. Apportionment of receipts and disbursements when decedent dies or
income interest begins.
(1) A trustee shall allocate an income receipt or disbursement other than one to which
Subsection 22-3-201 (1) applies to principal if its due date occurs before a decedent dies in the
case of an estate or before an income interest begins in the case of a trust or successive income
interest.
(2) A trustee shall allocate an income receipt or disbursement to income if its due date
occurs on or after the date on which a decedent dies or an income interest begins and it is a
periodic due date. An income receipt or disbursement must be treated as accruing from day to
day if its due date is not periodic or it has no due date. The portion of the receipt or disbursement
accruing before the date on which a decedent dies or an income interest begins must be allocated
to principal and the balance must be allocated to income.
(3) An item of income or an obligation is due on the date the payer is required to make a
payment. If a payment date is not stated, there is no due date for the purposes of this chapter.
Distributions to shareholders or other owners from an entity to which Section 22-3-401 applies
are considered to be due on the date fixed by the entity for determining who is entitled to receive
the distribution or, if no date is fixed, on the declaration date for the distribution. A due date is
periodic for receipts or disbursements that must be paid at regular intervals under a lease or an
obligation to pay interest or if an entity customarily makes distributions at regular intervals.
Section 12. Section 22-3-303 is enacted to read:
22-3-303. Apportionment when income interest ends.
(1) In this section, "undistributed income" means net income received before the date on
which an income interest ends. The term does not include an item of income or expense that is
due or accrued or net income that has been added or is required to be added to principal under the
terms of the trust.
(2) When a mandatory income interest ends, the trustee shall pay to a mandatory income
beneficiary who survives that date, or the estate of a deceased mandatory income beneficiary
whose death causes the interest to end, the beneficiary's share of the undistributed income that is
not disposed of under the terms of the trust unless the beneficiary has an unqualified power to
revoke more than 5% of the trust immediately before the income interest ends. In the latter case,
the undistributed income from the portion of the trust that may be revoked must be added to
principal.
(3) When a trustee's obligation to pay a fixed annuity or a fixed fraction of the value of
the trust's assets ends, the trustee shall prorate the final payment if and to the extent required by
applicable law to accomplish a purpose of the trust or its settlor relating to income, gift, estate, or
other tax requirements.
Section 13. Section 22-3-401 is enacted to read:
22-3-401. Receipts from entities -- Character of receipts.
(1) In this section, "entity" means a corporation, partnership, limited liability company,
regulated investment company, real estate investment trust, common trust fund, or any other
organization in which a trustee has an interest other than a trust or estate to which Section
22-3-402 applies, a business or activity to which Section 22-3-403 applies, or an asset-backed
security to which Section 22-3-415 applies.
(2) Except as otherwise provided in this section, a trustee shall allocate to income money
received from an entity.
(3) A trustee shall allocate the following receipts from an entity to principal:
(a) property other than money;
(b) money received in one distribution or a series of related distributions in exchange for
part or all of a trust's interest in the entity;
(c) money received in total or partial liquidation of the entity; and
(d) money received from an entity that is a regulated investment company or a real estate
investment trust if the money distributed is a capital gain dividend for federal income tax
purposes.
(4) Money is received in partial liquidation:
(a) to the extent that the entity, at or near the time of a distribution, indicates that it is a
distribution in partial liquidation; or
(b) if the total amount of money and property received in a distribution or series of related
distributions is greater than 20% of the entity's gross assets, as shown by the entity's year-end
financial statements immediately preceding the initial receipt.
(5) Money is not received in partial liquidation, nor may it be taken into account under
Subsection (4)(b), to the extent that it does not exceed the amount of income tax that a trustee or
beneficiary must pay on taxable income of the entity that distributes the money.
(6) A trustee may rely upon a statement made by an entity about the source or character
of a distribution if the statement is made at or near the time of distribution by the entity's board of
directors or other person or group of persons authorized to exercise powers to pay money or
transfer property comparable to those of a corporation's board of directors.
Section 14. Section 22-3-402 is enacted to read:
22-3-402. Receipts from entities -- Distribution from trust or estate.
A trustee shall allocate to income an amount received as a distribution of income from a
trust or an estate in which the trust has an interest other than a purchased interest, and shall
allocate to principal an amount received as a distribution of principal from such a trust or estate.
If a trustee purchases an interest in a trust that is an investment entity, or a decedent or donor
transfers an interest in such a trust to a trustee, Section 22-3-401 or 22-3-415 applies to a receipt
from the trust.
Section 15. Section 22-3-403 is enacted to read:
22-3-403. Receipts from entities -- Business and other activities conducted by
trustee.
(1) If a trustee who conducts a business or other activity determines that it is in the best
interest of all the beneficiaries to account separately for the business or activity instead of
accounting for it as part of the trust's general accounting records, the trustee may maintain
separate accounting records for its transactions, whether or not its assets are segregated from
other trust assets.
(2) A trustee who accounts separately for a business or other activity may determine the
extent to which its net cash receipts must be retained for working capital, the acquisition or
replacement of fixed assets, and other reasonably foreseeable needs of the business or activity, and
the extent to which the remaining net cash receipts are accounted for as principal or income in the
trust's general accounting records. If a trustee sells assets of the business or other activity, other
than in the ordinary course of the business or activity, the trustee shall account for the net amount
received as principal in the trust's general accounting records to the extent the trustee determines
that the amount received is no longer required in the conduct of the business.
(3) Activities for which a trustee may maintain separate accounting records include:
(a) retail, manufacturing, service, and other traditional business activities;
(b) farming;
(c) raising and selling livestock and other animals;
(d) management of rental properties;
(e) extraction of minerals and other natural resources;
(f) timber operations; and
(g) activities to which Section 22-3-414 applies.
Section 16. Section 22-3-404 is enacted to read:
22-3-404. Receipts not normally apportioned -- Principal receipts.
A trustee shall allocate to principal:
(1) to the extent not allocated to income under this chapter, assets received from a
transferor during the transferor's lifetime, a decedent's estate, a trust with a terminating income
interest, or a payer under a contract naming the trust or its trustee as beneficiary;
(2) money or other property received from the sale, exchange, liquidation, or change in
form of a principal asset, including realized profit, subject to this part;
(3) amounts recovered from third parties to reimburse the trust because of disbursements
described in Subsection 22-3-502 (1)(g) or for other reasons to the extent not based on the loss of
income;
(4) proceeds of property taken by eminent domain, but a separate award made for the loss
of income with respect to an accounting period during which a current income beneficiary had a
mandatory income interest is income;
(5) net income received in an accounting period during which there is no beneficiary to
whom a trustee may or must distribute income; and
(6) other receipts as provided in Sections 22-3-408 through 22-3-415 .
Section 17. Section 22-3-405 is enacted to read:
22-3-405. Receipts not normally apportioned -- Rental property.
To the extent that a trustee accounts for receipts from rental property pursuant to this
section, the trustee shall allocate to income an amount received as rent of real or personal
property, including an amount received for cancellation or renewal of a lease. An amount
received as a refundable deposit, including a security deposit or a deposit that is to be applied as
rent for future periods, must be added to principal and held subject to the terms of the lease and is
not available for distribution to a beneficiary until the trustee's contractual obligations have been
satisfied with respect to that amount.
Section 18. Section 22-3-406 is enacted to read:
22-3-406. Receipts not normally apportioned -- Obligation to pay money.
(1) An amount received as interest, whether determined at a fixed, variable, or floating
rate, on an obligation to pay money to the trustee, including an amount received as consideration
for prepaying principal, must be allocated to income without any provision for amortization of
premium.
(2) A trustee shall allocate to principal an amount received from the sale, redemption, or
other disposition of an obligation to pay money to the trustee more than one year after it is
purchased or acquired by the trustee, including an obligation whose purchase price or value when
it is acquired is less than its value at maturity. If the obligation matures within one year after it is
purchased or acquired by the trustee, an amount received in excess of its purchase price or its
value when acquired by the trust must be allocated to income.
(3) This section does not apply to an obligation to which Section 22-3-409 , 22-3-410 ,
22-3-411 , 22-3-412 , 22-3-414 , or 22-3-415 applies.
Section 19. Section 22-3-407 is enacted to read:
22-3-407. Receipts not normally apportioned -- Insurance policies and similar
contracts.
(1) Except as otherwise provided in Subsection (2), a trustee shall allocate to principal the
proceeds of a life insurance policy or other contract in which the trust or its trustee is named as
beneficiary, including a contract that insures the trust or its trustee against loss for damage to,
destruction of, or loss of title to a trust asset. The trustee shall allocate dividends on an insurance
policy to income if the premiums on the policy are paid from income, and to principal if the
premiums are paid from principal.
(2) A trustee shall allocate to income proceeds of a contract that insures the trustee
against loss of occupancy or other use by an income beneficiary, loss of income, or, subject to
Section 22-3-403 , loss of profits from a business.
(3) This section does not apply to a contract to which Section 22-3-409 applies.
Section 20. Section 22-3-408 is enacted to read:
22-3-408. Receipts normally apportioned -- Insubstantial allocations not required.
If a trustee determines that an allocation between principal and income required by Section
22-3-409 , 22-3-410 , 22-3-411 , 22-3-412 , or 22-3-415 is insubstantial, the trustee may allocate
the entire amount to principal unless one of the circumstances described in Subsection
22-3-104 (3) applies to the allocation. This power may be exercised by a cotrustee in the
circumstances described in Subsection 22-3-104 (4) and may be released for the reasons and in the
manner described in Subsection 22-3-104 (5). An allocation is presumed to be insubstantial if:
(1) the amount of the allocation would increase or decrease net income in an accounting
period, as determined before the allocation, by less than 10%; or
(2) the value of the asset producing the receipt for which the allocation would be made is
less than 10% of the total value of the trust's assets at the beginning of the accounting period.
Section 21. Section 22-3-409 is enacted to read:
22-3-409. Receipts normally apportioned -- Deferred compensation, annuities, and
similar payments.
(1) In this section, "payment" means a payment that a trustee may receive over a fixed
number of years or during the life of one or more individuals because of services rendered or
property transferred to the payer in exchange for future payments. The term includes a payment
made in money or property from the payer's general assets or from a separate fund created by the
payer, including a private or commercial annuity, an individual retirement account, and a pension,
profit-sharing, stock-bonus, or stock-ownership plan.
(2) To the extent that a payment is characterized as interest or a dividend or a payment
made in lieu of interest or a dividend, a trustee shall allocate it to income. The trustee shall
allocate to principal the balance of the payment and any other payment received in the same
accounting period that is not characterized as interest, a dividend, or an equivalent payment.
(3) If no part of a payment is characterized as interest, a dividend, or an equivalent
payment, and all or part of the payment is required to be made, a trustee shall allocate to income
10% of the part that is required to be made during the accounting period and the balance to
principal. If no part of a payment is required to be made or the payment received is the entire
amount to which the trustee is entitled, the trustee shall allocate the entire payment to principal.
For purposes of this Subsection (3), a payment is not "required to be made" to the extent that it is
made because the trustee exercises a right of withdrawal.
(4) If, to obtain an estate tax marital deduction for a trust, a trustee must allocate more of
a payment to income than provided for by this section, the trustee shall allocate to income the
additional amount necessary to obtain the marital deduction.
(5) This section does not apply to payments to which Section 22-3-410 applies.
Section 22. Section 22-3-410 is enacted to read:
22-3-410. Receipts normally apportioned -- Liquidating asset.
(1) In this section, "liquidating asset" means an asset whose value will diminish or
terminate because the asset is expected to produce receipts for a period of limited duration. The
term includes a leasehold, patent, copyright, royalty right, and right to receive payments during a
period of more than one year under an arrangement that does not provide for the payment of
interest on the unpaid balance. The term does not include a payment subject to Section 22-3-409 ,
resources subject to Section 22-3-411 , timber subject to Section 22-3-412 , an activity subject to
Section 22-3-414 , an asset subject to Section 22-3-415 , or any asset for which the trustee
establishes a reserve for depreciation under Section 22-3-503 .
(2) A trustee shall allocate to income 10% of the receipts from a liquidating asset and the
balance to principal.
Section 23. Section 22-3-411 is enacted to read:
22-3-411. Receipts normally apportioned -- Minerals, water, and other natural
resources.
(1) To the extent that a trustee accounts for receipts from an interest in minerals or other
natural resources pursuant to this section, the trustee shall allocate them as follows:
(a) If received as nominal delay rental or nominal annual rent on a lease, a receipt must be
allocated to income.
(b) If received from a production payment, a receipt must be allocated to income if and to
the extent that the agreement creating the production payment provides a factor for interest or its
equivalent. The balance must be allocated to principal.
(c) If an amount received as a royalty, shut-in-well payment, take-or-pay payment, bonus,
or delay rental is more than nominal, 90% must be allocated to principal and the balance to
income.
(d) If an amount is received from a working interest or any other interest not provided for
in Subsection (1)(a), (b), or (c), 90% of the net amount received must be allocated to principal
and the balance to income.
(2) An amount received on account of an interest in water that is renewable must be
allocated to income. If the water is not renewable, 90% of the amount must be allocated to
principal and the balance to income.
(3) This chapter applies whether or not a decedent or donor was extracting minerals,
water, or other natural resources before the interest became subject to the trust.
(4) If a trust owns an interest in minerals, water, or other natural resources on May 3,
2004, the trustee may allocate receipts from the interest as provided in this chapter or in the
manner used by the trustee before May 3, 2004. If the trust acquires an interest in minerals,
water, or other natural resources after May 3, 2004, the trustee shall allocate receipts from the
interest as provided in this chapter.
Section 24. Section 22-3-412 is enacted to read:
22-3-412. Receipts normally apportioned -- Timber.
(1) To the extent that a trustee accounts for receipts from the sale of timber and related
products pursuant to this section, the trustee shall allocate the net receipts:
(a) to income to the extent that the amount of timber removed from the land does not
exceed the rate of growth of the timber during the accounting periods in which a beneficiary has a
mandatory income interest;
(b) to principal to the extent that the amount of timber removed from the land exceeds the
rate of growth of the timber or the net receipts are from the sale of standing timber;
(c) to or between income and principal if the net receipts are from the lease of timberland
or from a contract to cut timber from land owned by a trust, by determining the amount of timber
removed from the land under the lease or contract and applying the rules in Subsections
22-3-411 (1)(a) and (b); or
(d) to principal to the extent that advance payments, bonuses, and other payments are not
allocated pursuant to Subsection 22-3-411 (1)(a), (b), or (c).
(2) In determining net receipts to be allocated pursuant to Subsection 22-3-411 (1), a
trustee shall deduct and transfer to principal a reasonable amount for depletion.
(3) This chapter applies whether or not a decedent or transferor was harvesting timber
from the property before it became subject to the trust.
(4) If a trust owns an interest in timberland on May 3, 2004, the trustee may allocate net
receipts from the sale of timber and related products as provided in this chapter or in the manner
used by the trustee before May 3, 2004. If the trust acquires an interest in timberland after May
3, 2004, the trustee shall allocate net receipts from the sale of timber and related products as
provided in this chapter.
Section 25. Section 22-3-413 is enacted to read:
22-3-413. Receipts normally apportioned -- Property not productive of income.
(1) If a marital deduction is allowed for all or part of a trust whose assets consist
substantially of property that does not provide the spouse with sufficient income from or use of
the trust assets, and if the amounts that the trustee transfers from principal to income under
Section 22-3-104 and distributes to the spouse from principal pursuant to the terms of the trust
are insufficient to provide the spouse with the beneficial enjoyment required to obtain the marital
deduction, the spouse may require the trustee to make property productive of income, convert
property within a reasonable time, or exercise the power conferred by Subsection 22-3-104 (1).
The trustee may decide which action or combination of actions to take.
(2) In cases not governed by Subsection (1), proceeds from the sale or other disposition
of an asset are principal without regard to the amount of income the asset produces during any
accounting period.
Section 26. Section 22-3-414 is enacted to read:
22-3-414. Receipts normally apportioned -- Derivatives and options.
(1) In this section, "derivative" means a contract or financial instrument or a combination
of contracts and financial instruments which gives a trust the right or obligation to participate in
some or all changes in the price of a tangible or intangible asset or group of assets, or changes in a
rate, an index of prices or rates, or other market indicator for an asset or a group of assets.
(2) To the extent that a trustee does not account under Section 22-3-403 for transactions
in derivatives, the trustee shall allocate to principal receipts from and disbursements made in
connection with those transactions.
(3) If a trustee grants an option to buy property from the trust, whether or not the trust
owns the property when the option is granted, grants an option that permits another person to sell
property to the trust, or acquires an option to buy property for the trust or an option to sell an
asset owned by the trust, and the trustee or other owner of the asset is required to deliver the
asset if the option is exercised, an amount received for granting the option must be allocated to
principal. An amount paid to acquire the option must be paid from principal. A gain or loss
realized upon the exercise of an option, including an option granted to a settlor of the trust for
services rendered, must be allocated to principal.
Section 27. Section 22-3-415 is enacted to read:
22-3-415. Receipts normally apportioned -- Asset-backed securities.
(1) In this section, "asset-backed security" means an asset whose value is based upon the
right it gives the owner to receive distributions from the proceeds of financial assets that provide
collateral for the security. The term includes an asset that gives the owner the right to receive
from the collateral financial assets only the interest or other current return or only the proceeds
other than interest or current return. The term does not include an asset to which Section
22-3-401 or 22-3-409 applies.
(2) If a trust receives a payment from interest or other current return and from other
proceeds of the collateral financial assets, the trustee shall allocate to income the portion of the
payment which the payer identifies as being from interest or other current return and shall allocate
the balance of the payment to principal.
(3) If a trust receives one or more payments in exchange for the trust's entire interest in an
asset-backed security in one accounting period, the trustee shall allocate the payments to
principal. If a payment is one of a series of payments that will result in the liquidation of the
trust's interest in the security over more than one accounting period, the trustee shall allocate 10%
of the payment to income and the balance to principal.
Section 28. Section 22-3-501 is enacted to read:
22-3-501. Disbursements from income.
A trustee shall make the following disbursements from income to the extent that they are
not disbursements to which Subsection 22-3-201 (2)(b) or (c) applies:
(1) 1/2 of the regular compensation of the trustee and of any person providing investment
advisory or custodial services to the trustee;
(2) 1/2 of all expenses for accountings, judicial proceedings, or other matters that involve
both the income and remainder interests;
(3) all of the other ordinary expenses incurred in connection with the administration,
management, or preservation of trust property and the distribution of income, including interest,
ordinary repairs, regularly recurring taxes assessed against principal, and expenses of a proceeding
or other matter that concerns primarily the income interest; and
(4) recurring premiums on insurance covering the loss of a principal asset or the loss of
income from or use of the asset.
Section 29. Section 22-3-502 is enacted to read:
22-3-502. Disbursements from principal.
(1) A trustee shall make the following disbursements from principal:
(a) the remaining 1/2 of the disbursements described in Subsections 22-3-501 (1) and (2);
(b) all of the trustee's compensation calculated on principal as a fee for acceptance,
distribution, or termination, and disbursements made to prepare property for sale;
(c) payments on the principal of a trust debt;
(d) expenses of a proceeding that concerns primarily principal, including a proceeding to
construe the trust or to protect the trust or its property;
(e) premiums paid on a policy of insurance not described in Subsection 22-3-501 (4) of
which the trust is the owner and beneficiary;
(f) estate, inheritance, and other transfer taxes, including penalties, apportioned to the
trust; and
(g) disbursements related to environmental matters, including reclamation, assessing
environmental conditions, remedying and removing environmental contamination, monitoring
remedial activities and the release of substances, preventing future releases of substances,
collecting amounts from persons liable or potentially liable for the costs of those activities,
penalties imposed under environmental laws or regulations and other payments made to comply
with those laws or regulations, statutory or common law claims by third parties, and defending
claims based on environmental matters.
(2) If a principal asset is encumbered with an obligation that requires income from that
asset to be paid directly to the creditor, the trustee shall transfer from principal to income an
amount equal to the income paid to the creditor in reduction of the principal balance of the
obligation.
Section 30. Section 22-3-503 is enacted to read:
22-3-503. Transfers from income to principal for depreciation.
(1) In this section, "depreciation" means a reduction in value due to wear, tear, decay,
corrosion, or gradual obsolescence of a fixed asset having a useful life of more than one year.
(2) A trustee may transfer to principal a reasonable amount of the net cash receipts from a
principal asset that is subject to depreciation, but may not transfer any amount for depreciation:
(a) of that portion of real property used or available for use by a beneficiary as a residence
or of tangible personal property held or made available for the personal use or enjoyment of a
beneficiary;
(b) during the administration of a decedent's estate; or
(c) under this section if the trustee is accounting under Section 22-3-403 for the business
or activity in which the asset is used.
(3) An amount transferred to principal need not be held as a separate fund.
Section 31. Section 22-3-504 is enacted to read:
22-3-504. Transfers from income to reimburse principal.
(1) If a trustee makes or expects to make a principal disbursement described in this
section, the trustee may transfer an appropriate amount from income to principal in one or more
accounting periods to reimburse principal or to provide a reserve for future principal
disbursements.
(2) Principal disbursements to which Subsection (1) applies include the following, but
only to the extent that the trustee has not been and does not expect to be reimbursed by a third
party:
(a) an amount chargeable to income but paid from principal because it is unusually large,
including extraordinary repairs;
(b) a capital improvement to a principal asset, whether in the form of changes to an
existing asset or the construction of a new asset, including special assessments;
(c) disbursements made to prepare property for rental, including tenant allowances,
leasehold improvements, and broker's commissions;
(d) periodic payments on an obligation secured by a principal asset to the extent that the
amount transferred from income to principal for depreciation is less than the periodic payments;
and
(e) disbursements described in Subsection 22-3-502 (1)(g).
(3) If the asset whose ownership gives rise to the disbursements becomes subject to a
successive income interest after an income interest ends, a trustee may continue to transfer
amounts from income to principal as provided in Subsection (1).
Section 32. Section 22-3-505 is enacted to read:
22-3-505. Income taxes.
(1) A tax required to be paid by a trustee based on receipts allocated to income must be
paid from income.
(2) A tax required to be paid by a trustee based on receipts allocated to principal must be
paid from principal, even if the tax is called an income tax by the taxing authority.
(3) A tax required to be paid by a trustee on the trust's share of an entity's taxable income
must be paid proportionately:
(a) from income to the extent that receipts from the entity are allocated to income; and
(b) from principal to the extent that:
(i) receipts from the entity are allocated to principal; and
(ii) the trust's share of the entity's taxable income exceeds the total receipts described in
Subsections (3)(a) and (3)(b)(i).
(4) For purposes of this section, receipts allocated to principal or income must be reduced
by the amount distributed to a beneficiary from principal or income for which the trust receives a
deduction in calculating the tax.
Section 33. Section 22-3-506 is enacted to read:
22-3-506. Adjustments between principal and income because of taxes.
(1) A fiduciary may make adjustments between principal and income to offset the shifting
of economic interests or tax benefits between income beneficiaries and remainder beneficiaries
which arise from:
(a) elections and decisions, other than those described in Subsection (2), that the fiduciary
makes from time to time regarding tax matters;
(b) an income tax or any other tax that is imposed upon the fiduciary or a beneficiary as a
result of a transaction involving or a distribution from the estate or trust; or
(c) the ownership by an estate or trust of an interest in an entity whose taxable income,
whether or not distributed, is includable in the taxable income of the estate, trust, or a beneficiary.
(2) If the amount of an estate tax marital deduction or charitable contribution deduction is
reduced because a fiduciary deducts an amount paid from principal for income tax purposes
instead of deducting it for estate tax purposes, and as a result estate taxes paid from principal are
increased and income taxes paid by an estate, trust, or beneficiary are decreased, each estate,
trust, or beneficiary that benefits from the decrease in income tax shall reimburse the principal
from which the increase in estate tax is paid. The total reimbursement must equal the increase in
the estate tax to the extent that the principal used to pay the increase would have qualified for a
marital deduction or charitable contribution deduction but for the payment. The proportionate
share of the reimbursement for each estate, trust, or beneficiary whose income taxes are reduced
must be the same as its proportionate share of the total decrease in income tax. An estate or trust
shall reimburse principal from income.
Section 34. Section 22-3-601 is enacted to read:
22-3-601. Uniformity of application and construction.
In applying and construing this chapter, consideration must be given to the need to
promote uniformity of the law with respect to its subject matter among states that enact it.
Section 35. Section 22-3-602 is enacted to read:
22-3-602. Severability clause.
If any provision of this chapter or its application to any person or circumstance is held
invalid, the invalidity does not affect other provisions or applications of this chapter which can be
given effect without the invalid provision or application, and to this end the provisions of this
chapter are severable.
Section 36. Section 22-3-603 is enacted to read:
22-3-603. Application of chapter to existing trusts and estates.
This chapter applies to every trust or decedent's estate existing on May 3, 2004 except as
otherwise expressly provided in the will or terms of the trust or in this chapter.
Section 37. Repealer.
This bill repeals:
Section 22-3-1, Short title.
Section 22-3-2, Definitions.
Section 22-3-3, Duty of trustee as to receipts and expenditures.
Section 22-3-4, Income -- Principal -- Charges.
Section 22-3-5, When right to income arises -- Apportionment of income.
Section 22-3-6, Income earned during administration of a decedent's estate.
Section 22-3-7, Corporate distributions.
Section 22-3-8, Bond premium and discount.
Section 22-3-9, Business and farming operations.
Section 22-3-10, Disposition of natural resources.
Section 22-3-11, Timber.
Section 22-3-12, Other property subject to depletion.
Section 22-3-13, Underproductive property.
Section 22-3-14, Charges against income and principal.
Section 22-3-15, Application of chapter.
Section 22-3-16, Uniformity of interpretation.
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