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S.B. 103

             1     

UNIFORM LAWS - UNIFORM PRINCIPAL

             2     
AND INCOME ACT AMENDMENTS

             3     
2009 GENERAL SESSION

             4     
STATE OF UTAH

             5     
Chief Sponsor: Lyle W. Hillyard

             6     
House Sponsor: Fred R Hunsaker

             7     
             8      LONG TITLE
             9      General Description:
             10          This bill makes updates to the Uniform Principal and Income Act.
             11      Highlighted Provisions:
             12          This bill:
             13          .    clarifies the allocation of payments to trustees over a fixed number of years;
             14          .    defines what is considered a separate fund;
             15          .    allows for special consideration of trusts which qualify for a marital deduction;
             16          .    specifies where taxes the trustee must pay shall be paid from according to the source
             17      of the funds on which the taxes are being paid; and
             18          .    has retroactive effect under specific conditions.
             19      Monies Appropriated in this Bill:
             20          None
             21      Other Special Clauses:
             22          None
             23      Utah Code Sections Affected:
             24      AMENDS:
             25          22-3-409, as enacted by Laws of Utah 2004, Chapter 285
             26          22-3-505, as enacted by Laws of Utah 2004, Chapter 285
             27      ENACTS:


             28          22-3-604, Utah Code Annotated 1953
             29     
             30      Be it enacted by the Legislature of the state of Utah:
             31          Section 1. Section 22-3-409 is amended to read:
             32           22-3-409. Receipts normally apportioned -- Deferred compensation, annuities,
             33      and similar payments.
             34          (1) [In] As used in this section[, "payment"]:
             35          (a) "Payment" means a payment that a trustee may receive over a fixed number of
             36      years or during the life of one or more individuals because of services rendered or property
             37      transferred to the payer in exchange for future payments. The term includes a payment made in
             38      money or property from the payer's general assets or from a separate fund created by the payer[,
             39      including]. For the purposes of Subsections (4), (5), (6), and (7), the term also includes any
             40      payment from a separate fund, regardless of the reason for the payment.
             41          (b) "Separate fund" includes a private or commercial annuity, an individual retirement
             42      account, and a pension, profit-sharing, stock-bonus, or stock-ownership plan.
             43          (2) To the extent that a payment is characterized as interest [or], a dividend or a
             44      payment made in lieu of interest or a dividend, a trustee shall allocate [it] the payment to
             45      income. The trustee shall allocate to principal the balance of the payment and any other
             46      payment received in the same accounting period that is not characterized as interest, a dividend,
             47      or an equivalent payment.
             48          (3) If no part of a payment is characterized as interest, a dividend, or an equivalent
             49      payment, and all or part of the payment is required to be made, a trustee shall allocate to
             50      income 10% of the part that is required to be made during the accounting period and the
             51      balance to principal. If no part of a payment is required to be made or the payment received is
             52      the entire amount to which the trustee is entitled, the trustee shall allocate the entire payment to
             53      principal. For purposes of this Subsection (3), a payment is not "required to be made" to the
             54      extent that it is made because the trustee exercises a right of withdrawal.
             55          [(4) If, to obtain an estate tax marital deduction for a trust, a trustee must allocate more
             56      of a payment to income than provided for by this section, the trustee shall allocate to income
             57      the additional amount necessary to obtain the marital deduction.]
             58          (4) Except as otherwise provided in Subsection (5), Subsections (6) and (7) apply, and


             59      Subsections (2) and (3) do not apply, in determining the allocation of a payment made from a
             60      separate fund to:
             61          (a) a trust to which an election to qualify for a marital deduction under Section
             62      2056(b)(7) of the Internal Revenue Code of 1986 has been made; or
             63          (b) a trust that qualifies for the marital deduction under Section 2056(b)(5) of the
             64      Internal Revenue Code of 1986.
             65          (5) Subsections (4), (6), and (7) do not apply if and to the extent that the series of
             66      payments would, without the application of Subsection (4), qualify for the marital deduction
             67      under Section 2056(b)(7)(C) of the Internal Revenue Code of 1986.
             68          (6) A trustee shall determine the internal income of each separate fund for the
             69      accounting period as if the separate fund were a trust subject to this chapter. Upon request of
             70      the surviving spouse, the trustee shall demand of the person administering the separate fund
             71      that this internal income be distributed to the trust. The trustee shall allocate a payment from
             72      the separate fund to income to the extent of the internal income of the separate fund and
             73      distribute that amount to the surviving spouse. The trustee shall allocate the balance to
             74      principal. Upon request of the surviving spouse, the trustee shall allocate principal to income
             75      to the extent the internal income of the separate fund exceeds payments made from the separate
             76      fund to the trust during the accounting period.
             77          (7) If a trustee cannot determine the internal income of a separate fund but can
             78      determine the value of the separate fund, the internal income of the separate fund is considered
             79      to equal 4% of the fund's value, according to the most recent statement of value preceding the
             80      beginning of the accounting period. If the trustee can determine neither the internal income of
             81      the separate fund nor the fund's value, the internal income of the fund is considered to equal the
             82      product of the interest rate and the present value of the expected future payments, as
             83      determined under Section 7520 of the Internal Revenue Code of 1986 for the month preceding
             84      the accounting period for which the computation is made.
             85          [(5)] (8) This section does not apply to [payments] a payment to which Section
             86      22-3-410 applies.
             87          Section 2. Section 22-3-505 is amended to read:
             88           22-3-505. Income taxes.
             89          (1) A tax required to be paid by a trustee based on receipts allocated to income must be


             90      paid from income.
             91          (2) A tax required to be paid by a trustee based on receipts allocated to principal must
             92      be paid from principal, even if the tax is called an income tax by the taxing authority.
             93          (3) A tax required to be paid by a trustee on the trust's share of an entity's taxable
             94      income must be paid [proportionately]:
             95          (a) from income to the extent that receipts from the entity are allocated only to income;
             96      [and]
             97          (b) from principal to the extent that[: (i)] receipts from the entity are allocated only to
             98      principal; [and]
             99          [(ii) the trust's share of the entity's taxable income exceeds the total receipts described
             100      in Subsections (3)(a) and (3)(b)(i).]
             101          [(4) For purposes of this section, receipts allocated to principal or income must be
             102      reduced by the amount distributed to a beneficiary from principal or income for which the trust
             103      receives a deduction in calculating the tax.]
             104          (c) proportionately from principal and income to the extent that receipts from the entity
             105      are allocated to both income and principal; and
             106          (d) from principal to the extent that the tax exceeds the total receipts from the entity.
             107          (4) After applying Subsections (1) through (3), the trustee shall adjust income or
             108      principal receipts to the extent that the trust's taxes are reduced because the trust receives a
             109      deduction for payments made to a beneficiary.
             110          Section 3. Section 22-3-604 is enacted to read:
             111          22-3-604. Transitional provisions.
             112          Section 22-3-409 applies to a trust described in Subsection 22-3-409 (4) as follows:
             113          (1) If the trust is not funded as of May 3, 2004, then Section 22-3-409 applies to the
             114      trust on the date of the decedent's death.
             115          (2) If the trust is initially funded in the calendar year beginning January 1, 2004, then
             116      Section 22-3-409 applies to the trust on the date of the decedent's death.
             117          (3) If the trust is not described in Subsection (1) or (2), then Section 22-3-409 applies
             118      to the trust as of January 1, 2009.





Legislative Review Note
    as of 12-31-08 9:49 AM


Office of Legislative Research and General Counsel


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