Senate Bill No. 196–Senator Care

 

February 24, 2003

____________

 

Referred to Committee on Judiciary

 

SUMMARY—Enacts Uniform Prudent Investor Act and Uniform Principal and Income Act (1997). (BDR 13‑1107)

 

FISCAL NOTE:  Effect on Local Government: No.

                           Effect on the State: No.

 

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EXPLANATION – Matter in bolded italics is new; matter between brackets [omitted material] is material to be omitted.

 

AN ACT relating to trusts; adapting the Uniform Prudent Investor Act and the Uniform Principal and Income Act (1997) to each other and the structure of Nevada Revised Statutes; and providing other matters properly relating thereto.

 

THE PEOPLE OF THE STATE OF NEVADA, REPRESENTED IN

SENATE AND ASSEMBLY, DO ENACT AS FOLLOWS:

 

1-1  Section 1. Chapter 164 of NRS is hereby amended by adding

1-2  thereto the provisions set forth as sections 2 to 44, inclusive, of this

1-3  act.

1-4  Sec. 2.  As used in sections 2 to 44, inclusive, of this act:

1-5  1.  “Fiduciary” means a trustee or, to the extent that sections

1-6  15 to 44, inclusive, of this act apply to an estate, a personal

1-7  representative.

1-8  2.  “Terms of a trust” means the manifestation of the intent of

1-9  a settlor or decedent with respect to the trust, expressed in a

1-10  manner that admits of its proof in a judicial proceeding, whether

1-11  by written or spoken words or by conduct.

1-12      Sec. 3.  In performing his duties under sections 2 to 44,

1-13  inclusive, of this act, a fiduciary:

1-14      1.  Shall administer a trust or estate in accordance with the

1-15  terms of the trust or the will, even if there is a different provision

1-16  in sections 2 to 44, inclusive, of this act;

1-17      2.  May administer a trust or estate by the exercise of a

1-18  discretionary power of administration given to the fiduciary by the

2-1  terms of the trust or the will, even if the exercise of the power

2-2  produces a result different from a result required or permitted by

2-3  sections 2 to 44, inclusive, of this act; and

2-4  3.  Shall administer a trust or estate in accordance with

2-5  sections 2 to 44, inclusive, of this act if the terms of the trust or the

2-6  will do not contain a different provision or do not give the

2-7  fiduciary a discretionary power of administration.

2-8  Sec. 4.  A trustee shall invest and manage the trust property

2-9  solely in the interest of the beneficiaries.

2-10      Sec. 5.  1.  If a trust has two or more beneficiaries, the

2-11  trustee shall act impartially in investing and managing the trust

2-12  property, taking into account any differing interests of the

2-13  beneficiaries.

2-14      2.  In exercising the power to adjust under section 18 of this

2-15  act or a discretionary power of administration regarding a matter

2-16  within the scope of sections 15 to 44, inclusive, of this act, whether

2-17  granted by the terms of a trust, a will or sections 15 to 44,

2-18  inclusive, of this act, a fiduciary shall administer a trust or estate

2-19  impartially, based on what is fair and reasonable to all the

2-20  beneficiaries, except to the extent that the terms of the trust or the

2-21  will clearly manifest an intention that the fiduciary shall or may

2-22  favor one or more of the beneficiaries. A determination in

2-23  accordance with sections 15 to 44, inclusive, of this act is

2-24  presumed to be fair and reasonable to all the beneficiaries.

2-25      Sec. 5.3. 1.  As used in this section, “action” includes a

2-26  course of action and a decision on whether or not to take action.

2-27      2.  A trustee may provide a notice of proposed action

2-28  regarding any matter governed by sections 2 to 44, inclusive, of

2-29  this act.

2-30      3.  If a trustee provides a notice of proposed action, the trustee

2-31  shall mail the notice of proposed action to every adult beneficiary

2-32  who, at the time the notice is provided, receives, or is entitled to

2-33  receive, income under the trust or who would be entitled to receive

2-34  a distribution of principal if the trust were terminated. A notice of

2-35  proposed action need not be provided to a person who consents in

2-36  writing to the proposed action. A consent to a proposed action may

2-37  be executed before or after the proposed action is taken.

2-38      4.  The notice of proposed action must state:

2-39      (a) That the notice is provided pursuant to this section;

2-40      (b) The name and mailing address of the trustee;

2-41      (c) The name and telephone number of a person with whom to

2-42  communicate for additional information regarding the proposed

2-43  action;

2-44      (d) A description of the proposed action and an explanation of

2-45  the reason for taking the action;

3-1  (e) The time within which objection to the proposed action may

3-2  be made, which must be not less than 30 days after the notice of

3-3  proposed action is mailed; and

3-4  (f) The date on or after which the proposed action is to be

3-5  taken or is to be effective.

3-6  5.  A beneficiary may object to the proposed action by mailing

3-7  a written objection to the trustee at the address and within the time

3-8  stated in the notice.

3-9  6.  If no beneficiary entitled to receive notice of a proposed

3-10  action objects to the proposed action and the other requirements of

3-11  this section are met, the trustee is not liable to any present or

3-12  future beneficiary with respect to that proposed action.

3-13      7.  If the trustee received a written objection to the proposed

3-14  action within the period specified in the notice, the trustee or a

3-15  beneficiary may petition the court for an order to take the action

3-16  as proposed, take the action with modification or deny the

3-17  proposed action. A beneficiary who failed to object to the proposed

3-18  action is not estopped from opposing the proposed action. The

3-19  burden is on a beneficiary to prove that the proposed action

3-20  should not be taken or should be modified.

3-21      8.  If the trustee decides not to take a proposed action for

3-22  which notice has been provided, the trustee shall notify the

3-23  beneficiaries of his decision not to take the proposed action and

3-24  the reasons for his decision. The trustee is not liable to any present

3-25  or future beneficiary with respect to the decision not to take the

3-26  proposed action. A beneficiary may petition the court for an order

3-27  to take the action as proposed. The burden is on the beneficiary to

3-28  prove that the proposed action should be taken.

3-29      9.  If the proposed action for which notice has been proved is

3-30  an adjustment to principal and income pursuant to section 18 of

3-31  this act, the sole remedy a court may order, pursuant to

3-32  subsections 7 and 8, is to make the adjustment, to make the

3-33  adjustment with a modification or to order the adjustment not to

3-34  be made.

3-35      Sec. 5.5. 1.  The provisions of sections 2 to 44, inclusive, of

3-36  this act do not impose or create a duty of a trustee to make an

3-37  adjustment between principal and income pursuant to the

3-38  provisions of section 18 of this act.

3-39      2.  A trustee shall not be liable for:

3-40      (a) Not considering whether to make such an adjustment; or

3-41      (b) Deciding not to make such an adjustment.

3-42      Sec. 5.7. Except as specifically provided in a trust

3-43  instrument, a will or sections 2 to 44, inclusive, the provisions of

3-44  sections 2 to 44, inclusive, apply to any trust or estate of a

3-45  decedent existing on or after October 1, 2003.

4-1  Sec. 6.  Sections 2 to 14, inclusive, of this act may be cited as

4-2  the Uniform Prudent Investor Act.

4-3  Sec. 7.  A trustee who invests and manages trust property

4-4  owes a duty to the beneficiaries of the trust to comply with the

4-5  prudent investor rule as set forth in sections 2 to 14, inclusive, of

4-6  this act but a trustee is not liable to a beneficiary to the extent that

4-7  the trustee acted in reasonable reliance on the terms of the trust.

4-8  Sec. 8.  1.  A trustee shall invest and manage trust property

4-9  as a prudent investor would, considering the terms, purposes,

4-10  requirements for distribution, and other circumstances of the

4-11  trust. In satisfying this standard, the trustee shall exercise

4-12  reasonable care, skill and caution.

4-13      2.  A trustee’s decisions concerning investment and

4-14  management as applied to individual assets must be evaluated not

4-15  in isolation but in the context of the trust portfolio as a whole and

4-16  as part of an overall strategy of investment having objectives for

4-17  risk and return reasonably suited to the trust.

4-18      3.  Among circumstances that a trustee shall consider in

4-19  investing and managing trust property are such of the following as

4-20  are relevant to the trust or its beneficiaries:

4-21      (a) General economic conditions;

4-22      (b) The possible effect of inflation or deflation;

4-23      (c) The expected tax consequences of decisions or strategies;

4-24      (d) The role that each investment or course of action plays

4-25  within the overall trust portfolio;

4-26      (e) The expected total return from income and the

4-27  appreciation of capital;

4-28      (f) Other resources of the beneficiaries;

4-29      (g) Needs for liquidity, regularity of income, and preservation

4-30  or appreciation of capital; and

4-31      (h) An asset’s special relationship or special value, if any, to

4-32  the purposes of the trust or to one or more of the beneficiaries.

4-33      4.  A trustee shall make a reasonable effort to verify facts

4-34  relevant to the investment and management of trust property.

4-35      5.  A trustee may invest in any kind of property or type of

4-36  investment consistent with the standards of sections 2 to 14,

4-37  inclusive, of this act, which may include financial assets, interests

4-38  in closely held enterprises, tangible and intangible personal

4-39  property, and real property.

4-40      6.  A trustee who has special skills or expertise, or is named

4-41  trustee in reliance upon his representation that he has special

4-42  skills or expertise, has a duty to use those special skills or

4-43  expertise.

4-44      Sec. 9.  A trustee shall diversify the investments of the trust

4-45  unless he reasonably determines that, because of special

5-1  circumstances, the purposes of the trust are better served without

5-2  diversifying.

5-3  Sec. 10.  Within a reasonable time after accepting a

5-4  trusteeship or receiving trust property, a trustee shall review the

5-5  trust property and make and carry out decisions concerning the

5-6  retention and disposition of assets, in order to bring the trust

5-7  portfolio into compliance with the purposes, terms, requirements

5-8  for distribution and other circumstances of the trust, and with the

5-9  requirements of sections 2 to 14, inclusive, of this act.

5-10      Sec. 11.  In investing and managing trust property, a trustee

5-11  may only incur costs that are appropriate and reasonable in

5-12  relation to the property, the purposes of the trust and the skills of

5-13  the trustee.

5-14      Sec. 12.  Compliance with the prudent investor rule is

5-15  determined in light of the facts and circumstances existing at the

5-16  time of a trustee’s decision or action and not by hindsight.

5-17      Sec. 13.  1.  A trustee may delegate functions of investment

5-18  and management that a prudent trustee of comparable skills could

5-19  properly delegate under the circumstances. He shall exercise

5-20  reasonable care, skill and caution in:

5-21      (a) Selecting an agent;

5-22      (b) Establishing the scope and terms of the delegation,

5-23  consistent with the purposes and terms of the trust; and

5-24      (c) Periodically reviewing the agent’s actions in order to verify

5-25  the agent’s performance and compliance with the terms of the

5-26  delegation.

5-27      2.  In performing a delegated function, an agent owes a duty

5-28  to the trust to exercise reasonable care to comply with the terms of

5-29  the delegation.

5-30      3.  A trustee who complies with the requirements of subsection

5-31  1 is not liable to the beneficiaries or to the trust for the decisions

5-32  or actions of the agent to whom the function was delegated.

5-33      4.  By accepting the delegation of a function from the trustee

5-34  of a trust that is subject to the law of this state, an agent submits to

5-35  the jurisdiction of the courts of this state.

5-36      Sec. 14.  The following terms or comparable language in the

5-37  terms of a trust, unless otherwise limited or modified, authorizes

5-38  any investment or strategy permitted under sections 2 to 14,

5-39  inclusive, of this act: “investments permissible by law for

5-40  investment of trust funds,” “legal investments,” “authorized

5-41  investments,” “using the judgment and care under the

5-42  circumstances then prevailing that persons of prudence, discretion

5-43  and intelligence exercise in the management of their own affairs,

5-44  not in regard to speculation but in regard to the permanent

5-45  disposition of their funds, considering the probable income as well

6-1  as the probable safety of their capital,” “prudent man rule,”

6-2  “prudent trustee rule,” “prudent person rule” and “prudent

6-3  investor rule.”

6-4  Sec. 15.  Section 2, subsection 2 of section 5 and sections 15

6-5  to 44, inclusive, of this act may be cited as the Uniform Principal

6-6  and Income Act (1997).

6-7  Sec. 16.  As used in sections 15 to 44, inclusive, of this act:

6-8  1.  “Accounting period” means a calendar year unless

6-9  another 12-month period is selected by a fiduciary. The term

6-10  includes a portion of a calendar year or other 12-month period

6-11  that begins when an income interest begins or ends when an

6-12  income interest ends.

6-13      2.  “Beneficiary” includes, in the case of a decedent’s estate,

6-14  an heir, legatee and devisee and, in the case of a trust, an income

6-15  beneficiary and a remainder beneficiary.

6-16      3.  “Fiduciary” includes an executor, administrator, successor

6-17  personal representative, special administrator and a person

6-18  performing substantially the same function.

6-19      4.  “Income” means money or property that a fiduciary

6-20  receives as current return from a principal asset. The term

6-21  includes a portion of receipts from a sale, exchange or liquidation

6-22  of a principal asset, to the extent provided in sections 24 to 38,

6-23  inclusive, of this act.

6-24      5.  “Income beneficiary” means a person to whom net income

6-25  of a trust is or may be payable.

6-26      6.  “Income interest” means the right of an income

6-27  beneficiary to receive all or part of net income, whether the terms

6-28  of the trust require it to be distributed or authorize it to be

6-29  distributed in the trustee’s discretion.

6-30      7.  “Mandatory income interest” means the right of an income

6-31  beneficiary to receive net income that the terms of the trust require

6-32  the fiduciary to distribute.

6-33      8.  “Net income” means the total receipts allocated to income

6-34  during an accounting period minus the disbursements made from

6-35  income during the period, plus or minus transfers under sections

6-36  15 to 44, inclusive, of this act to or from income during the period.

6-37      9.  “Principal” means property held in trust for distribution to

6-38  a remainder beneficiary when the trust terminates.

6-39      10.  “Remainder beneficiary” means a person entitled to

6-40  receive principal when an income interest ends.

6-41      Sec. 17.  In allocating receipts and disbursements to or

6-42  between principal and income, and with respect to any matter

6-43  within the scope of sections 19 to 23, inclusive, of this act, a

6-44  fiduciary shall add a receipt or charge a disbursement to principal

6-45  to the extent that the terms of the trust and sections 15 to 44,

7-1  inclusive, of this act do not provide a rule for allocating the receipt

7-2  or disbursement to or between principal and income.

7-3  Sec. 18.  1.  A trustee may adjust between principal and

7-4  income to the extent he considers necessary if he invests and

7-5  manages trust assets as a prudent investor, the terms of the trust

7-6  describe the amount that may or must be distributed to a

7-7  beneficiary by referring to the trust’s income, and he determines,

7-8  after applying the rules in sections 3 and 17 of this act, that he is

7-9  unable to comply with subsection 2 of section 5 of this act.

7-10      2.  In deciding whether and to what extent to exercise the

7-11  power conferred by subsection 1, a trustee shall consider all

7-12  factors relevant to the trust and its beneficiaries, including the

7-13  following factors to the extent they are relevant:

7-14      (a) The nature, purpose and expected duration of the trust;

7-15      (b) The intent of the settlor;

7-16      (c) The identity and circumstances of the beneficiaries;

7-17      (d) The needs for liquidity, regularity of income, and

7-18  preservation and appreciation of capital;

7-19      (e) The assets held in the trust, the extent to which the assets

7-20  consist of financial assets, interests in closely held enterprises,

7-21  tangible and intangible personal property, or real property, the

7-22  extent to which an asset is used by a beneficiary, and whether an

7-23  asset was purchased by the trustee or received from the settlor;

7-24      (f) The net amount allocated to income under the other

7-25  provisions of sections 15 to 44, inclusive, of this act and the

7-26  increase or decrease in the value of the principal assets, which the

7-27  trustee may estimate as to assets for which market values are not

7-28  readily available;

7-29      (g) Whether and to what extent the terms of the trust give the

7-30  trustee the power to invade principal or accumulate income or

7-31  prohibit him from invading principal or accumulating income,

7-32  and the extent to which he has exercised a power from time to time

7-33  to invade principal or accumulate income;

7-34      (h) The actual and anticipated effect of economic conditions

7-35  on principal and income and effects of inflation and deflation;

7-36  and

7-37      (i) The anticipated tax consequences of an adjustment.

7-38      3.  A trustee may not make an adjustment:

7-39      (a) That diminishes the income interest in a trust that requires

7-40  all the income to be paid at least annually to a surviving spouse

7-41  and for which an estate tax or gift tax marital deduction would be

7-42  allowed, in whole or in part, if the trustee did not have the power

7-43  to make the adjustment;

8-1  (b) That reduces the actuarial value of the income interest in a

8-2  trust to which a person transfers property with the intent to qualify

8-3  for a gift tax exclusion;

8-4  (c) That changes the amount payable to a beneficiary as a

8-5  fixed annuity or a fixed fraction of the value of the trust assets;

8-6  (d) From any amount that is permanently set aside for

8-7  charitable purposes under a will or the terms of a trust unless both

8-8  income and principal are so set aside;

8-9  (e) If possessing or exercising the power to make an

8-10  adjustment causes a natural person to be treated as the owner of

8-11  all or part of the trust for income tax purposes, and the natural

8-12  person would not be treated as the owner if the trustee did not

8-13  possess the power to make an adjustment;

8-14      (f) If possessing or exercising the power to make an

8-15  adjustment causes all or part of the trust assets to be included for

8-16  estate tax purposes in the estate of a natural person who has the

8-17  power to remove a trustee or appoint a trustee, or both, and the

8-18  assets would not be included in the estate of the natural person if

8-19  the trustee did not possess the power to make an adjustment;

8-20      (g) If the trustee is a beneficiary of the trust; or

8-21      (h) If the trustee is not a beneficiary, but the adjustment would

8-22  benefit him directly or indirectly.

8-23      4.  If paragraph (e), (f), (g) or (h) of subsection 3 applies to a

8-24  trustee and there is more than one trustee, a cotrustee to whom the

8-25  provision does not apply may make the adjustment unless the

8-26  exercise of the power by the remaining trustee or trustees is not

8-27  permitted by the terms of the trust.

8-28      5.  A trustee may release the entire power conferred by

8-29  subsection 1 or may release only the power to adjust from income

8-30  to principal or the power to adjust from principal to income if he is

8-31  uncertain about whether possessing or exercising the power will

8-32  cause a result described in paragraphs (a) to (f), inclusive, or (h)

8-33  of subsection 3 or if he determines that possessing or exercising

8-34  the power will or may deprive the trust of a tax benefit or impose a

8-35  tax burden not described in subsection 3. The release may be

8-36  permanent or for a specified period, including a period measured

8-37  by the life of a natural person.

8-38      6.  Terms of a trust that limit the power of a trustee to make

8-39  an adjustment between principal and income do not affect the

8-40  application of this section unless it is clear from the terms of the

8-41  trust that the terms are intended to deny the trustee the power of

8-42  adjustment conferred by subsection 1.

8-43      Sec. 19.  After a decedent dies, in the case of an estate, or

8-44  after an income interest in a trust ends, the following rules apply:

9-1  1.  A fiduciary of an estate or of a terminating income interest

9-2  shall determine the amount of net income and net principal

9-3  receipts received from property specifically given to a beneficiary

9-4  under the rules in sections 21 to 44, inclusive, of this act which

9-5  apply to trustees and the rules in subsection 5. He shall distribute

9-6  the net income and net principal receipts to the beneficiary who is

9-7  to receive the specific property.

9-8  2.  A fiduciary shall determine the remaining net income of a

9-9  decedent’s estate or a terminating income interest under the rules

9-10  in sections 21 to 44, inclusive, of this act which apply to trustees

9-11  and by:

9-12      (a) Including in net income all income from property used to

9-13  discharge liabilities;

9-14      (b) Paying from income or principal, in his discretion, fees of

9-15  attorneys, accountants and fiduciaries, court costs and other

9-16  expenses of administration, and interest on death taxes, but he

9-17  may pay those expenses from income of property passing to a trust

9-18  for which he claims an estate tax marital or charitable deduction

9-19  only to the extent that the payment of those expenses from income

9-20  will not cause the reduction or loss of the deduction; and

9-21      (c) Paying from principal all other disbursements made or

9-22  incurred in connection with the settlement of a decedent’s estate

9-23  or the winding up of a terminating income interest, including

9-24  debts, funeral expenses, disposition of remains, family allowances,

9-25  and death taxes and related penalties that are apportioned to the

9-26  estate or terminating income interest by the will, the terms of the

9-27  trust, or applicable law.

9-28      3.  A fiduciary shall distribute to a beneficiary who receives a

9-29  pecuniary amount outright the interest or any other amount

9-30  provided by the will, the terms of the trust, or applicable law from

9-31  net income determined under subsection 2 or from principal to the

9-32  extent that net income is insufficient. If a beneficiary is to receive

9-33  a pecuniary amount outright from a trust after an income interest

9-34  ends and no interest or other amount is provided for by the terms

9-35  of the trust or applicable law, the fiduciary shall distribute the

9-36  interest or other amount to which the beneficiary would be entitled

9-37  under applicable law if the pecuniary amount were required to be

9-38  paid under a will.

9-39      4.  A fiduciary shall distribute the net income remaining after

9-40  distributions required by subsection 3 in the manner described in

9-41  section 20 of this act to all other beneficiaries, including a

9-42  beneficiary who receives a pecuniary amount in trust, even if he

9-43  holds an unqualified power to withdraw assets from the trust or

9-44  other presently exercisable general power of appointment over the

9-45  trust.

10-1      5.  A fiduciary may not reduce principal or income receipts

10-2  from property described in subsection 1 because of a payment

10-3  described in section 39 or 40 of this act to the extent that the will,

10-4  the terms of the trust, or applicable law requires him to make the

10-5  payment from assets other than the property or to the extent he

10-6  recovers or expects to recover the payment from a third party. The

10-7  net income and principal receipts from the property are

10-8  determined by including all the amounts the fiduciary receives or

10-9  pays with respect to the property, whether those amounts accrued

10-10  or became due before, on, or after the date of a decedent’s death

10-11  or an income interest’s terminating event, and by making a

10-12  reasonable provision for amounts that he believes the estate or

10-13  terminating income interest may become obligated to pay after the

10-14  property is distributed.

10-15     Sec. 20.  1.  Each beneficiary described in subsection 4 of

10-16  section 19 of this act is entitled to receive a portion of the net

10-17  income equal to his fractional interest in undistributed principal

10-18  assets, using values as of the date of distribution. If a fiduciary

10-19  makes more than one distribution of assets to beneficiaries to

10-20  whom this section applies, each beneficiary, including one who

10-21  does not receive part of the distribution, is entitled, as of each date

10-22  of distribution, to the net income the fiduciary has received after

10-23  the date of death or terminating event or earlier date of

10-24  distribution but has not distributed as of the current date of

10-25  distribution.

10-26     2.  In determining a beneficiary’s share of net income, the

10-27  following rules apply:

10-28     (a) He is entitled to receive a portion of the net income equal

10-29  to his fractional interest in the undistributed principal assets

10-30  immediately before the date of distribution, including assets that

10-31  later may be sold to meet principal obligations.

10-32     (b) His fractional interest in the undistributed principal assets

10-33  must be calculated without regard to property specifically given to

10-34  a beneficiary and property required to pay pecuniary amounts not

10-35  in trust.

10-36     (c) His fractional interest in the undistributed principal assets

10-37  must be calculated on the basis of the aggregate value of those

10-38  assets as of the date of distribution without reducing the value by

10-39  any unpaid principal obligation.

10-40     (d) The date of distribution for purposes of this section may be

10-41  the date as of which the fiduciary calculates the value of the assets

10-42  if that date is reasonably near the date on which assets are

10-43  actually distributed.

10-44     3.  If a fiduciary does not distribute all the collected but

10-45  undistributed net income to each person as of a date of

11-1  distribution, he shall maintain appropriate records showing the

11-2  interest of each beneficiary in that net income.

11-3      4.  A trustee may apply the rules in this section, to the extent

11-4  that he considers it appropriate, to net gain or loss realized after

11-5  the date of death or terminating event or earlier date of

11-6  distribution from the disposition of a principal asset if this section

11-7  applies to the income from the asset.

11-8      Sec. 21.  1.  An income beneficiary is entitled to net income

11-9  from the date on which the income interest begins. An income

11-10  interest begins on the date specified in the terms of the trust or, if

11-11  no date is specified, on the date an asset becomes subject to a trust

11-12  or successive income interest.

11-13     2.  An asset becomes subject to a trust:

11-14     (a) On the date it is transferred to the trust in the case of an

11-15  asset that is transferred to a trust during the transferor’s life;

11-16     (b) On the date of a testator’s death in the case of an asset that

11-17  becomes subject to a trust by reason of a will, even if there is an

11-18  intervening period of administration of the testator’s estate; or

11-19     (c) On the date of the death of a natural person in the case of

11-20  an asset that is transferred to a fiduciary by a third party because

11-21  of the death of the natural person.

11-22     3.  An asset becomes subject to a successive income interest

11-23  on the day after the preceding income interest ends, as determined

11-24  under subsection 4, even if there is an intervening period of

11-25  administration to wind up the preceding income interest.

11-26     4.  An income interest ends on the day before an income

11-27  beneficiary dies or another terminating event occurs, or on the last

11-28  day of a period during which there is no beneficiary to whom a

11-29  trustee may distribute income.

11-30     Sec. 22.  1.  A trustee shall allocate an income receipt or

11-31  disbursement other than one to which subsection 1 of section 19 of

11-32  this act applies to principal if its due date occurs before a decedent

11-33  dies in the case of an estate or before an income interest begins in

11-34  the case of a trust or successive income interest.

11-35     2.  A trustee shall allocate an income receipt or disbursement

11-36  to income if its due date occurs on or after the date on which a

11-37  decedent dies or an income interest begins and it is a periodic due

11-38  date. An income receipt or disbursement must be treated as

11-39  accruing from day to day if its due date is not periodic or it has no

11-40  due date. The portion of the receipt or disbursement accruing

11-41  before the date on which a decedent dies or an income interest

11-42  begins must be allocated to principal and the balance must be

11-43  allocated to income.

11-44     3.  An item of income or an obligation is due on the date the

11-45  payor is required to make a payment. If a date for payment is not

12-1  stated, there is no due date for the purposes of sections 15 to 44,

12-2  inclusive, of this act. Distributions to shareholders or other owners

12-3  from an entity to which section 24 of this act applies are deemed to

12-4  be due on the date fixed by the entity for determining who is

12-5  entitled to receive the distribution or, if no date is fixed, on the

12-6  date of declaration of the distribution. A due date is periodic for

12-7  receipts or disbursements that must be paid at regular intervals

12-8  under a lease or an obligation to pay interest or if an entity

12-9  customarily makes distributions at regular intervals.

12-10     Sec. 23.  1.  As used in this section, “undistributed income”

12-11  means net income received before the date on which an income

12-12  interest ends. The term does not include an item of income or

12-13  expense that is due or accrued or net income that has been added

12-14  or is required to be added to principal under the terms of the trust.

12-15     2.  When a mandatory income interest ends, the trustee shall

12-16  pay to a mandatory income beneficiary who survives that date, or

12-17  the estate of a deceased mandatory income beneficiary whose

12-18  death causes the interest to end, his share of the undistributed

12-19  income that is not disposed of under the terms of the trust unless

12-20  he has an unqualified power to revoke more than 5 percent of the

12-21  trust immediately before the income interest ends. In the latter

12-22  case, the undistributed income from the portion of the trust that

12-23  may be revoked must be added to principal.

12-24     3.  When a trustee’s obligation to pay a fixed annuity or a

12-25  fixed fraction of the value of the trust’s assets ends, he shall

12-26  prorate the final payment if and to the extent required by

12-27  applicable law to accomplish a purpose of the trust or its settlor

12-28  relating to income, gift, estate or other tax requirements.

12-29     Sec. 24.  1.  As used in this section, “entity” means a

12-30  corporation, partnership, limited-liability company, regulated

12-31  investment company, real estate investment trust, common trust

12-32  fund or any other organization in which a trustee has an interest

12-33  other than a trust or estate to which section 25 of this act applies,

12-34  a business or activity to which section 26 of this act applies or an

12-35  asset-backed security to which section 38 of this act applies.

12-36     2.  Except as otherwise provided in this section, a trustee shall

12-37  allocate to income money received from an entity.

12-38     3.  A trustee shall allocate the following receipts from an

12-39  entity to principal:

12-40     (a) Property other than money;

12-41     (b) Money received in one distribution or a series of related

12-42  distributions in exchange for part or all of a trust’s interest in the

12-43  entity;

12-44     (c) Money received in total or partial liquidation of the entity;

12-45  and

13-1      (d) Money received from an entity that is a regulated

13-2  investment company or a real estate investment trust if the money

13-3  distributed is a capital gain dividend for federal income tax

13-4  purposes.

13-5      4.  Money is received in partial liquidation:

13-6      (a) To the extent that the entity, at or near the time of a

13-7  distribution, indicates that it is a distribution in partial liquidation;

13-8  or

13-9      (b) If the total amount of money and property received in a

13-10  distribution or series of related distributions is greater than 20

13-11  percent of the entity’s gross assets, as shown by the entity’s year-

13-12  end financial statements immediately preceding the initial receipt.

13-13     5.  Money is not received in partial liquidation, nor may it be

13-14  taken into account under paragraph (b) of subsection 4, to the

13-15  extent that it does not exceed the amount of income tax that a

13-16  trustee or beneficiary must pay on taxable income of the entity

13-17  that distributes the money.

13-18     6.  A trustee may rely upon a statement made by an entity

13-19  about the source of character of a distribution if the statement is

13-20  made at or near the time of distribution by the entity’s board of

13-21  directors or other person or group of persons authorized to

13-22  exercise powers to pay money or transfer property comparable to

13-23  those of a corporation’s board of directors.

13-24     Sec. 25.  A trustee shall allocate to income an amount

13-25  received as a distribution of income from a trust or an estate in

13-26  which the trust has an interest other than a purchased interest,

13-27  and a trustee shall allocate to principal an amount received as a

13-28  distribution of principal from such a trust or estate. If a trustee

13-29  purchases an interest in a trust that is an investment entity, or a

13-30  decedent or donor transfers an interest in such a trust to a trustee,

13-31  section 24 or 38 of this act applies to a receipt from the trust.

13-32     Sec. 26.  1.  If a trustee who conducts a business or other

13-33  activity determines that it is in the best interest of all the

13-34  beneficiaries to account separately for the business or activity

13-35  instead of accounting for it as part of the trust’s general

13-36  accounting records, he may maintain separate accounting records

13-37  for its transactions, whether or not its assets are segregated from

13-38  other trust assets.

13-39     2.  A trustee who accounts separately for a business or other

13-40  activity may determine the extent to which its net cash receipts

13-41  must be retained for working capital, the acquisition or

13-42  replacement of fixed assets, and other reasonably foreseeable

13-43  needs of the business or activity, and the extent to which the

13-44  remaining net cash receipts are accounted for as principal or

13-45  income in the trust’s general accounting records. If a trustee sells

14-1  assets of the business or other activity, other than in the ordinary

14-2  course of the business or activity, he shall account for the net

14-3  amount received as principal in the trust’s general accounting

14-4  records to the extent he determines that the amount received is no

14-5  longer required in the conduct of the business.

14-6      3.  Activities for which a trustee may maintain separate

14-7  accounting records include:

14-8      (a) Retail, manufacturing, service and other traditional

14-9  business activities;

14-10     (b) Farming;

14-11     (c) Raising and selling livestock and other animals;

14-12     (d) Management of rental properties;

14-13     (e) Extraction of minerals and other natural resources;

14-14     (f) Timber operations; and

14-15     (g) Activities to which section 37 of this act applies.

14-16     Sec. 27.  A trustee shall allocate to principal:

14-17     1.  To the extent not allocated to income under sections 15 to

14-18  44, inclusive, of this act, assets received from a transferor during

14-19  the transferor’s lifetime, a decedent’s estate, a trust with a

14-20  terminating income interest, or a payor under a contract naming

14-21  the trust or its trustee as beneficiary;

14-22     2.  Money or other property received from the sale, exchange,

14-23  liquidation or change in form of a principal asset, including

14-24  realized profit, subject to sections 15 to 44, inclusive, of this act;

14-25     3.  Amounts recovered from third parties to reimburse the

14-26  trust because of disbursements described in paragraph (g) of

14-27  subsection 1 of section 40 of this act or for other reasons to the

14-28  extent not based on the loss of income;

14-29     4.  Proceeds of property taken by eminent domain, but a

14-30  separate award made for the loss of income with respect to an

14-31  accounting period during which a current income beneficiary had

14-32  a mandatory income interest is income;

14-33     5.  Net income received in an accounting period during which

14-34  there is no beneficiary to whom a trustee may or must distribute

14-35  income; and

14-36     6.  Other receipts as provided in sections 21, 22 and 23 of this

14-37  act.

14-38     Sec. 28.  To the extent that a trustee accounts for receipts

14-39  from rental property pursuant to this section, he shall allocate to

14-40  income an amount received as rent of real or personal property,

14-41  including an amount received for cancellation or renewal of a

14-42  lease. An amount received as a refundable deposit, including a

14-43  security deposit or a deposit that is to be applied as rent for future

14-44  periods, must be added to principal and held subject to the terms

14-45  of the lease and is not available for distribution to a beneficiary

15-1  until the trustee’s contractual obligations have been satisfied with

15-2  respect to that amount.

15-3      Sec. 29.  1.  An amount received as interest, whether

15-4  determined at a fixed, variable or floating rate, on an obligation to

15-5  pay money to the trustee, including an amount received as

15-6  consideration for prepaying principal, must be allocated to income

15-7  without any provision for amortization of premium.

15-8      2.  A trustee shall allocate to principal an amount received

15-9  from the sale, redemption or other disposition of an obligation to

15-10  pay money to him more than 1 year after it is purchased or

15-11  acquired by him, including an obligation whose purchase price or

15-12  value when it is acquired is less than its value at maturity. If the

15-13  obligation matures within 1 year after it is purchased or acquired

15-14  by the trustee, an amount received in excess of its purchase price

15-15  or its value when acquired by the trust must be allocated to

15-16  income.

15-17     3.  This section does not apply to an obligation to which

15-18  section 32, 33, 34, 35, 37 or 38 of this act applies.

15-19     Sec. 30.  1.  Except as otherwise provided in this section, a

15-20  trustee shall allocate to principal the proceeds of a life insurance

15-21  policy or other contract in which the trust or its trustee is named

15-22  as beneficiary, including a contract that insures the trust or its

15-23  trustee against loss for damage to, destruction of, or loss of title to

15-24  a trust asset. He shall allocate dividends on an insurance policy

15-25  to income if the premiums on the policy are paid from income, and

15-26  to principal if the premiums are paid from principal.

15-27     2.  A trustee shall allocate to income proceeds of a contract

15-28  that insures him against loss of occupancy or other use by an

15-29  income beneficiary, loss of income, or, subject to section 26 of this

15-30  act, loss of profits from a business.

15-31     3.  This section does not apply to a contract to which section

15-32  32 of this act applies.

15-33     Sec. 31.  If a trustee determines that an allocation between

15-34  principal and income required by section 32, 33, 34, 35 or 38 of

15-35  this act is insubstantial, the trustee may allocate the entire amount

15-36  to principal unless one of the circumstances described in

15-37  subsection 3 of section 18 of this act applies to the allocation. This

15-38  power may be exercised by a cotrustee in the circumstances

15-39  described in subsection 4 of section 18 of this act and may be

15-40  released for the reasons and in the manner described in subsection

15-41  5 of section 18 of this act. An allocation is presumed to be

15-42  insubstantial if:

15-43     1.  The amount of the allocation would increase or decrease

15-44  net income in an accounting period, as determined before the

15-45  allocation, by less than 10 percent; or

16-1      2.  The value of the asset producing the receipt for which the

16-2  allocation would be made is less than 10 percent of the total value

16-3  of the trust’s assets at the beginning of the accounting period.

16-4      Sec. 32.  1.  As used in this section, “payment” means a

16-5  payment that a trustee may receive over a fixed number of years or

16-6  during the life of one or more natural persons because of services

16-7  rendered or property transferred to the payor in exchange for

16-8  future payments. The term includes a payment made in money or

16-9  property from the payor’s general assets or from a separate fund

16-10  created by the payor, including a private or commercial annuity,

16-11  an individual retirement account, and a pension, profit-sharing,

16-12  stock-bonus or stock-ownership plan.

16-13     2.  To the extent that a payment is characterized as interest or

16-14  a dividend or a payment made in lieu of interest or a dividend, a

16-15  trustee shall allocate it to income. He shall allocate to principal

16-16  the balance of the payment and any other payment received in the

16-17  same accounting period that is not characterized as interest, a

16-18  dividend or an equivalent payment.

16-19     3.  If no part of a payment is characterized as interest, a

16-20  dividend or an equivalent payment, and all or part of the payment

16-21  is required to be made, a trustee shall allocate to income 10

16-22  percent of the part that is required to be made during the

16-23  accounting period and the balance to principal. If no part of a

16-24  payment is required to be made or the payment received is the

16-25  entire amount to which the trustee is entitled, he shall allocate the

16-26  entire payment to principal. For purposes of this subsection, a

16-27  payment is not “required to be made” to the extent that it is made

16-28  because the trustee exercises a right of withdrawal.

16-29     4.  If, to obtain an estate tax marital deduction for a trust, a

16-30  trustee must allocate more of a payment to income than provided

16-31  for by this section, he shall allocate to income the additional

16-32  amount necessary to obtain the marital deduction.

16-33     5.  This section does not apply to payments to which section 33

16-34  of this act applies.

16-35     Sec. 33.  1.  As used in this section, “liquidating asset”

16-36  means an asset whose value will diminish or terminate because the

16-37  asset is expected to produce receipts for a period of limited

16-38  duration. The term includes a leasehold, patent, copyright, royalty

16-39  right and right to receive payments during a period of more than 1

16-40  year under an arrangement that does not provide for the payment

16-41  of interest on the unpaid balance. The term does not include a

16-42  payment subject to section 32 of this act, resources subject to

16-43  section 34 of this act, timber subject to section 35 of this act, an

16-44  activity subject to section 37 of this act, an asset subject to section

17-1  38 of this act, or any asset for which the trustee establishes a

17-2  reserve for depreciation under section 41 of this act.

17-3      2.  A trustee shall allocate to income 10 percent of the receipts

17-4  from a liquidating asset and the balance to principal.

17-5      Sec. 34.  1.  To the extent that a trustee accounts for receipts

17-6  from an interest in minerals or other natural resources pursuant

17-7  to this section, the trustee shall allocate them as follows:

17-8      (a) If received as nominal delay rental or nominal annual rent

17-9  on a lease, a receipt must be allocated to income.

17-10     (b) If received from a production payment, a receipt must be

17-11  allocated to income if and to the extent that the agreement

17-12  creating the production payment provides a factor for interest or

17-13  its equivalent. The balance must be allocated to principal.

17-14     (c) If an amount received as a royalty, shut-in-well payment,

17-15  take-or-pay payment, bonus or delay rental is more than nominal,

17-16  90 percent must be allocated to principal and the balance to

17-17  income.

17-18     (d) If an amount is received from a working interest or any

17-19  other interest not provided for in paragraph (a), (b) or (c), 90

17-20  percent of the net amount received must be allocated to principal

17-21  and the balance to income.

17-22     2.  An amount received on account of an interest in water that

17-23  is renewable must be allocated to income. If the water is not

17-24  renewable, 90 percent of the amount must be allocated to principal

17-25  and the balance to income.

17-26     3.  Sections 15 to 44, inclusive, of this act apply whether or

17-27  not a decedent or donor was extracting minerals, water, or other

17-28  natural resources before the interest became subject to the trust.

17-29     4.  If a trust owns an interest in minerals, water or other

17-30  natural resources on October 1, 2003, the trustee may allocate

17-31  receipts from the interest as provided in sections 15 to 44,

17-32  inclusive, of this act or in the manner used by the trustee before

17-33  October 1, 2003. If the trust acquires an interest in minerals, water

17-34  or other natural resources after October 1, 2003, the trustee shall

17-35  allocate receipts from the interest as provided in sections 15 to 44,

17-36  inclusive, of this act.

17-37     Sec. 35.  1.  To the extent that a trustee accounts for receipts

17-38  from the sale of timber and related products pursuant to this

17-39  section, the trustee shall allocate the net receipts:

17-40     (a) To income to the extent that the amount of timber removed

17-41  from the land does not exceed the rate of growth of the timber

17-42  during the accounting periods in which a beneficiary has a

17-43  mandatory income interest;

18-1      (b) To principal to the extent that the amount of timber

18-2  removed from the land exceeds the rate of growth of timber or the

18-3  net receipts are from the sale of standing timber;

18-4      (c) To or between income and principal if the net receipts are

18-5  from the lease of timberland or from a contract to cut timber from

18-6  land owned by a trust, by determining the amount of timber

18-7  removed from the land under the lease of contract and applying

18-8  the rules in paragraphs (a) and (b); or

18-9      (d) To principal to the extent that advance payments, bonuses

18-10  and other payments are not allocated pursuant to paragraph (a),

18-11  (b) or (c).

18-12     2.  In determining net receipts to be allocated pursuant to

18-13  subsection 1, a trustee shall deduct and transfer to principal a

18-14  reasonable amount for depletion.

18-15     3.  Sections 15 to 44, inclusive, of this act apply whether or

18-16  not a decedent or transferor was harvesting timber from the

18-17  property before it became subject to the trust.

18-18     4.  If a trust owns an interest in timberland on October 1,

18-19  2003, the trustee may allocate net receipts from the sale of timber

18-20  and related products as provided in sections 15 to 44, inclusive, of

18-21  this act or in the manner used by the trustee before October 1,

18-22  2003. If the trust acquires an interest in timberland after

18-23  October 1, 2003, the trustee shall allocate net receipts from the

18-24  sale of timber and related products as provided in sections 15 to

18-25  44, inclusive, of this act.

18-26     Sec. 36.  1.  If a marital deduction is allowed for all or part

18-27  of a trust whose assets consist substantially of property that does

18-28  not provide the surviving spouse with sufficient income from or

18-29  use of the trust assets, and if the amounts that the trustee transfers

18-30  from principal to income under section 18 of this act and

18-31  distributes to the spouse from principal pursuant to the terms of

18-32  the trust are insufficient to provide the spouse with the beneficial

18-33  enjoyment required to obtain the marital deduction, the spouse

18-34  may require the trustee to make property productive of income,

18-35  convert property within a reasonable time, or exercise the power

18-36  conferred by subsection 1 of section 18 of this act. The trustee may

18-37  decide which action or combination of actions to take.

18-38     2.  In cases not governed by subsection 1, proceeds from the

18-39  sale or other disposition of an asset are principal without regard to

18-40  the amount of income the asset produces during any accounting

18-41  period.

18-42     Sec. 37.  1.  As used in this section, “derivative” means a

18-43  contract of financial instrument or a combination of contracts and

18-44  financial instruments which gives a trust the right or obligation to

18-45  participate in some or all changes in the price of a tangible or

19-1  intangible asset or group of assets, or changes in a rate, an index

19-2  of prices or rates, or other market indicator for an asset or a group

19-3  of assets.

19-4      2.  To the extent that a trustee accounts for transactions in

19-5  derivatives pursuant to this section, he shall allocate to principal

19-6  receipts from and disbursements made in connection with those

19-7  transactions.

19-8      3.  If a trustee grants an option to buy property from the trust,

19-9  whether or not the trust owns the property when the option is

19-10  granted, grants an option that permits another person to sell

19-11  property to the trust, or acquires an option to buy property for the

19-12  trust or an option to sell an asset owned by the trust, and the

19-13  trustee or other owner of the asset is required to deliver the asset if

19-14  the option is exercised, an amount received for granting the option

19-15  must be allocated to principal. An amount paid to acquire the

19-16  option must be paid from principal. A gain or loss realized upon

19-17  the exercise of an option, including an option granted to a settlor

19-18  of the trust for services rendered, must be allocated to principal.

19-19     Sec. 38.  1.  As used in this section, “asset-backed security”

19-20  means an asset whose value is based upon the right it gives the

19-21  owner to receive distributions from the proceeds of financial assets

19-22  that provide collateral for the security. The term includes an asset

19-23  that gives the owner the right to receive from the collateral

19-24  financial assets only the interest or other current return or only

19-25  the proceeds other than interest or current return. The term does

19-26  not include an asset to which section 24 or 32 of this act applies.

19-27     2.  If a trust receives a payment from interest or other current

19-28  return and from other proceeds of the collateral financial assets,

19-29  the trustee shall allocate to income the portion of the payment

19-30  which the payor identifies as being from interest or other current

19-31  return and shall allocate the balance of the payment to principal.

19-32     3.  If a trust receives one or more payments in exchange for

19-33  the trust’s entire interest in an asset-backed security in one

19-34  accounting period, the trustee shall allocate the payments to

19-35  principal. If a payment is one of a series of payments that will

19-36  result in the liquidation of the trust’s interest in the security over

19-37  more than one accounting period, the trustee shall allocate 10

19-38  percent of the payment to income and the balance to principal.

19-39     Sec. 39.  A trustee shall make the following disbursements

19-40  from income to the extent that they are not disbursements to which

19-41  paragraph (b) or (c) of subsection 2 of section 19 of this act

19-42  applies:

19-43     1.  One-half of the regular compensation of the trustee and of

19-44  any person providing advisory or custodial services to the trustee

19-45  concerning investment;

20-1      2.  One-half of all expenses for accountings, judicial

20-2  proceedings, or other matters that involve both the income and

20-3  remainder interests;

20-4      3.  All the other ordinary expenses incurred in connection

20-5  with the administration, management or preservation of trust

20-6  property and the distribution of income, including interest,

20-7  ordinary repairs, regularly recurring taxes assessed against

20-8  principal, and expenses of a proceeding or other matter that

20-9  concerns primarily the income interest; and

20-10     4.  Recurring premiums on insurance covering the loss of a

20-11  principal asset or the loss of income from or use of the asset.

20-12     Sec. 40.  1.  A trustee shall make the following

20-13  disbursements from principal:

20-14     (a) The remaining one-half of the disbursements described in

20-15  subsections 1 and 2 of section 39 of this act;

20-16     (b) All the trustee’s compensation calculated on principal as a

20-17  fee for acceptance, distribution or termination, and disbursements

20-18  made to prepare property for sale;

20-19     (c) Payments on the principal of a trust debt;

20-20     (d) Expenses of a proceeding that concerns primarily

20-21  principal, including a proceeding to construe the trust or to protect

20-22  the trust or its property;

20-23     (e) Premiums paid on a policy of insurance not described in

20-24  subsection 4 of section 39 of this act of which the trust is the

20-25  owner and beneficiary;

20-26     (f) Estate, inheritance and other transfer taxes, including

20-27  penalties, apportioned to the trust; and

20-28     (g) Disbursements related to environmental matters, including

20-29  reclamation, assessing environmental conditions, remedying and

20-30  removing environmental contamination, monitoring remedial

20-31  activities and the release of substances, preventing future releases

20-32  of substances, collecting amounts from persons liable or

20-33  potentially liable for the costs of those activities, penalties imposed

20-34  under environmental laws or regulations and other payments

20-35  made to comply with those laws or regulations, statutory or

20-36  common law claims by third parties, and defending claims based

20-37  on environmental matters.

20-38     2.  If a principal asset is encumbered with an obligation that

20-39  requires income from that asset to be paid directly to the creditor,

20-40  the trustee shall transfer from principal to income an amount

20-41  equal to the income paid to the creditor in reduction of the

20-42  principal balance of the obligation.

20-43     Sec. 41.  1.  As used in this section, “depreciation” means a

20-44  reduction in value due to wear, tear, decay, corrosion or gradual

21-1  obsolescence of a fixed asset having a useful life of more than 1

21-2  year.

21-3      2.  A fiduciary may transfer to principal a reasonable amount

21-4  of the net cash receipts from a principal asset that is subject to

21-5  depreciation, but may not transfer any amount for depreciation:

21-6      (a) Of that portion of real property used or available for use by

21-7  a beneficiary as a residence or of tangible personal property held

21-8  or made available for the personal use or enjoyment of a

21-9  beneficiary;

21-10     (b) During the administration of a decedent’s estate; or

21-11     (c) Under this section if a trustee is accounting under section

21-12  26 of this act for the business or activity in which the asset is used.

21-13     3.  An amount transferred to principal need not be held as a

21-14  separate fund.

21-15     Sec. 42.  1.  If a trustee makes or expects to make a principal

21-16  disbursement described in this section, he may transfer an

21-17  appropriate amount from income to principal in one or more

21-18  accounting periods to reimburse principal or to provide a reserve

21-19  for future principal disbursements.

21-20     2.  Principal disbursements to which subsection 1 applies

21-21  include the following, but only to the extent that the trustee has

21-22  not been and does not expect to be reimbursed by a third party:

21-23     (a) An amount chargeable to income but paid from principal

21-24  because it is unusually large, including extraordinary repairs;

21-25     (b) A capital improvement to a principal asset, whether in the

21-26  form of changes to an existing asset or the construction of a new

21-27  asset, including special assessments;

21-28     (c) Disbursements made to prepare property for rental,

21-29  including tenant allowances, leasehold improvements and

21-30  broker’s commissions;

21-31     (d) Periodic payments on an obligation secured by a principal

21-32  asset to the extent that the amount transferred from income to

21-33  principal for depreciation is less than the periodic payments; and

21-34     (e) Disbursements described in paragraph (g) of subsection 1

21-35  of section 40 of this act.

21-36     3.  If the asset whose ownership gives rise to the

21-37  disbursements becomes subject to a successive income interest

21-38  after an income interest ends, a trustee may continue to transfer

21-39  amounts from income to principal as provided in subsection 1.

21-40     Sec. 43.  1.  A tax required to be paid by a trustee based on

21-41  receipts allocated to income must be paid from income.

21-42     2.  A tax required to be paid by a trustee based on receipts

21-43  allocated to principal must be paid from principal, even if the tax

21-44  is called an income tax by the taxing authority.

22-1      3.  A tax required to be paid by a trustee on the trust’s share

22-2  of an entity’s taxable income must be paid proportionately:

22-3      (a) From income to the extent that receipts from the entity are

22-4  allocated to income; and

22-5      (b) From principal to the extent that:

22-6          (1) Receipts from the entity are allocated to principal; and

22-7          (2) The trust’s share of the entity’s taxable income exceeds

22-8  the total receipts described in paragraph (a) and subparagraph (1).

22-9      4.  For the purposes of this section, receipts allocated to

22-10  principal or income must be reduced by the amount distributed to

22-11  a beneficiary from principal or income for which the trust receives

22-12  a deduction in calculating the tax.

22-13     Sec. 44.  1.  A fiduciary may make adjustments between

22-14  principal and income to offset the shifting of economic interests or

22-15  tax benefits between income beneficiaries and remainder

22-16  beneficiaries which arise from:

22-17     (a) Elections and decisions, other than those described in

22-18  subsection 2, that the fiduciary makes from time to time regarding

22-19  tax matters;

22-20     (b) An income tax or any other tax that is imposed upon the

22-21  fiduciary or a beneficiary as a result of a transaction involving or

22-22  a distribution from the estate or the trust; or

22-23     (c) The ownership by an estate or trust of an interest in an

22-24  entity whose taxable income, whether or not distributed, is

22-25  includable in the taxable income of the estate, the trust, or a

22-26  beneficiary.

22-27     2.  If the amount of an estate tax marital deduction or

22-28  charitable contribution deduction is reduced because a fiduciary

22-29  deducts an amount paid from principal for income tax purposes

22-30  instead of deducting it for estate tax purposes, and as a result

22-31  estate taxes paid from principal are increased and income taxes

22-32  paid by an estate, trust or beneficiary are decreased, each estate,

22-33  trust or beneficiary that benefits from the decrease in income tax

22-34  shall reimburse the principal from which the increase in estate tax

22-35  is paid. The total reimbursement must equal the increase in the

22-36  estate tax to the extent that the principal used to pay the increase

22-37  would have qualified for a marital deduction or charitable

22-38  contribution deduction but for the payment. The proportionate

22-39  share of the reimbursement for each estate, trust or beneficiary

22-40  whose income taxes are reduced must be the same as its

22-41  proportionate share of the total decrease in income tax. An estate

22-42  or trust shall reimburse principal from income.

22-43     Sec. 45.  NRS 423.235 is hereby amended to read as follows:

22-44     423.235  1.  Except as otherwise provided in NRS 423.230, all

22-45  money received by a child in the Northern Nevada Children’s Home

23-1  or the Southern Nevada Children’s Home, including, but not limited

23-2  to, social security benefits, benefits paid to heirs of United States

23-3  employees and payments payable by the United States through the

23-4  Department of Veterans Affairs, must be held by the Superintendent

23-5  in trust for the child.

23-6      2.  The Superintendent as trustee shall accumulate such money

23-7  during the period the child is a ward of the State under the

23-8  provisions of [chapter 423 of NRS,] this chapter and shall invest

23-9  such money subject to the provisions of [NRS 164.050, 164.060 and

23-10  164.065.] sections 2 to 14, inclusive, of this act.

23-11     3.  The Superintendent shall:

23-12     (a) Keep a separate account for each child who receives money.

23-13     (b) Deduct from the account the costs for the care and support of

23-14  the child that are provided by the State, excluding any amount for

23-15  which a county is responsible. If the child is placed in foster care,

23-16  money in the account may be used for payments to a foster parent.

23-17  Any surplus remaining may be expended for extraordinary items

23-18  deemed beneficial to the child.

23-19     (c) Remit any surplus balance to the child or his parent or legal

23-20  guardian upon release from the school.

23-21     4.  The Superintendent may be removed as trustee of such

23-22  money only upon application to the district court for the county in

23-23  which the children’s home is located. The district court may, for

23-24  good cause shown and upon notice to the beneficiary, relieve the

23-25  Superintendent from his duties as trustee.

23-26     Sec. 46.  NRS 452.160 is hereby amended to read as follows:

23-27     452.160  1.  Endowment care funds must not be used for any

23-28  purpose other than to provide, through income only, for the reserves

23-29  authorized by law and for the endowment care of the cemetery in

23-30  accordance with the resolutions, bylaws, rules and regulations or

23-31  other actions or instruments of the cemetery authority.

23-32     2.  The funds must be invested and reinvested in:

23-33     (a) Bonds of the United States;

23-34     (b) Bonds of this state or the bonds of other states;

23-35     (c) Bonds of counties or municipalities of any state;

23-36     (d) With the approval of the Administrator, first mortgages or

23-37  first trust deeds on improved real estate;

23-38     (e) Deposits in any bank, credit union or savings and loan

23-39  association that is federally insured or insured by a private insurer

23-40  approved pursuant to NRS 678.755; or

23-41     (f) With the written approval of the Administrator, any

23-42  investment which would be proper under the provisions of [NRS

23-43  164.050.] sections 2 to 14, inclusive, of this act.

23-44  Pending investment as provided in this subsection, such funds may

23-45  be deposited in an account in any savings bank, credit union or

24-1  savings and loan association which is qualified to do business in the

24-2  State of Nevada and which is federally insured or insured by a

24-3  private insurer approved pursuant to NRS 678.755.

24-4      3.  Each cemetery authority operating an endowment care

24-5  cemetery shall submit to the Administrator annually, on a form

24-6  prescribed and adopted by the Administrator, a financial statement

24-7  of the condition of its endowment care fund. The statement must be

24-8  accompanied by a fee of $10. If the statement is not received by the

24-9  Administrator , he may, after giving 10 days’ notice, revoke the

24-10  cemetery authority’s certificate of authority.

24-11     Sec. 47.  NRS 452.720 is hereby amended to read as follows:

24-12     452.720  1.  Money held in trust for the endowment care of a

24-13  cemetery for pets must not be used for any purpose other than to

24-14  provide, through income only, for the reserves authorized by law

24-15  and for the endowment care of the cemetery in accordance with the

24-16  resolutions, bylaws, rules and regulations or other actions or

24-17  instruments of the cemetery authority.

24-18     2.  The money must be invested and reinvested in:

24-19     (a) Bonds of the United States;

24-20     (b) Bonds of this state or the bonds of other states;

24-21     (c) Bonds of counties or municipalities of any state;

24-22     (d) With the approval of the Administrator, first mortgages or

24-23  first trust deeds on improved real estate;

24-24     (e) Deposits in any bank, credit union or savings and loan

24-25  association that is federally insured or insured by a private insurer

24-26  approved pursuant to NRS 678.755; or

24-27     (f) With the written approval of the Administrator, any

24-28  investment which would be proper under the provisions of [NRS

24-29  164.050.] sections 2 to 14, inclusive, of this act.

24-30  Pending investment as provided in this subsection, such money may

24-31  be deposited in an account in any savings bank, credit union or

24-32  savings and loan association which is qualified to do business in this

24-33  state and which is federally insured or insured by a private insurer

24-34  approved pursuant to NRS 678.755.

24-35     3.  Each cemetery authority shall annually submit to the

24-36  Administrator, on a form prescribed and adopted by the

24-37  Administrator, a financial statement of the condition of its trust fund

24-38  for the endowment care of the cemetery. The statement must be

24-39  accompanied by a fee of $10. If the statement is not received by the

24-40  Administrator , he may, after giving 10 days’ notice, revoke the

24-41  cemetery authority’s certificate of authority.

24-42     Sec. 48.  NRS 150.235, 164.050, 164.060, 164.065, 164.140,

24-43  164.150, 164.160, 164.170, 164.180, 164.190, 164.200, 164.210,

24-44  164.220, 164.230, 164.240, 164.250, 164.260, 164.270, 164.280,

25-1  164.290, 164.300, 164.310, 164.320, 164.330, 164.340, 164.350,

25-2  164.360 and 164.370 are hereby repealed.

 

25-3  LEADLINES OF REPEALED SECTIONS

 

25-4      150.235  Use of income from securities or other property of

25-5  trust estate, life estate or estate for years created by will.

25-6      164.050  Standard of care in investing and managing

25-7  property.

25-8      164.060  Investments and loans secured by Federal Housing

25-9  Administrator.

25-10     164.065  Investments in farm loan bonds and other

25-11  obligations issued by federal land banks and banks for

25-12  cooperatives.

25-13     164.140  Short title.

25-14     164.150  Definitions.

25-15     164.160  “Income” defined.

25-16     164.170  “Income beneficiary” defined.

25-17     164.180  “Inventory value” defined.

25-18     164.190  “Principal” defined.

25-19     164.200  “Remainderman” defined.

25-20     164.210  “Trustee” defined.

25-21     164.220  Duty of trustee as to receipts and expenditures.

25-22     164.230  Charges.

25-23     164.240  When right to income arises; apportionment of

25-24  income.

25-25     164.250  Expenses of settlement of estate of decedent;

25-26  income earned during administration of estate.

25-27     164.260  Corporate distributions.

25-28     164.270  Premiums and discounts on bonds.

25-29     164.280  Business and farming operations.

25-30     164.290  Disposition of natural resources.

25-31     164.300  Timber.

25-32     164.310  Other property subject to depletion.

25-33     164.320  Underproductive property.

25-34     164.330  Charges against income.

25-35     164.340  Charges against principal.

25-36     164.350  Apportionment of regularly recurring charges

25-37  payable from income.

25-38     164.360  Applicability.

25-39     164.370  Uniformity of interpretation.

 

25-40  H