SECTIONS 16350-16352 - California Statutes

PROBATE CODE

SECTION 16350-16352

16350. (a) For the purposes of 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 decedent's estate to which Section 16351 applies, a
business or activity to which Section 16352 applies, or an
asset-backed security to which Section 16367 applies.
(b) Except as otherwise provided in this section, a trustee shall
allocate to income money received from an entity.
(c) A trustee shall allocate to principal the following receipts
from an entity:
(1) Property other than money.
(2) 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.
(3) Money received in total or partial liquidation of the entity.
(4) 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.
(d) For purposes of paragraph (3) of subdivision (c):
(1) 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 by all owners, collectively,
in a distribution or series of related distributions is greater than
20 percent of the entity's gross assets, as shown by the entity's
yearend financial statements immediately preceding the initial
receipt. If that receipt is allocated between December 2, 2004, and
the operative date of the act adding this sentence, a trustee shall
not be liable for allocating the receipt to income if the amount
received by the trustee, when considered together with the amount
received by all owners, collectively, exceeds 20 percent of the
entity's gross assets, but the amount received by the trustee does
not exceed 20 percent of the entity's gross assets.
(2) Money is not received in partial liquidation, nor may it be
taken into account under clause (B) of paragraph (1), to the extent
that it does not exceed the amount of income tax that a trustee or
beneficiary is required to pay on taxable income of the entity that
distributes the money.
(e) A trustee may rely on 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.

16351. A trustee shall allocate to income an amount received as a
distribution of income from a trust or a decedent's estate (other
than an interest in an investment entity) 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 the
trust or estate.

16352. (a) 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 other 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.
(b) 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 its other reasonably foreseeable needs, 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 other 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 or other activity.
(c) Businesses and other activities for which a trustee may
maintain separate accounting records include the following:
(1) Retail, manufacturing, service, and other traditional business
activities.
(2) Farming.
(3) Raising and selling livestock and other animals.
(4) Managing rental properties.
(5) Extracting minerals and other natural resources.
(6) Timber operations.
(7) Activities to which Section 16366 applies.