SECTIONS 16360-16367 - California Statutes

PROBATE CODE

SECTION 16360-16367

16360. (a) If a trustee determines that an allocation between
principal and income required by Section 16361, 16362, 16363, 16364,
or 16367 is insubstantial, the trustee may allocate the entire amount
to principal unless one of the circumstances described in
subdivision (b) of Section 16336 applies to the allocation. This
power may be exercised by a cotrustee in the circumstances described
in subdivision (c) of Section 16336 and may be released for the
reasons and in the manner provided in subdivisions (d) and (e) of
Section 16336.
(b) An allocation is presumed to be insubstantial in either of the
following cases:
(1) Where the amount of the allocation would increase or decrease
net income in an accounting period, as determined before the
allocation, by less than 10 percent.
(2) Where the value of the asset producing the receipt for which
the allocation would be made is less than 10 percent of the total
value of the trust's assets at the beginning of the accounting
period.
(c) Nothing in this section imposes a duty on the trustee to make
an allocation under this section, and the trustee is not liable for
failure to make an allocation under this section.

16361. (a) For purposes of this section, the following terms have
the following meanings:
(1) "Payment" means a payment that a trustee may receive over a
fixed number of years or during the life of an individual because of
services rendered or property transferred to the payer in exchange
for future payments. The term also includes a payment made in money
or property from the payer's general assets or from a separate fund
created by the payer. For purposes of subdivisions (d), (e), (f), and
(g), "payment" also includes any payment from a separate fund,
regardless of the reason for the payment.
(2) "Separate fund" includes a private or commercial annuity, an
individual retirement account, and a pension, profit-sharing, stock
bonus, or stock ownership plan.
(b) To the extent that any portion of the payment is characterized
by the payer as interest, a dividend, or a payment made in lieu of
interest or a dividend, a trustee shall allocate that portion of the
payment to income. The trustee shall allocate to principal the
balance of the payment.
(c) 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 percent
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 subdivision, a payment is not
"required to be made" to the extent that it is made because the
trustee exercises a right of withdrawal.
(d) Subdivisions (f) and (g) shall apply, except as provided in
subdivision (e), and subdivisions (b) and (c) shall not apply, in
determining the allocation of a payment made from a separate fund to
either of the following:
(1) A trust to which an election to qualify for a marital
deduction is made under Section 2056(b)(7) of the Internal Revenue
Code.
(2) A trust that qualifies for the marital deduction under Section
2056(b)(5) of the Internal Revenue Code.
(e) Subdivisions (d), (f), and (g) shall not apply if the series
of payments would, without the application of subdivision (d),
qualify for the marital deduction under Section 2056(b)(7)(C) of the
Internal Revenue Code.
(f) If the separate fund payer provides documentation reflecting
the internal income of the separate fund to the trustee, the trustee
shall allocate the internal income of each separate fund for the
accounting period as if the separate fund were a trust subject to
this act. Upon request of the surviving spouse, the trustee shall
require that the person administering the separate fund distribute
this internal income to the trust. The trustee shall allocate a
payment from the separate fund to income to the extent of the
internal income of the separate fund and distribute that amount to
the surviving spouse. The trustee shall allocate the balance to
principal. Upon request of the surviving spouse, the trustee shall
allocate principal to income to the extent the internal income of the
separate fund exceeds payments made from the separate fund to the
trust during the accounting period.
(g) If the separate fund payer does not provide documentation
reflecting the internal income of the separate fund to the trustee,
but the trustee can determine the value of the separate fund, the
internal income of the separate fund is deemed to equal 4 percent of
the fund's value, according to the most recent statement of value
preceding the beginning of the accounting period. If the separate
fund payer does not provide documentation reflecting the internal
income of the separate fund to the trustee and the trustee cannot
determine the value of the separate fund, the internal income of the
fund is deemed to equal the product of the interest rate and the
present value of the expected future payments, as determined under
Section 7520 of the Internal Revenue Code for the month preceding the
accounting period for which the computation is made.
(h) This section does not apply to a payment to which Section
16362 applies.

16361.1. Section 16361, as amended by the act adding this section,
applies to a trust described in subdivision (d) of Section 16361, on
and after the following dates:
(a) If the trust is not funded as of January 1, 2010, the date of
the decedent's death.
(b) If the trust is initially funded in the calendar year
beginning January 1, 2010, the date of the decedent's death.
(c) If the trust is not described in subdivision (a) or (b), on
January 1, 2010.

16362. (a) 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 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 16361, resources subject to Section
16363, timber subject to Section 16364, an activity subject to
Section 16366, an asset subject to Section 16367, or any asset for
which the trustee establishes a reserve for depreciation under
Section 16372.
(b) A trustee shall allocate to income 10 percent of the receipts
from a liquidating asset and the balance to principal.

16363. (a) To the extent that a trustee accounts for receipts from
an interest in minerals, water, or other natural resources pursuant
to this section, the trustee shall allocate them as follows:
(1) If received as a nominal bonus, nominal delay rental, or
nominal annual rent on a lease, a receipt shall be allocated to
income.
(2) If received from a production payment, a receipt shall 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 shall be allocated to principal.
(3) If an amount received as a royalty, shut-in-well payment,
take-or-pay payment, bonus, or delay rental is more than nominal, 90
percent shall be allocated to principal and the balance to income.
(4) If an amount is received from a working interest or any other
interest in mineral or other natural resources not described in
paragraph (1), (2), or (3), 90 percent of the net amount received
shall be allocated to principal and the balance to income.
(b) An amount received on account of an interest in water that is
renewable shall be allocated to income. If the water is not
renewable, 90 percent of the amount shall be allocated to principal
and the balance to income.
(c) 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.
(d) If a trust owned an interest in minerals, water, or other
natural resources on January 1, 2000, the trustee may at all times
allocate receipts from the interest as provided in this chapter or in
the manner reasonably used by the trustee prior to that date.
Receipts from an interest in minerals, water, or other natural
resources acquired after January 1, 2000, shall be allocated by the
trustee as provided in this chapter. If the interest was owned by the
trust on January 1, 2000, a trustee that allocated receipts from the
interest between January 1, 2000, and December 31, 2006, as provided
in this chapter shall not have a duty to review that allocation and
shall not have liability arising from the allocation. Nothing in this
section is intended to create or imply a duty to allocate in a
manner used by the trustee prior to January 1, 2000, and a trustee is
not liable for not considering whether to make such an allocation or
for choosing not to make such an allocation.

16364. (a) 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 as follows:
(1) 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.
(2) 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.
(3) 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
paragraphs (1) and (2).
(4) To principal to the extent that advance payments, bonuses, and
other payments are not allocated pursuant to paragraph (1), (2), or
(3).
(b) In determining net receipts to be allocated under subdivision
(a), a trustee shall deduct and transfer to principal a reasonable
amount for depletion.
(c) This chapter applies whether or not a decedent or transferor
was harvesting timber from the property before it became subject to
the trust.
(d) If a trust owned an interest in timberland on January 1, 2000,
the trustee may at all times allocate net receipts from the sale of
timber and related products as provided in this chapter or in the
manner reasonably used by the trustee prior to that date. Net
receipts from an interest in timberland acquired after January 1,
2000, shall be allocated by the trustee as provided in this chapter.
If the interest was owned by the trust on January 1, 2000, a trustee
that allocated net receipts from the interest between January 1,
2000, and December 31, 2006, as provided in this chapter shall not
have a duty to review that allocation and shall not have liability
arising from the allocation. Nothing in this section is intended to
create or imply a duty to allocate in a manner used by the trustee
prior to January 1, 2000, and a trustee is not liable for not
considering whether to make such an allocation or for choosing not to
make such an allocation.

16365. (a) 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 16336 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 or convert it into productive property
or exercise the power under subdivision (a) of Section 16336 within a
reasonable time. The trustee may decide which action or combination
of actions to take.
(b) In cases not governed by subdivision (a), proceeds from the
sale or other disposition of a trust asset are principal without
regard to the amount of income the asset produces during any
accounting period.

16366. (a) In this section, "derivative" means a contract or
financial instrument or a combination of contracts and financial
instruments that 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.
(b) To the extent that a trustee does not account under Section
16352 for transactions in derivatives, the trustee shall allocate to
principal receipts from and disbursements made in connection with
those transactions.
(c) 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 shall be allocated to principal. An amount paid to acquire the
option shall 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, shall be allocated to principal.

16367. (a) 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 16350 or 16361 applies.
(b) 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.
(c) 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 percent of the
payment to income and the balance to principal.