59-04.2 Uniform Principal and Income Act - North Dakota Statutes

Download pdf

Loading PDF...

CHAPTER 59-04.2UNIFORM PRINCIPAL AND INCOME ACT59-04.2-01. (102) Definitions. In this chapter:1."Accounting period" means a calendar year unless another twelve-month period is
selected by a fiduciary. The term includes a portion of a calendar year or other
twelve-month period that begins when an income interest begins or ends when an
income interest ends.2."Beneficiary" includes, in the case of a decedent's estate, an heir, legatee, and
devisee and, in the case of a trust, an income beneficiary and a remainder
beneficiary.3."Fiduciary" means a personal representative or a trustee. The term includes an
executor, administrator, successor personal representative, special administrator,
and a person performing substantially the same function.4."Income" means money or property that a fiduciary receives as current return from a
principal asset. The term includes a portion of receipts from a sale, exchange, or
liquidation of a principal asset, to the extent provided in sections 59-04.2-09 through
59-04.2-23.5."Income beneficiary" means a person to whom net income of a trust is or may be
payable.6."Income interest" means the right of an income beneficiary to receive all or part of
net income, whether the terms of the trust require it to be distributed or authorize it to
be distributed in the trustee's discretion.7."Mandatory income interest" means the right of an income beneficiary to receive net
income that the terms of the trust require the fiduciary to distribute.8."Net income" means the total receipts allocated to income during an accounting
period minus the disbursements made from income during the period, plus or minus
transfers under this chapter to or from income during the period.9."Principal" means property held in trust for distribution to a remainder beneficiary
when the trust terminates.10."Remainder beneficiary" means a person entitled to receive principal when an
income interest ends.11."Terms of a trust" means the manifestation of the intent of a settlor or decedent with
respect to the trust, expressed in a manner that admits of its proof in a judicial
proceeding, whether by written or spoken words or by conduct.12."Trustee" includes an original, additional, or successor trustee, whether or not
appointed or confirmed by a court.59-04.2-02. (103) Fiduciary duties - General principles.1.In allocating receipts and disbursements to or between principal and income, and
with respect to any matter within the scope of sections 59-04.2-04 through
59-04.2-08, a fiduciary:a.Shall administer a trust or estate in accordance with the terms of the trust or the
will, even if there is a different provision in this chapter.Page No. 1b.May administer a trust or estate by the exercise of a discretionary power of
administration given to the fiduciary by the terms of the trust or the will, even if
the exercise of the power produces a result different from a result required or
permitted by this chapter.c.Shall administer a trust or estate in accordance with this chapter if the terms of
the trust or the will do not contain a different provision or do not give the
fiduciary a discretionary power of administration.d.Shall add a receipt or charge a disbursement to principal to the extent that the
terms of the trust and this chapter do not provide a rule for allocating the receipt
or disbursement to or between principal and income.2.In exercising a discretionary power of administration regarding a matter within the
scope of this chapter, whether granted by the terms of a trust, a will, or this chapter,
a fiduciary shall administer a trust or estate impartially, based on what is fair and
reasonable to all of the beneficiaries, except to the extent that the terms of the trust
or the will clearly manifest an intention that the fiduciary shall or may favor one or
more of the beneficiaries.A determination in accordance with this chapter ispresumed to be fair and reasonable to all of the beneficiaries.59-04.2-03. (104) Trustee's power to adjust. Reserved.59-04.2-04. (201) Determination and distribution of net income. After a decedentdies, in the case of an estate, or after an income interest in a trust ends, the following rules apply:1.A fiduciary of an estate or of a terminating income interest shall determine the
amount of net income and net principal receipts received from property specifically
given to a beneficiary under the rules in sections 59-04.2-06 through 59-04.2-29
which apply to trustees and the rules in subsection 5. The fiduciary shall distribute
the net income and net principal receipts to the beneficiary who is to receive the
specific property.2.A fiduciary shall determine the remaining net income of a decedent's estate or a
terminating income interest under the rules in sections 59-04.2-06 through
59-04.2-29 which apply to trustees and by:a.Including in net income all income from property used to discharge liabilities.b.Paying from income or principal, in the fiduciary's discretion, fees of attorneys,
accountants, and fiduciaries; court costs and other expenses of administration;
and interest on death taxes, but the fiduciary may pay those expenses from
income of property passing to a trust for which the fiduciary claims an estate tax
marital or charitable deduction only to the extent that the payment of those
expenses from income will not cause the reduction or loss of the deduction.c.Paying from principal all other disbursements made or incurred in connection
with the settlement of a decedent's estate or the winding up of a terminating
income interest, including debts, funeral expenses, disposition of remains,
family allowances, and death taxes and related penalties that are apportioned
to the estate or terminating income interest by the will, the terms of the trust, or
applicable law.3.A fiduciary shall distribute to a beneficiary who receives a pecuniary amount outright
the interest or any other amount provided by the will, the terms of the trust, or
applicable law from net income determined under subsection 2 or from principal to
the extent that net income is insufficient. If a beneficiary is to receive a pecuniary
amount outright from a trust after an income interest ends and no interest or other
amount is provided for by the terms of the trust or applicable law, the fiduciary shallPage No. 2distribute the interest or other amount to which the beneficiary would be entitled
under applicable law if the pecuniary amount were required to be paid under a will.4.A fiduciary shall distribute the net income remaining after distributions required by
subsection 3 in the manner described in section 59-04.2-05 to all other beneficiaries,
including a beneficiary who receives a pecuniary amount in trust, even if the
beneficiary holds an unqualified power to withdraw assets from the trust or other
presently exercisable general power of appointment over the trust.5.A fiduciary may not reduce principal or income receipts from property described in
subsection 1 because of a payment described in section 59-04.2-24 or 59-04.2-25 to
the extent that the will, the terms of the trust, or applicable law requires the fiduciary
to make the payment from assets other than the property or to the extent that the
fiduciary recovers or expects to recover the payment from a third party. The net
income and principal receipts from the property are determined by including all of
the amounts the fiduciary receives or pays with respect to the property, whether
those amounts accrued or became due before, on, or after the date of a decedent's
death or an income interest's terminating event, and by making a reasonable
provision for amounts that the fiduciary believes the estate or terminating income
interest may become obligated to pay after the property is distributed.59-04.2-05. (202) Distribution to residuary and remainder beneficiaries.1.Each beneficiary described in subsection 4 of section 59-04.2-04 is entitled to
receive a portion of the net income equal to the beneficiary's fractional interest in
undistributed principal assets, using values as of the distribution date. If a fiduciary
makes more than one distribution of assets to beneficiaries to whom this section
applies, each beneficiary, including one who does not receive part of the distribution,
is entitled, as of each distribution date, to the net income the fiduciary has received
after the date of death or terminating event or earlier distribution date but has not
distributed as of the current distribution date.2.In determining a beneficiary's share of net income, the following rules apply:a.The beneficiary is entitled to receive a portion of the net income equal to the
beneficiary's fractional interest in the undistributed principal assets immediately
before the distribution date, including assets that later may be sold to meet
principal obligations.b.The beneficiary's fractional interest in the undistributed principal assets must be
calculated without regard to property specifically given to a beneficiary and
property required to pay pecuniary amounts not in trust.c.The beneficiary's fractional interest in the undistributed principal assets must be
calculated on the basis of the aggregate value of those assets as of the
distribution date without reducing the value by any unpaid principal obligation.d.The distribution date for purposes of this section may be the date as of which
the fiduciary calculates the value of the assets if that date is reasonably near
the date on which assets are actually distributed.3.If a fiduciary does not distribute all of the collected but undistributed net income to
each person as of a distribution date, the fiduciary shall maintain appropriate records
showing the interest of each beneficiary in that net income.4.A fiduciary may apply the rules in this section, to the extent that the fiduciary
considers it appropriate, to net gain or loss realized after the date of death or
terminating event or earlier distribution date from the disposition of a principal asset
if this section applies to the income from the asset.Page No. 359-04.2-06. (301) When right to income begins and ends.1.An income beneficiary is entitled to net income from the date on which the income
interest begins. An income interest begins on the date specified in the terms of the
trust or, if no date is specified, on the date an asset becomes subject to a trust or
successive income interest.2.An asset becomes subject to a trust:a.On the date it is transferred to the trust in the case of an asset that is
transferred to a trust during the transferor's life;b.On the date of a testator's death in the case of an asset that becomes subject
to a trust by reason of a will, even if there is an intervening period of
administration of the testator's estate; orc.On the date of an individual's death in the case of an asset that is transferred to
a fiduciary by a third party because of the individual's death.3.An asset becomes subject to a successive income interest on the day after the
preceding income interest ends, as determined under subsection 4, even if there is
an intervening period of administration to wind up the preceding income interest.4.An income interest ends on the day before an income beneficiary dies or another
terminating event occurs, or on the last day of a period during which there is no
beneficiary to whom a trustee may distribute income.59-04.2-07.(302) Apportionment of receipts and disbursements when decedentdies or income interest begins.1.A trustee shall allocate an income receipt or disbursement other than one to which
subsection 1 of section 59-04.2-04 applies to principal if its due date occurs before a
decedent dies in the case of an estate or before an income interest begins in the
case of a trust or successive income interest.2.A trustee shall allocate an income receipt or disbursement to income if its due date
occurs on or after the date on which a decedent dies or an income interest begins
and it is a periodic due date. An income receipt or disbursement must be treated as
accruing from day to day if its due date is not periodic or it has no due date. The
portion of the receipt or disbursement accruing before the date on which a decedent
dies or an income interest begins must be allocated to principal and the balance
must be allocated to income.3.An item of income or an obligation is due on the date the payer is required to make a
payment. If a payment date is not stated, there is no due date for the purposes of
this chapter. Distributions to shareholders or other owners from an entity to which
section 59-04.2-09 applies are deemed to be due on the date fixed by the entity for
determining who is entitled to receive the distribution or, if no date is fixed, on the
declaration date for the distribution.A due date is periodic for receipts ordisbursements that must be paid at regular intervals under a lease or an obligation
to pay interest or if an entity customarily makes distributions at regular intervals.59-04.2-08. (303) Apportionment when income interest ends.1.In this section, "undistributed income" means net income received before the date
on which an income interest ends. The term does not include an item of income or
expense that is due or accrued or net income that has been added or is required to
be added to principal under the terms of the trust.Page No. 42.When a mandatory income interest ends, the trustee shall pay to a mandatory
income beneficiary who survives that date, or the estate of a deceased mandatory
income beneficiary whose death causes the interest to end, the beneficiary's share
of the undistributed income that is not disposed of under the terms of the trust unless
the beneficiary has an unqualified power to revoke more than five percent of the
trust immediately before the income interest ends.In the latter case, theundistributed income from the portion of the trust that may be revoked must be
added to principal.3.When a trustee's obligation to pay a fixed annuity or a fixed fraction of the value of
the trust's assets ends, the trustee shall prorate the final payment if and to the extent
required by applicable law to accomplish a purpose of the trust or its settlor relating
to income, gift, estate, or other tax requirements.59-04.2-09. (401) Character of receipts.1.In this section, "entity" means a corporation, partnership, limited liability company,
regulated investment company, real estate investment trust, common trust fund, or
any other organization in which a trustee has an interest other than a trust or estate
to which section 59-04.2-10 applies, a business or activity to which section
59-04.2-11 applies, or an asset-backed security to which section 59-04.2-23 applies.2.Except as otherwise provided in this section, a trustee shall allocate to income
money received from an entity.3.A trustee shall allocate the following receipts from an entity to principal:a.Property other than money.b.Money received in one distribution or a series of related distributions in
exchange for part or all of a trust's interest in the entity.c.Money received in total or partial liquidation of the entity.d.Money received from an entity that is a regulated investment company or a real
estate investment trust if the money distributed is a capital gain dividend for
federal income tax purposes.4.Money is received in partial liquidation:a.To the extent that the entity, at or near the time of a distribution, indicates that it
is a distribution in partial liquidation; orb.If the total amount of money and property received in a distribution or series of
related distributions is greater than twenty percent of the entity's gross assets,
as shown by the entity's year-end financial statements immediately preceding
the initial receipt.5.Money is not received in partial liquidation, nor may it be taken into account under
subdivision b of subsection 4, to the extent that it does not exceed the amount of
income tax that a trustee or beneficiary must pay on taxable income of the entity that
distributes the money.6.A trustee may rely upon a statement made by an entity about the source or
character of a distribution if the statement is made at or near the time of distribution
by the entity's board of directors or other person or group of persons authorized to
exercise powers to pay money or transfer property comparable to those of a
corporation's board of directors.Page No. 559-04.2-10. (402) Distribution from trust or estate. A trustee shall allocate to incomean amount received as a distribution of income from a trust or an estate in which the trust has an
interest other than a purchased interest and shall allocate to principal an amount received as a
distribution of principal from such a trust or estate. If a trustee purchases an interest in a trust
that is an investment entity, or a decedent or donor transfers an interest in such a trust to a
trustee, section 59-04.2-09 or 59-04.2-23 applies to a receipt from the trust.59-04.2-11. (403) Business and other activities conducted by trustee.1.If a trustee who conducts a business or other activity determines that it is in the best
interest of all the beneficiaries to account separately for the business or activity
instead of accounting for it as part of the trust's general accounting records, the
trustee may maintain separate accounting records for its transactions, whether or
not its assets are segregated from other trust assets.2.A trustee who accounts separately for a business or other activity may determine the
extent to which its net cash receipts must be retained for working capital, the
acquisition or replacement of fixed assets, and other reasonably foreseeable needs
of the business or activity, and the extent to which the remaining net cash receipts
are accounted for as principal or income in the trust's general accounting records. If
a trustee sells assets of the business or other activity, other than in the ordinary
course of the business or activity, the trustee shall account for the net amount
received as principal in the trust's general accounting records to the extent the
trustee determines that the amount received is no longer required in the conduct of
the business.3.Activities for which a trustee may maintain separate accounting records include
retail, manufacturing, service, and other traditional business activities; farming;
raising and selling livestock and other animals; management of rental properties;
extraction of minerals and other natural resources; timber operations; and activities
to which section 59-04.2-22 applies.59-04.2-12. (404) Principal receipts. A trustee shall allocate to principal:1.To the extent not allocated to income under this chapter, assets received from a
transferor during the transferor's lifetime, a decedent's estate, a trust with a
terminating income interest, or a payer under a contract naming the trust or its
trustee as beneficiary.2.Money or other property received from the sale, exchange, liquidation, or change in
form of a principal asset, including realized profit, subject to sections 59-04.2-09
through 59-04.2-23.3.Amounts recovered from third parties to reimburse the trust because of
disbursements described in subdivision g of subsection 1 of section 59-04.2-25 or
for other reasons to the extent not based on the loss of income.4.Proceeds of property taken by eminent domain, but a separate award made for the
loss of income with respect to an accounting period during which a current income
beneficiary had a mandatory income interest is income.5.Net income received in an accounting period during which there is no beneficiary to
whom a trustee may or must distribute income.6.Other receipts as provided in sections 59-04.2-16 through 59-04.2-23.59-04.2-13. (405) Rental property. To the extent that a trustee accounts for receiptsfrom rental property pursuant to this section, the trustee shall allocate to income an amount
received as rent of real or personal property, including an amount received for cancellation orPage No. 6renewal of a lease. An amount received as a refundable deposit, including a security deposit or
a deposit that is to be applied as rent for future periods, must be added to principal and held
subject to the terms of the lease and is not available for distribution to a beneficiary until the
trustee's contractual obligations have been satisfied with respect to that amount.59-04.2-14. (406) Obligation to pay money.1.An amount received as interest, whether determined at a fixed, variable, or floating
rate, on an obligation to pay money to the trustee, including an amount received as
consideration for prepaying principal, must be allocated to income without any
provision for amortization of premium.2.A trustee shall allocate to principal an amount received from the sale, redemption, or
other disposition of an obligation to pay money to the trustee more than one year
after it is purchased or acquired by the trustee, including an obligation whose
purchase price or value when it is acquired is less than its value at maturity. If the
obligation matures within one year after it is purchased or acquired by the trustee, an
amount received in excess of its purchase price or its value when acquired by the
trust must be allocated to income.3.This section does not apply to an obligation to which section 59-04.2-17, 59-04.2-18,
59-04.2-19, 59-04.2-20, 59-04.2-22, or 59-04.2-23 applies.59-04.2-15. (407) Insurance policies and similar contracts.1.Except as otherwise provided in subsection 2, a trustee shall allocate to principal the
proceeds of a life insurance policy or other contract in which the trust or its trustee is
named as beneficiary, including a contract that insures the trust or its trustee against
loss for damage to, destruction of, or loss of title to a trust asset. The trustee shall
allocate dividends on an insurance policy to income if the premiums on the policy
are paid from income, and to principal if the premiums are paid from principal.2.A trustee shall allocate to income proceeds of a contract that insures the trustee
against loss of occupancy or other use by an income beneficiary, loss of income, or,
subject to section 59-04.2-11, loss of profits from a business.3.This section does not apply to a contract to which section 59-04.2-17 applies.59-04.2-16. (408) Insubstantial allocations not required. Reserved.59-04.2-17. (409) Deferred compensation, annuities, and similar payments.1.In this section, "payment" means a payment that a trustee may receive over a fixed
number of years or during the life of one or more individuals because of services
rendered or property transferred to the payer in exchange for future payments. The
term includes a payment made in money or property from the payer's general assets
or from a separate fund created by the payer. For purposes of subsections 4, 5, 6,
and 7, the term includes any payment from a separate fund, regardless of the
reason for the payment.In this section, "separate fund" includes a private orcommercial annuity, an individual retirement account, and a pension, profit-sharing,
stock-bonus, or stock-ownership plan.2.To the extent that a payment is characterized as interest, a dividend, or a payment
made in lieu of interest or a dividend, a trustee shall allocate the payment to income.
The trustee shall allocate to principal the balance of the payment and any other
payment received in the same accounting period that is not characterized as
interest, a dividend, or an equivalent payment.Page No. 73.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 ten 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 subsection, a payment is not required to be made to the extent that it is made
because the trustee exercises a right of withdrawal.4.Except as otherwise provided in subsection 5, subsections 6 and 7 apply, and
subsections 2 and 3 do not apply, in determining the allocation of a payment made
from a separate fund to a trust to which an election to qualify for marital deduction
under section 2056(b)(7) of the Internal Revenue Code of 1986, as amended, has
been made or to a trust that qualified for the marital deduction under section
2056(b)(5) of the Internal Revenue Code of 1986, as amended.5.Subsections 4, 6, and 7 do not apply if and to the extent that the series of payments
would, without application of subsection 4, qualify for the marital deduction under
section 2056(b)(7)(C) of the Internal Revenue Code of 1986, as amended.6.A trustee shall determine the internal income of each separate fund for the
accounting period as if the separate fund were a trust subject to this chapter. Upon
request of the surviving spouse, the trustee shall demand of the persons
administering the separate fund that this internal income be distributed 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.7.If a trustee cannot determine the internal income of a separate fund but can
determine the value of a separate fund, the internal income of the separate fund is
deemed to equal four percent of the fund's value, according to the most recent
statement of value preceding the beginning of the accounting period. If the trustee
can determine neither the internal income of the separate fund nor the fund's value,
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 of 1986, as amended, for the month preceding
the accounting period for which the computation is made.8.This section does not apply to a payment to which section 59-04.2-18 applies.59-04.2-18. (410) Liquidating asset.1.In this section, "liquidating asset" means an asset whose value will diminish or
terminate because the asset is expected to produce receipts for a period of limited
duration. The term includes a leasehold, patent, copyright, royalty right, and right to
receive payments during a period of more than one year under an arrangement that
does not provide for the payment of interest on the unpaid balance. The term does
not include a payment subject to section 59-04.2-17, resources subject to section
59-04.2-19, timber subject to section 59-04.2-20, an activity subject to section
59-04.2-22, an asset subject to section 59-04.2-23, or any asset for which the
trustee establishes a reserve for depreciation under section 59-04.2-26.2.A trustee shall allocate to income ten percent of the receipts from a liquidating asset
and the balance to principal.59-04.2-19. (411) Minerals, water, and other natural resources.Page No. 81.To the extent that a trustee accounts for receipts from an interest in minerals or
other natural resources pursuant to this section, the trustee shall allocate them as
follows:a.If received as nominal delay rental or nominal annual rent on a lease, a receipt
must be allocated to income.b.If received from a production payment, a receipt must be allocated to income if
and to the extent that the agreement creating the production payment provides
a factor for interest or its equivalent.The balance must be allocated toprincipal.c.If an amount received as a royalty, shut-in-well payment, take-or-pay payment,
bonus, or delay rental is more than nominal, ninety percent must be allocated
to principal and the balance to income.d.If an amount is received from a working interest or any other interest not
provided for in subdivision a, b, or c, ninety percent of the net amount received
must be allocated to principal and the balance to income.2.An amount received on account of an interest in water that is renewable must be
allocated to income. If the water is not renewable, ninety percent of the amount
must be allocated to principal and the balance to income.3.This chapter applies whether or not a decedent or donor was extracting minerals,
water, or other natural resources before the interest became subject to the trust.4.If a trust owns an interest in minerals, water, or other natural resources on August 1,
1999, the trustee may allocate receipts from the interest as provided in this chapter
or in the manner used by the trustee before August 1, 1999. If the trust acquires an
interest in minerals, water, or other natural resources after August 1, 1999, the
trustee shall allocate receipts from the interest as provided in this chapter.59-04.2-20. (412) Timber.1.To the extent that a trustee accounts for receipts from the sale of timber and related
products pursuant to this section, the trustee shall allocate the net receipts:a.To income to the extent that the amount of timber removed from the land does
not exceed the rate of growth of the timber during the accounting periods in
which a beneficiary has a mandatory income interest;b.To principal to the extent that the amount of timber removed from the land
exceeds the rate of growth of the timber or the net receipts are from the sale of
standing timber;c.To or between income and principal if the net receipts are from the lease of
timberland or from a contract to cut timber from land owned by a trust, by
determining the amount of timber removed from the land under the lease or
contract and applying the rules in subdivisions a and b; ord.To principal to the extent that advance payments, bonuses, and other
payments are not allocated pursuant to subdivision a, b, or c.2.In determining net receipts to be allocated pursuant to subsection 1, a trustee shall
deduct and transfer to principal a reasonable amount for depletion.3.This chapter applies whether or not a decedent or transferor was harvesting timber
from the property before it became subject to the trust.Page No. 94.If a trust owns an interest in timberland on August 1, 1999, the trustee may allocate
net receipts from the sale of timber and related products as provided in this chapter
or in the manner used by the trustee before August 1, 1999. If the trust acquires an
interest in timberland after August 1, 1999, the trustee shall allocate net receipts
from the sale of timber and related products as provided in this chapter.59-04.2-21. (413) Property not productive of income. Reserved.59-04.2-22. (414) Derivatives and options.1.In this section, "derivative" means a contract or financial instrument or a combination
of contracts and financial instruments which gives a trust the right or obligation to
participate in some or all changes in the price of a tangible or intangible asset or
group of assets, or changes in a rate, an index of prices or rates, or other market
indicator for an asset or a group of assets.2.To the extent that a trustee does not account under section 59-04.2-11 for
transactions in derivatives, the trustee shall allocate to principal receipts from and
disbursements made in connection with those transactions.3.If a trustee grants an option to buy property from the trust, whether or not the trust
owns the property when the option is granted, grants an option that permits another
person to sell property to the trust, or acquires an option to buy property for the trust
or an option to sell an asset owned by the trust, and the trustee or other owner of the
asset is required to deliver the asset if the option is exercised, an amount received
for granting the option must be allocated to principal. An amount paid to acquire the
option must be paid from principal. A gain or loss realized upon the exercise of an
option, including an option granted to a settlor of the trust for services rendered,
must be allocated to principal.59-04.2-23. (415) Asset-backed securities.1.In this section, "asset-backed security" means an asset whose value is based upon
the right it gives the owner to receive distributions from the proceeds of financial
assets that provide collateral for the security. The term includes an asset that gives
the owner the right to receive from the collateral financial assets only the interest or
other current return or only the proceeds other than interest or current return. The
term does not include an asset to which section 59-04.2-09 or 59-04.2-17 applies.2.If a trust receives a payment from interest or other current return and from other
proceeds of the collateral financial assets, the trustee shall allocate to income the
portion of the payment which the payer identifies as being from interest or other
current return and shall allocate the balance of the payment to principal.3.If a trust receives one or more payments in exchange for the trust's entire interest in
an asset-backed security in one accounting period, the trustee shall allocate the
payments to principal. If a payment is one of a series of payments that will result in
the liquidation of the trust's interest in the security over more than one accounting
period, the trustee shall allocate ten percent of the payment to income and the
balance to principal.59-04.2-24. (501) Disbursements from income. A trustee shall make the followingdisbursements from income to the extent that they are not disbursements to which subdivision b
or c of subsection 2 of section 59-04.2-04 applies:1.One-half of the regular compensation of the trustee and of any person providing
investment advisory or custodial services to the trustee.Page No. 102.One-half of all expenses for accountings, judicial proceedings, or other matters that
involve both the income and remainder interests.3.All of the other ordinary expenses incurred in connection with the administration,
management, or preservation of trust property and the distribution of income,
including interest, ordinary repairs, regularly recurring taxes assessed against
principal, and expenses of a proceeding or other matter that concerns primarily the
income interest.4.Recurring premiums on insurance covering the loss of a principal asset or the loss of
income from or use of the asset.59-04.2-25. (502) Disbursements from principal.1.A trustee shall make the following disbursements from principal:a.The remaining one-half of the disbursements described in subsections 1 and 2
of section 59-04.2-24;b.All of the trustee's compensation calculated on principal as a fee for
acceptance, distribution, or termination, and disbursements made to prepare
property for sale;c.Payments on the principal of a trust debt;d.Expenses of a proceeding that concerns primarily principal, including a
proceeding to construe the trust or to protect the trust or its property;e.Premiums paid on a policy of insurance not described in subsection 4 of section
59-04.2-24 of which the trust is the owner and beneficiary;f.Estate, inheritance, and other transfer taxes, including penalties, apportioned to
the trust; andg.Disbursements related to environmental matters, including reclamation,
assessing environmental conditions, remedying and removing environmental
contamination, monitoring remedial activities and the release of substances,
preventing future releases of substances, collecting amounts from persons
liable or potentially liable for the costs of those activities, penalties imposed
under environmental laws or regulations and other payments made to comply
with those laws or regulations, statutory or common-law claims by third parties,
and defending claims based on environmental matters.2.If a principal asset is encumbered with an obligation that requires income from that
asset to be paid directly to the creditor, the trustee shall transfer from principal to
income an amount equal to the income paid to the creditor in reduction of the
principal balance of the obligation.59-04.2-26. (503) Transfers from income to principal for depreciation.1.In this section, "depreciation" means a reduction in value due to wear, tear, decay,
corrosion, or gradual obsolescence of a fixed asset having a useful life of more than
one year.2.A trustee may transfer to principal a reasonable amount of the net cash receipts
from a principal asset that is subject to depreciation, but may not transfer any
amount for depreciation:Page No. 11a.Of that portion of real property used or available for use by a beneficiary as a
residence or of tangible personal property held or made available for the
personal use or enjoyment of a beneficiary;b.During the administration of a decedent's estate; orc.Under this section if the trustee is accounting under section 59-04.2-11 for the
business or activity in which the asset is used.3.An amount transferred to principal need not be held as a separate fund.59-04.2-27. (504) Transfers from income to reimburse principal.1.If a trustee makes or expects to make a principal disbursement described in this
section, the trustee may transfer an appropriate amount from income to principal in
one or more accounting periods to reimburse principal or to provide a reserve for
future principal disbursements.2.Principal disbursements to which subsection 1 applies include the following, but only
to the extent that the trustee has not been and does not expect to be reimbursed by
a third party:a.An amount chargeable to income but paid from principal because it is unusually
large, including extraordinary repairs;b.A capital improvement to a principal asset, whether in the form of changes to
an existing asset or the construction of a new asset, including special
assessments;c.Disbursements made to prepare property for rental, including tenant
allowances, leasehold improvements, and broker's commissions;d.Periodic payments on an obligation secured by a principal asset to the extent
that the amount transferred from income to principal for depreciation is less
than the periodic payments; ande.Disbursementsdescribedinsubdivision gofsubsection 1ofsection59-04.2-25.3.If the asset whose ownership gives rise to the disbursements becomes subject to a
successive income interest after an income interest ends, a trustee may continue to
transfer amounts from income to principal as provided in subsection 1.59-04.2-28. (505) Income taxes.1.A tax required to be paid by a trustee based on receipts allocated to income must be
paid from income.2.A tax required to be paid by a trustee based on receipts allocated to principal must
be paid from principal, even if the tax is called an income tax by the taxing authority.3.A tax required to be paid by a trustee on the trust's share of an entity's taxable
income must be paid:a.From income to the extent that receipts from the entity are allocated to income;b.From principal to the extent that receipts from the entity are allocated only to
principal;Page No. 12c.Proportionately from principal and income to the extent that receipts from the
entity are allocated to both income and principal; andd.From principal to the extent that the tax exceeds the total receipts from the
entity.4.After applying subsections 1 through 3, the trustee shall adjust income or principal
receipts to the extent that the trust's taxes are reduced because the trust receives a
deduction for payments made to a beneficiary.59-04.2-29. (506) Adjustments between principal and income because of taxes.1.A fiduciary may make adjustments between principal and income to offset the
shifting of economic interests or tax benefits between income beneficiaries and
remainder beneficiaries which arise from:a.Elections and decisions, other than those described in subsection 2, that the
fiduciary makes from time to time regarding tax matters;b.An income tax or any other tax that is imposed upon the fiduciary or a
beneficiary as a result of a transaction involving or a distribution from the estate
or trust; orc.The ownership by an estate or trust of an interest in an entity whose taxable
income, whether or not distributed, is includable in the taxable income of the
estate, trust, or a beneficiary.2.If the amount of an estate tax marital deduction or charitable contribution deduction
is reduced because a fiduciary deducts an amount paid from principal for income tax
purposes instead of deducting it for estate tax purposes, and as a result estate taxes
paid from principal are increased and income taxes paid by an estate, trust, or
beneficiary are decreased, each estate, trust, or beneficiary that benefits from the
decrease in income tax shall reimburse the principal from which the increase in
estate tax is paid. The total reimbursement must equal the increase in the estate tax
to the extent that the principal used to pay the increase would have qualified for a
marital deduction or charitable contribution deduction but for the payment.Theproportionate share of the reimbursement for each estate, trust, or beneficiary
whose income taxes are reduced must be the same as its proportionate share of the
total decrease in income tax.An estate or trust shall reimburse principal fromincome.59-04.2-30. Certain charitable remainder unitrusts.1.Notwithstanding any other provision of this chapter, unless the trust instrument
directs otherwise, an increase in the value of the obligations described in this
subsection owned by a charitable remainder unitrust of the type authorized in
section 664(d)(3) of the Internal Revenue Code [26 U.S.C. 664(d)(3)] or its
successor provisions is distributable as income when it becomes available for
distribution:a.A zero coupon bond;b.An annuity contract before annuitization;c.A life insurance contract before the death of the insured;d.An interest in a common trust fund as defined in section 584 of the Internal
Revenue Code [26 U.S.C. 584] or its successor provisions;Page No. 13e.An interest in a partnership as defined in section 7701 of the Internal Revenue
Code [26 U.S.C. 7701] or its successor provisions; andf.Any other obligation for the payment of money that is payable at a future time in
accordance with a fixed, variable, or discretionary schedule of appreciation in
excess of the price at which it was issued.2.The increase in value of the obligations described in subsection 1 is distributable to
the beneficiary who was the income beneficiary at the time of the increase.3.For purposes of this section, the increase in value of an obligation described in
subsection 1 is available for distribution only when the trustee receives cash on
account of the obligation. If the obligation is surrendered or liquidated partially, the
cash available must be attributed first to the increase.Page No. 14Document Outlinechapter 59-04.2 uniform principal and income act