SF0039 - Uniform Principal and Income Act.

2001

State of Wyoming

01LSO-0012.E1

ENGROSSED

SENATE FILE NO. SF0039

Uniform Principal and Income Act.

Sponsored by: Joint Minerals, Business and Economic
Development Interim Committee

A BILL

for

1 AN ACT relating to trusts; providing for the determination,
2 allocation and distribution of principal and income of a
3 trust under certain circumstances as specified; providing
4 for notice of proposed action; providing for judicial
5 control of discretionary powers; and providing for an
6 effective date.

8 Be It Enacted by the Legislature of the State of Wyoming:

10 Section 1. W.S. 2-3-801 through 2-3-834 are created
11 to read:

13 ARTICLE 8

14 PRINCIPAL AND INCOME

16 2-3-801. Short title.

Page 1

2 This act shall be known and may be cited as the "Wyoming
3 Uniform Principal and Income Act".

5 2-3-802. Definitions.

7 (a) As used in this act:

9 (i) "Accounting period" means a calendar year
10 unless another twelve-month period is selected by a
11 fiduciary. The term includes a portion of a calendar year
12 or other twelve-month period that begins when an income
13 interest begins or ends when an income interest ends;

15 (ii) "Beneficiary" includes, in the case of a
16 decedent's estate, an heir, legatee and devisee and, in the
17 case of a trust, an income beneficiary and a remainder
18 beneficiary;

20 (iii) "Fiduciary" means a personal
21 representative or a trustee. The term includes an executor,
22 administrator, successor personal representative, special
23 administrator and a person performing substantially the
24 same function;

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2 (iv) "Income" means money or property that a
3 fiduciary receives as current return from a principal
4 asset. The term includes a portion of receipts from a sale,
5 exchange or liquidation of a principal asset, to the extent
6 provided in W.S. 2-3-811 through 2-3-825;

8 (v) "Income beneficiary" means a person to whom
9 net income of a trust is or may be payable;

11 (vi) "Income interest" means the right of an
12 income beneficiary to receive all or part of net income,
13 whether the terms of the trust require it to be distributed
14 or authorize it to be distributed in the trustee's
15 discretion;

17 (vii) "Mandatory income interest" means the
18 right of an income beneficiary to receive net income that
19 the terms of the trust require the fiduciary to distribute;

21 (viii) "Net income" means the total receipts
22 allocated to income during an accounting period minus the
23 disbursements made from income during the period, plus or

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1 minus transfers under this act to or from income during the
2 period;

4 (ix) "Person" means an individual, corporation,
5 business trust, estate, trust, partnership, limited
6 liability company, association, joint venture; government,
7 governmental subdivision, agency or instrumentality; public
8 corporation; or any other legal or commercial entity;

10 (x) "Principal" means property held in trust for
11 distribution to a remainder beneficiary when the trust
12 terminates;

14 (xi) "Remainder beneficiary" means a person
15 entitled to receive principal when an income interest ends;

17 (xii) "Terms of a trust" means the manifestation
18 of the intent of a settlor or decedent with respect to the
19 trust, expressed in a manner that admits of its proof in a
20 judicial proceeding, whether by written or spoken words or
21 by conduct; and

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1 (xiii) "Trustee" includes an original,
2 additional or successor trustee, whether or not appointed
3 or confirmed by a court;

5 (xiv) "This act" means W.S. 2-3-801 through
6 2-3-834.

8 2-3-803. Fiduciary duties; general principles.

10 (a) In allocating receipts and disbursements to or
11 between principal and income, and with respect to any matter
12 within the scope of W.S. 2-3-806 through 2-3-810, a
13 fiduciary:

15 (i) Shall administer a trust or estate in
16 accordance with the terms of the trust or the will, even if
17 there is a different provision in this act;

19 (ii) May administer a trust or estate by the
20 exercise of a discretionary power of administration given to
21 the fiduciary by the terms of the trust or the will, even if
22 the exercise of the power produces a result different from a
23 result required or permitted by this act, and no inference
24 that the fiduciary has improperly exercised the discretion

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1 arises from the fact that the fiduciary has made an
2 allocation contrary to a provision of this act;

4 (iii) Shall administer a trust or estate in
5 accordance with this act if the terms of the trust or the
6 will do not contain a different provision or do not give the
7 fiduciary a discretionary power of administration; and

9 (iv) Shall add a receipt or charge a disbursement
10 to principal to the extent that the terms of the trust and
11 this act do not provide a rule for allocating the receipt or
12 disbursement to or between principal and income.

14 (b) In exercising the power to adjust under W.S.
15 2-3-804(a) or a discretionary power of administration
16 regarding a matter within the scope of this act, whether
17 granted by the terms of a trust, a will, or this act, a
18 fiduciary shall administer a trust or estate impartially,
19 based on what is fair and reasonable to all of the
20 beneficiaries, except to the extent that the terms of the
21 trust or the will clearly manifest an intention that the
22 fiduciary shall or may favor one (1) or more of the
23 beneficiaries. A determination in accordance with this act

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1 is presumed to be fair and reasonable to all of the
2 beneficiaries.

4 2-3-804. Trustee's power to adjust; liability of
5 trustee.

7 (a) Subject to subsections (b) and (c) of this
8 section, a trustee may adjust between principal and income
9 to the extent the trustee considers necessary if the trustee
10 invests and manages trust assets as a prudent investor, the
11 terms of the trust describe the amount that may or must be
12 distributed to a beneficiary by referring to the trust's
13 income, and the trustee determines, after applying the rules
14 in W.S. 2-3-803(a), and considering any power the trustee
15 may have under the trust to invade principal or accumulate
16 income, that the trustee is unable to comply with W.S.
17 2-3-803(b).

19 (b) In deciding whether and to what extent to exercise
20 the power conferred by subsection (a) of this section, a
21 trustee shall consider all factors relevant to the trust and
22 its beneficiaries, including the following factors to the
23 extent they are relevant:

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1 (i) The nature, purpose and expected duration of
2 the trust;

4 (ii) The intent of the settlor;

6 (iii) The identity and circumstances of the
7 beneficiaries;

9 (iv) The needs for liquidity, regularity of
10 income and preservation and appreciation of capital;

12 (v) The assets held in the trust; the extent to
13 which they consist of financial assets, interests in closely
14 held enterprises, tangible and intangible personal property,
15 or real property; the extent to which an asset is used by a
16 beneficiary; and whether an asset was purchased by the
17 trustee or received from the settlor;

19 (vi) The net amount allocated to income under the
20 other sections of this act and the increase or decrease in
21 the value of the principal assets, which the trustee may
22 estimate as to assets for which market values are not
23 readily available;

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1 (vii) Whether and to what extent the terms of the
2 trust give the trustee the power to invade principal or
3 accumulate income or prohibit the trustee from invading
4 principal or accumulating income, and the extent to which
5 the trustee has exercised a power from time to time to
6 invade principal or accumulate income;

8 (viii) The actual and anticipated effect of
9 economic conditions on principal and income and effects of
10 inflation and deflation; and

12 (ix) The anticipated tax consequences of an
13 adjustment.

15 (c) A trustee may not make an adjustment:

17 (i) That diminishes the income interest in a
18 trust that requires all of the income to be paid at least
19 annually to a spouse and for which an estate tax or gift tax
20 marital deduction would be allowed, in whole or in part, if
21 the trustee did not have the power to make the adjustment;

23 (ii) That reduces the actuarial value of the
24 income interest in a trust to which a person transfers

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1 property with the intent to qualify for a gift tax
2 exclusion;

4 (iii) That changes the amount payable to a
5 beneficiary as a fixed annuity or a fixed fraction of the
6 value of the trust assets;

8 (iv) From any amount that is permanently set
9 aside for charitable purposes under a will or the terms of a
10 trust unless both income and principal are so set aside;

12 (v) If possessing or exercising the power to make
13 an adjustment causes an individual to be treated as the
14 owner of all or part of the trust for income tax purposes,
15 and the individual would not be treated as the owner if the
16 trustee did not possess the power to make an adjustment;

18 (vi) If possessing or exercising the power to
19 make an adjustment causes all or part of the trust assets to
20 be included for estate tax purposes in the estate of an
21 individual who has the power to remove a trustee or appoint
22 a trustee, or both, and the assets would not be included in
23 the estate of the individual if the trustee did not possess
24 the power to make an adjustment;

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2 (vii) If the trustee is a beneficiary of the
3 trust; or

5 (viii) If the trustee is not a beneficiary, but
6 the adjustment would benefit the trustee directly or
7 indirectly.

9 (d) If paragraph (c)(v), (vi), (vii) or (viii) of this
10 section applies to a trustee and there is more than one (1)
11 trustee, a cotrustee to whom the provision does not apply
12 may make the adjustment unless the exercise of the power by
13 the remaining trustee or trustees is not permitted by the
14 terms of the trust.

16 (e) A trustee may release the entire power conferred
17 by subsection (a) of this section or may release only the
18 power to adjust from income to principal or the power to
19 adjust from principal to income if the trustee is uncertain
20 about whether possessing or exercising the power will cause
21 a result described in paragraphs (c)(i) through (vi) or
22 (viii) of this section or if the trustee determines that
23 possessing or exercising the power will or may deprive the
24 trust of a tax benefit or impose a tax burden not described

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1 in subsection (c) of this section. The release may be
2 permanent or for a specified period, including a period
3 measured by the life of an individual.

5 (f) Terms of a trust that limit the power of a trustee
6 to make an adjustment between principal and income do not
7 affect the application of this section unless it is clear
8 from the terms of the trust that the terms are intended to
9 deny the trustee the power of adjustment conferred by
10 subsection (a) of this section.

12 (g) Nothing in this section or in this act is intended
13 to create or imply a duty to make an adjustment, and a
14 trustee is not liable for not considering whether to make an
15 adjustment or for choosing not to make an adjustment.

17 2-3-805. Notice of proposed action; objections of
18 beneficiary; liability of trustee; proceedings.

20 (a) A trustee shall give notice of proposed action
21 regarding a matter governed by this act as provided in this
22 section. For the purpose of this section, a proposed
23 action includes a course of action and a decision not to
24 take action.

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2 (b) The trustee shall mail notice of the proposed
3 action to all beneficiaries who are receiving, or are
4 entitled to receive, income under the trust or to receive a
5 distribution of principal if the trust were terminated at
6 the time the notice is given.

8 (c) Notice of proposed action need not be given to
9 any person who consents in writing to the proposed action.
10 The consent may be executed at any time before or after the
11 proposed action is taken.

13 (d) The notice of proposed action shall state that it
14 is given pursuant to this section and shall state all of
15 the following:

17 (i) The name and mailing address of the trustee;

19 (ii) The name and telephone number of a person
20 who may be contacted for additional information;

22 (iii) A description of the action proposed to be
23 taken and an explanation of the reasons for the action;

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1 (iv) The time within which objections to the
2 proposed action can be made, which shall be at least thirty
3 (30) days from the mailing of the notice of proposed
4 action; and

6 (v) The date on or after which the proposed
7 action may be taken or is effective.

9 (e) A beneficiary may object to the proposed action
10 by mailing a written objection to the trustee at the
11 address stated in the notice of proposed action within the
12 time period specified in the notice of proposed action.

14 (f) Except for good cause shown, a trustee is not
15 liable to a beneficiary for an action regarding a matter
16 governed by this act if the trustee does not receive a
17 written objection to the proposed action from the
18 beneficiary within the applicable period and the other
19 requirements of this section are satisfied. If no
20 beneficiary entitled to notice objects under this section,
21 the trustee is not liable to any current or future
22 beneficiary with respect to the proposed action.

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1 (g) If the trustee receives a written objection
2 within the applicable period, either the trustee or a
3 beneficiary may petition the court to have the proposed
4 action taken as proposed, taken with modifications, or
5 denied. In the proceeding, a beneficiary objecting to the
6 proposed action has the burden of proving that the
7 trustee's proposed action should not be taken. A
8 beneficiary who has not objected is not estopped from
9 opposing the proposed action in the proceeding. If the
10 trustee decides not to implement the proposed action, the
11 trustee shall notify the beneficiaries of the decision not
12 to take the action and the reasons for the decision, and
13 the trustee's decision not to implement the proposed action
14 does not itself give rise to liability to any current or
15 future beneficiary. A beneficiary may petition the court to
16 have the action taken, and has the burden of proving that
17 it should be taken.

19 2-3-806. Determination and distribution of net income.

21 (a) After a decedent dies, in the case of an estate,
22 or after an income interest in a trust ends, the following
23 rules apply:

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1 (i) A fiduciary of an estate or of a terminating
2 income interest shall determine the amount of net income and
3 net principal receipts received from property specifically
4 given to a beneficiary under the rules in W.S. 2-3-808
5 through 2-3-831 which apply to trustees and the rules in
6 paragraph (v) of this subsection. The fiduciary shall
7 distribute the net income and net principal receipts to the
8 beneficiary who is to receive the specific property;

10 (ii) A fiduciary shall determine the remaining
11 net income of a decedent's estate or a terminating income
12 interest under the rules in W.S. 2-3-808 through 2-3-831
13 which apply to trustees and by:

15 (A) Including in net income all income from
16 property used to discharge liabilities;

18 (B) Paying from income or principal, in the
19 fiduciary's discretion, fees of attorneys, accountants and
20 fiduciaries; court costs and other expenses of
21 administration; and interest on death taxes, but the
22 fiduciary may pay those expenses from income of property
23 passing to a trust for which the fiduciary claims an estate
24 tax marital or charitable deduction only to the extent that

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1 the payment of those expenses from income will not cause the
2 reduction or loss of the deduction; and

4 (C) Paying from principal all other
5 disbursements made or incurred in connection with the
6 settlement of a decedent's estate or the winding up of a
7 terminating income interest, including debts, funeral
8 expenses, disposition of remains, family allowances and
9 death taxes and related penalties that are apportioned to
10 the estate or terminating income interest by the will, the
11 terms of the trust or applicable law.

13 (iii) A fiduciary shall distribute to a
14 beneficiary who receives a pecuniary amount outright the
15 interest or any other amount provided by the will, the terms
16 of the trust, or applicable law from net income determined
17 under paragraph (ii) of this subsection or from principal to
18 the extent that net income is insufficient. If a beneficiary
19 is to receive a pecuniary amount outright from a trust after
20 an income interest ends and no interest or other amount is
21 provided for by the terms of the trust or applicable law,
22 the fiduciary shall distribute the interest or other amount
23 to which the beneficiary would be entitled under applicable

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1 law if the pecuniary amount were required to be paid under a
2 will;

4 (iv) A fiduciary shall distribute the net income
5 remaining after distributions required by paragraph (iii) of
6 this subsection in the manner described in W.S. 2-3-807 to
7 all other beneficiaries, including a beneficiary who
8 receives a pecuniary amount in trust, even if the
9 beneficiary holds an unqualified power to withdraw assets
10 from the trust or other presently exercisable general power
11 of appointment over the trust;

13 (v) A fiduciary may not reduce principal or
14 income receipts from property described in paragraph (i) of
15 this subsection because of a payment described in W.S.
16 2-3-826 or 2-3-827 to the extent that the will, the terms of
17 the trust, or applicable law requires the fiduciary to make
18 the payment from assets other than the property or to the
19 extent that the fiduciary recovers or expects to recover the
20 payment from a third party. The net income and principal
21 receipts from the property are determined by including all
22 of the amounts the fiduciary receives or pays with respect
23 to the property, whether those amounts accrued or became due
24 before, on, or after the date of a decedent's death or an

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1 income interest's terminating event, and by making a
2 reasonable provision for amounts that the fiduciary believes
3 the estate or terminating income interest may become
4 obligated to pay after the property is distributed.

6 2-3-807. Distribution to residuary and remainder
7 beneficiaries.

9 (a) Each beneficiary described in W.S. 2-3-806(a)(iv)
10 is entitled to receive a portion of the net income equal to
11 the beneficiary's fractional interest in undistributed
12 principal assets, using values as of the distribution date.
13 If a fiduciary makes more than one (1) distribution of
14 assets to beneficiaries to whom this section applies, each
15 beneficiary, including one who does not receive part of the
16 distribution, is entitled, as of each distribution date, to
17 the net income the fiduciary has received after the date of
18 death or terminating event or earlier distribution date but
19 has not distributed as of the current distribution date.

21 (b) In determining a beneficiary's share of net
22 income, the following rules apply:

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1 (i) The beneficiary is entitled to receive a
2 portion of the net income equal to the beneficiary's
3 fractional interest in the undistributed principal assets
4 immediately before the distribution date, including assets
5 that later may be sold to meet principal obligations;

7 (ii) The beneficiary's fractional interest in the
8 undistributed principal assets must be calculated without
9 regard to property specifically given to a beneficiary and
10 property required to pay pecuniary amounts not in trust;

12 (iii) The beneficiary's fractional interest in
13 the undistributed principal assets must be calculated on the
14 basis of the aggregate value of those assets as of the
15 distribution date without reducing the value by any unpaid
16 principal obligation; and

18 (iv) The distribution date for purposes of this
19 section may be the date as of which the fiduciary calculates
20 the value of the assets if that date is reasonably near the
21 date on which assets are actually distributed.

23 (c) If a fiduciary does not distribute all of the
24 collected but undistributed net income to each person as of

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1 a distribution date, the fiduciary shall maintain
2 appropriate records showing the interest of each beneficiary
3 in that net income.

5 (d) A fiduciary may apply the rules in this section,
6 to the extent that the fiduciary considers it appropriate,
7 to net gain or loss realized after the date of death or
8 terminating event or earlier distribution date from the
9 disposition of a principal asset if this section applies to
10 the income from the asset.

12 2-3-808. When right to income begins and ends.

14 (a) An income beneficiary is entitled to net income
15 from the date on which the income interest begins. An
16 income interest begins on the date specified in the terms
17 of the trust or, if no date is specified, on the date an
18 asset becomes subject to a trust or successive income
19 interest.

21 (b) An asset becomes subject to a trust:

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1 (i) On the date it is transferred to the trust
2 in the case of an asset that is transferred to a trust
3 during the transferor's life;

5 (ii) On the date of a testator's death in the
6 case of an asset that becomes subject to a trust by reason
7 of a will, even if there is an intervening period of
8 administration of the testator's estate; or

10 (iii) On the date of an individual's death in
11 the case of an asset that is transferred to a fiduciary by
12 a third party because of the individual's death.

14 (c) An asset becomes subject to a successive income
15 interest on the day after the preceding income interest
16 ends, as determined under subsection (d) of this section,
17 even if there is an intervening period of administration to
18 wind up the preceding income interest.

20 (d) An income interest ends on the day before an
21 income beneficiary dies or another terminating event
22 occurs, or on the last day of a period during which there
23 is no beneficiary to whom a trustee may distribute income.

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1 2-3-809. Apportionment of receipts and disbursements
2 when decedent dies or income interest begins.

4 (a) A trustee shall allocate an income receipt or
5 disbursement other than one to which W.S. 2-3-806(a)(i)
6 applies to principal if its due date occurs before a
7 decedent dies in the case of an estate or before an income
8 interest begins in the case of a trust or successive income
9 interest.

11 (b) A trustee shall allocate an income receipt or
12 disbursement to income if its due date occurs on or after
13 the date on which a decedent dies or an income interest
14 begins and it is a periodic due date. An income receipt or
15 disbursement must be treated as accruing from day to day if
16 its due date is not periodic or it has no due date. The
17 portion of the receipt or disbursement accruing before the
18 date on which a decedent dies or an income interest begins
19 must be allocated to principal and the balance must be
20 allocated to income.

22 (c) An item of income or an obligation is due on the
23 date the payer is required to make a payment. If a payment
24 date is not stated, there is no due date for the purposes

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1 of this act. Distributions to shareholders or other owners
2 from an entity to which W.S. 2-3-810 applies are deemed to
3 be due on the date fixed by the entity for determining who
4 is entitled to receive the distribution or, if no date is
5 fixed, on the declaration date for the distribution. A due
6 date is periodic for receipts or disbursements that must be
7 paid at regular intervals under a lease or an obligation to
8 pay interest or if an entity customarily makes
9 distributions at regular intervals.

11 2-3-810. Apportionment when income interest ends.

13 (a) In this section, "undistributed income" means net
14 income received before the date on which an income interest
15 ends. The term does not include an item of income or
16 expense that is due or accrued or net income that has been
17 added or is required to be added to principal under the
18 terms of the trust.

20 (b) When a mandatory income interest ends, the
21 trustee shall pay to a mandatory income beneficiary who
22 survives that date, or the estate of a deceased mandatory
23 income beneficiary whose death causes the interest to end,
24 the beneficiary's share of the undistributed income that is

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1 not disposed of under the terms of the trust unless the
2 beneficiary has an unqualified power to revoke more than
3 five percent (5%) of the trust immediately before the
4 income interest ends. In the latter case, the undistributed
5 income from the portion of the trust that may be revoked
6 must be added to principal.

8 (c) When a trustee's obligation to pay a fixed
9 annuity or a fixed fraction of the value of the trust's
10 assets ends, the trustee shall prorate the final payment if
11 and to the extent required by applicable law to accomplish
12 a purpose of the trust or its settlor relating to income,
13 gift, estate or other tax requirements.

15 2-3-811. Character of receipts.

17 (a) In this section, "entity" means a corporation,
18 partnership, limited liability company, regulated
19 investment company, real estate investment trust, common
20 trust fund or any other organization in which a trustee has
21 an interest other than a trust or estate to which W.S.
22 2-3-811 applies, a business or activity to which W.S.
23 2-3-813 applies or an asset-backed security to which W.S.
24 2-3-825 applies.

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2 (b) Except as otherwise provided in this section, a
3 trustee shall allocate to income money received from an
4 entity.

6 (c) A trustee shall allocate the following receipts
7 from an entity to principal:

9 (i) Property other than money;

11 (ii) Money received in one (1) distribution or a
12 series of related distributions in exchange for part or all
13 of a trust's interest in the entity;

15 (iii) Money received in total or partial
16 liquidation of the entity; and

18 (iv) Money received from an entity that is a
19 regulated investment company or a real estate investment
20 trust if the money distributed is a capital gain dividend
21 for federal income tax purposes.

23 (d) Money is received in partial liquidation:

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1 (i) To the extent that the entity, at or near
2 the time of a distribution, indicates that it is a
3 distribution in partial liquidation; or

5 (ii) If the total amount of money and property
6 received in a distribution or series of related
7 distributions is greater than twenty percent (20%) of the
8 entity's gross assets, as shown by the entity's year-end
9 financial statements immediately preceding the initial
10 receipt.

12 (e) Money is not received in partial liquidation, nor
13 may it be taken into account under paragraph (d)(ii) of
14 this section, to the extent that it does not exceed the
15 amount of income tax that a trustee or beneficiary must pay
16 on taxable income of the entity that distributes the money.

18 (f) A trustee may rely upon a statement made by an
19 entity about the source or character of a distribution if
20 the statement is made at or near the time of distribution
21 by the entity's board of directors or other person or group
22 of persons authorized to exercise powers to pay money or
23 transfer property comparable to those of a corporation's
24 board of directors.

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2 2-3-812. Distribution from trust or estate.

4 A trustee shall allocate to income an amount received as a
5 distribution of income from a trust or an estate in which
6 the trust has an interest other than a purchased interest,
7 and shall allocate to principal an amount received as a
8 distribution of principal from such a trust or estate. If a
9 trustee purchases an interest in a trust that is an
10 investment entity, or a decedent or donor transfers an
11 interest in such a trust to a trustee, W.S. 2-3-811 or
12 2-3-825 applies to a receipt from the trust.

14 2-3-813. Business and other activities conducted by
15 trustee.

17 (a) If a trustee who conducts a business or other
18 activity determines that it is in the best interest of all
19 the beneficiaries to account separately for the business or
20 activity instead of accounting for it as part of the
21 trust's general accounting records, the trustee may
22 maintain separate accounting records for its transactions,
23 whether or not its assets are segregated from other trust
24 assets.

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2 (b) A trustee who accounts separately for a business
3 or other activity may determine the extent to which its net
4 cash receipts must be retained for working capital, the
5 acquisition or replacement of fixed assets, and other
6 reasonably foreseeable needs of the business or activity,
7 and the extent to which the remaining net cash receipts are
8 accounted for as principal or income in the trust's general
9 accounting records. If a trustee sells assets of the
10 business or other activity, other than in the ordinary
11 course of the business or activity, the trustee shall
12 account for the net amount received as principal in the
13 trust's general accounting records to the extent the
14 trustee determines that the amount received is no longer
15 required in the conduct of the business.

17 (c) Activities for which a trustee may maintain
18 separate accounting records include:

20 (i) Retail, manufacturing, service and other
21 traditional business activities;

23 (ii) Farming;

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1 (iii) Raising and selling livestock and other
2 animals;

4 (iv) Management of rental properties;

6 (v) Extraction of minerals and other natural
7 resources;

9 (vi) Timber operations; and

11 (vii) Activities to which W.S. 2-3-824 applies.

13 2-3-814. Principal receipts.

15 (a) A trustee shall allocate to principal:

17 (i) To the extent not allocated to income under
18 this act, assets received from a transferor during the
19 transferor's lifetime, a decedent's estate, a trust with a
20 terminating income interest or a payer under a contract
21 naming the trust or its trustee as beneficiary;

23 (ii) Money or other property received from the
24 sale, exchange, liquidation or change in form of a

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1 principal asset, including realized profit, subject to W.S.
2 2-3-811 through 2-3-825;

4 (iii) Amounts recovered from third parties to
5 reimburse the trust because of disbursements described in
6 W.S. 2-3-827(a)(vii) or for other reasons to the extent not
7 based on the loss of income;

9 (iv) Proceeds of property taken by eminent
10 domain, but a separate award made for the loss of income
11 with respect to an accounting period during which a current
12 income beneficiary had a mandatory income interest is
13 income;

15 (v) Net income received in an accounting period
16 during which there is no beneficiary to whom a trustee may
17 or must distribute income; and

19 (vi) Other receipts as provided in W.S. 2-3-818
20 through 2-3-825.

22 2-3-815. Rental property.

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1 To the extent that a trustee accounts for receipts from
2 rental property pursuant to this section, the trustee shall
3 allocate to income an amount received as rent of real or
4 personal property, including an amount received for
5 cancellation or renewal of a lease. An amount received as a
6 refundable deposit, including a security deposit or a
7 deposit that is to be applied as rent for future periods,
8 must be added to principal and held subject to the terms of
9 the lease and is not available for distribution to a
10 beneficiary until the trustee's contractual obligations
11 have been satisfied with respect to that amount.

13 2-3-816. Obligation to pay money.

15 (a) An amount received as interest, whether
16 determined at a fixed, variable or floating rate, on an
17 obligation to pay money to the trustee, including an amount
18 received as consideration for prepaying principal, must be
19 allocated to income without any provision for amortization
20 of premium.

22 (b) A trustee shall allocate to principal an amount
23 received from the sale, redemption or other disposition of
24 an obligation to pay money to the trustee more than one (1)

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1 year after it is purchased or acquired by the trustee,
2 including an obligation the purchase price or value of
3 which when it is acquired is less than its value at
4 maturity. If the obligation matures within one (1) year
5 after it is purchased or acquired by the trustee, an amount
6 received in excess of its purchase price or its value when
7 acquired by the trust must be allocated to income.

9 (c) This section does not apply to obligations to
10 which W.S. 2-3-819 through 2-3-822, 2-3-824 or 2-3-825
11 applies.

13 2-3-817. Insurance policies and similar contracts.

15 (a) Except as otherwise provided in subsection (b) of
16 this section, a trustee shall allocate to principal the
17 proceeds of a life insurance policy or other contract in
18 which the trust or its trustee is named as beneficiary,
19 including a contract that insures the trust or its trustee
20 against loss for damage to, destruction of or loss of title
21 to a trust asset. The trustee shall allocate dividends on
22 an insurance policy to income if the premiums on the policy
23 are paid from income, and to principal if the premiums are
24 paid from principal.

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2 (b) A trustee shall allocate to income proceeds of a
3 contract that insures the trustee against loss of occupancy
4 or other use by an income beneficiary, loss of income, or,
5 subject to W.S. 2-3-813, loss of profits from a business.

7 (c) This section does not apply to a contract to
8 which W.S. 2-3-819 applies.

10 2-3-818. Insubstantial allocation not required.

12 (a) If a trustee determines that an allocation
13 between principal and income required by W.S. 2-3-819
14 through 2-3-822 or 2-3-825 is insubstantial, the trustee
15 may allocate the entire amount to principal unless one of
16 the circumstances described in W.S. 2-3-804(c) applies to
17 the allocation. This power may be exercised by a cotrustee
18 in the circumstances described in W.S. 2-3-804(d) and may
19 be released for the reasons and in the manner described in
20 W.S. 2-3-804(e). An allocation is presumed to be
21 insubstantial if:

23 (i) The amount of the allocation would increase
24 or decrease net income in an accounting period, as

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1 determined before the allocation, by less than ten percent
2 (10%); or

4 (ii) The value of the asset producing the
5 receipt for which the allocation would be made is less than
6 ten percent (10%) of the total value of the trust's assets
7 at the beginning of the accounting period.

9 2-3-819. Deferred compensation, annuities and similar
10 payments.

12 (a) In this section, "payment" means a payment that a
13 trustee may receive over a fixed number of years or during
14 the life of one (1) or more individuals because of services
15 rendered or property transferred to the payer in exchange
16 for future payments. The term includes a payment made in
17 money or property from the payer's general assets or from a
18 separate fund created by the payer, including a private or
19 commercial annuity, an individual retirement account, and a
20 pension, profit-sharing, stock-bonus or stock-ownership
21 plan.

23 (b) To the extent that a payment is characterized as
24 interest or a dividend or a payment made in lieu of

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1 interest or a dividend, a trustee shall allocate it to
2 income. The trustee shall allocate to principal the balance
3 of the payment and any other payment received in the same
4 accounting period that is not characterized as interest, a
5 dividend or an equivalent payment.

7 (c) If no part of a payment is characterized as
8 interest, a dividend or an equivalent payment, and all or
9 part of the payment is required to be made, a trustee shall
10 allocate to income ten percent (10%) of the part that is
11 required to be made during the accounting period and the
12 balance to principal. If no part of a payment is required
13 to be made or the payment received is the entire amount to
14 which the trustee is entitled, the trustee shall allocate
15 the entire payment to principal. For purposes of this
16 subsection, a payment is not "required to be made" to the
17 extent that it is made because the trustee exercises a
18 right of withdrawal.

20 (d) If, to obtain an estate tax marital deduction for
21 a trust, a trustee must allocate more of a payment to
22 income than provided for by this section, the trustee shall
23 allocate to income the additional amount necessary to
24 obtain the marital deduction.

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2 (e) This section does not apply to payments to which
3 W.S. 2-3-820 applies.

5 2-3-820. Liquidating asset.

7 (a) In this section, "liquidating asset" means an
8 asset whose value will diminish or terminate because the
9 asset is expected to produce receipts for a period of
10 limited duration. The term includes a leasehold, patent,
11 copyright, royalty right and right to receive payments
12 during a period of more than one (1) year under an
13 arrangement that does not provide for the payment of
14 interest on the unpaid balance. The term does not include a
15 payment subject to W.S. 2-3-819, resources subject to W.S.
16 2-3-821, timber subject to W.S. 2-3-822, an activity
17 subject to W.S. 2-3-824, an asset subject to W.S. 2-3-825
18 or any asset for which the trustee establishes a reserve
19 for depreciation under W.S. 2-3-828.

21 (b) A trustee shall allocate to income ten percent
22 (10%) of the receipts from a liquidating asset and the
23 balance to principal.

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1 2-3-821. Minerals, water and other natural resources.

3 (a) To the extent that a trustee accounts for
4 receipts from an interest in minerals or other natural
5 resources pursuant to this section, the trustee shall
6 allocate them as follows:

8 (i) If received as nominal delay rental or
9 nominal annual rent on a lease, a receipt must be allocated
10 to income;

12 (ii) If received from a production payment, a
13 receipt must be allocated to income if and to the extent
14 that the agreement creating the production payment provides
15 a factor for interest or its equivalent. The balance must
16 be allocated to principal;

18 (iii) If an amount received as a royalty, shut-
19 in-well payment, take-or-pay payment, bonus or delay rental
20 is more than nominal, twenty-seven and one-half percent
21 (27.5%) must be allocated to principal and the balance to
22 income;

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1 (iv) If an amount is received from a working
2 interest or any other interest not provided for in
3 paragraph (i), (ii) or (iii) of this subsection, twenty-
4 seven and one-half percent (27.5%) of the net amount
5 received must be allocated to principal and the balance to
6 income.

8 (b) An amount received on account of an interest in
9 water that is renewable must be allocated to income. If the
10 water is not renewable, twenty-seven and one-half percent
11 (27.5%) of the amount must be allocated to principal and
12 the balance to income.

14 (c) This act applies whether or not a decedent or
15 donor was extracting minerals, water or other natural
16 resources before the interest became subject to the trust.

18 (d) If a trust owns an interest in minerals, water or
19 other natural resources on the effective date of this act,
20 the trustee may allocate receipts from the interest as
21 provided in this act or in the manner used by the trustee
22 before the effective date of this act. If the trust
23 acquires an interest in minerals, water or other natural

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1 resources after the effective date of this act, the trustee
2 shall allocate receipts as provided in this act.

4 2-3-822. Timber.

6 (a) To the extent that a trustee accounts for
7 receipts from the sale of timber and related products
8 pursuant to this section, the trustee shall allocate the
9 net receipts:

11 (i) To income to the extent that the amount of
12 timber removed from the land does not exceed the estimated
13 rate of growth of the timber during the accounting periods
14 in which a beneficiary has a mandatory income interest;

16 (ii) To principal to the extent that the amount
17 of timber removed from the land exceeds the estimated rate
18 of growth of the timber or the net receipts are from the
19 sale of standing timber;

21 (iii) To or between income and principal if the
22 net receipts are from the lease of timberland or from a
23 contract to cut timber from land owned by a trust, by
24 determining the amount of timber removed from the land

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1 under the lease or contract and applying the rules in
2 paragraphs (i) and (ii) of this subsection; or

4 (iv) To principal to the extent that advance
5 payments, bonuses and other payments are not allocated
6 pursuant to paragraph (i), (ii) or (iii) of this
7 subsection.

9 (b) In determining net receipts to be allocated
10 pursuant to subsection (a) of this section, a trustee shall
11 deduct and transfer to principal a reasonable amount for
12 depletion.

14 (c) This act applies whether or not a decedent or
15 transferor was harvesting timber from the property before
16 it became subject to the trust.

18 (d) If a trust owns an interest in timberland on the
19 effective date of this act, the trustee may allocate net
20 receipts from the sale of timber and related products as
21 provided in this act or in the manner used by the trustee
22 before the effective date of this act. If the trust
23 acquires an interest in timberland after the effective date
24 of this act, the trustee shall allocate net receipts from

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1 the sale of timber and related products as provided in this
2 act.

4 2-3-823. Property not productive of income.

6 (a) If a marital deduction is allowed for all or part
7 of a trust whose assets consist substantially of property
8 that does not provide the spouse with sufficient income
9 from or use of the trust assets, and if the amounts that
10 the trustee transfers from principal to income under W.S.
11 2-3-804 and distributes to the spouse from principal
12 pursuant to the terms of the trust are insufficient to
13 provide the spouse with the beneficial enjoyment required
14 to obtain the marital deduction, the spouse may require the
15 trustee to make property productive of income, convert
16 property within a reasonable time or exercise the power
17 conferred by W.S. 2-3-804(a). The trustee may decide which
18 action or combination of actions to take.

20 (b) In cases not governed by subsection (a) of this
21 section, proceeds from the sale or other disposition of an
22 asset are principal without regard to the amount of income
23 the asset produces during any accounting period.

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1 2-3-824. Derivatives and options.

3 (a) In this section, "derivative" means a contract or
4 financial instrument or a combination of contracts and
5 financial instruments which gives a trust the right or
6 obligation to participate in some or all changes in the
7 price of a tangible or intangible asset or group of assets,
8 or changes in a rate, an index of prices or rates or other
9 market indicator for an asset or a group of assets.

11 (b) To the extent that a trustee does not account
12 under W.S. 2-3-813 for transactions in derivatives, the
13 trustee shall allocate to principal receipts from and
14 disbursements made in connection with those transactions.

16 (c) If a trustee grants an option to buy property
17 from the trust, whether or not the trust owns the property
18 when the option is granted, grants an option that permits
19 another person to sell property to the trust, or acquires
20 an option to buy property for the trust or an option to
21 sell an asset owned by the trust, and the trustee or other
22 owner of the asset is required to deliver the asset if the
23 option is exercised, an amount received for granting the
24 option must be allocated to principal. An amount paid to

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1 acquire the option must be paid from principal. A gain or
2 loss realized upon the exercise of an option, including an
3 option granted to a settlor of the trust for services
4 rendered, must be allocated to principal.

6 2-3-825. Asset-backed securities.

8 (a) In this section, "asset-backed security" means an
9 asset whose value is based upon the right it gives the
10 owner to receive distributions from the proceeds of
11 financial assets that provide collateral for the security.
12 The term includes an asset that gives the owner the right
13 to receive from the collateral financial assets only the
14 interest or other current return or only the proceeds other
15 than interest or current return. The term does not include
16 an asset to which W.S. 2-3-811 or 2-3-819 applies.

18 (b) If a trust receives a payment from interest or
19 other current return and from other proceeds of the
20 collateral financial assets, the trustee shall allocate to
21 income the portion of the payment which the payer
22 identifies as being from interest or other current return
23 and shall allocate the balance of the payment to principal.

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1 (c) If a trust receives one (1) or more payments in
2 exchange for the trust's entire interest in an asset-backed
3 security in one (1) accounting period, the trustee shall
4 allocate the payments to principal. If a payment is one (1)
5 of a series of payments that will result in the liquidation
6 of the trust's interest in the security over more than one
7 (1) accounting period, the trustee shall allocate ten
8 percent (10%) of the payment to income and the balance to
9 principal.

11 2-3-826. Disbursements from income.

13 (a) A trustee shall make the following disbursements
14 from income to the extent that they are not disbursements
15 to which W.S. 2-3-806(a)(ii)(B) or (C) applies:

17 (i) One-half (1/2) of the regular compensation
18 of the trustee and of any person providing investment
19 advisory or custodial services to the trustee;

21 (ii) One-half (1/2) of all expenses for
22 accountings, judicial proceedings or other matters that
23 involve both the income and remainder interests;

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1 (iii) All of the other ordinary expenses
2 incurred in connection with the administration, management
3 or preservation of trust property and the distribution of
4 income, including interest, ordinary repairs, regularly
5 recurring taxes assessed against principal and expenses of
6 a proceeding or other matter that concerns primarily the
7 income interest; and

9 (iv) Recurring premiums on insurance covering
10 the loss of a principal asset or the loss of income from or
11 use of the asset.

13 2-3-827. Disbursements from principal.

15 (a) A trustee shall make the following disbursements
16 from principal:

18 (i) The remaining one-half (1/2) of the
19 disbursements described in W.S. 2-3-826(a)(i) and (ii);

21 (ii) All of the trustee's compensation
22 calculated on principal as a fee for acceptance,
23 distribution, or termination, and disbursements made to
24 prepare property for sale;

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2 (iii) Payments on the principal of a trust debt;

4 (iv) Expenses of a proceeding that concerns
5 primarily principal, including a proceeding to construe the
6 trust or to protect the trust or its property;

8 (v) Premiums paid on a policy of insurance not
9 described in W.S. 2-3-826(a)(iv) of which the trust is the
10 owner and beneficiary;

12 (vi) Estate, inheritance and other transfer
13 taxes, including penalties, apportioned to the trust; and

15 (vii) Disbursements related to environmental
16 matters, including reclamation, assessing environmental
17 conditions, remedying and removing environmental
18 contamination, monitoring remedial activities and the
19 release of substances, preventing future releases of
20 substances, collecting amounts from persons liable or
21 potentially liable for the costs of those activities,
22 penalties imposed under environmental laws or regulations
23 and other payments made to comply with those laws or
24 regulations, statutory or common law claims by third

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1 parties and defending claims based on environmental
2 matters.

4 (b) If a principal asset is encumbered with an
5 obligation that requires income from that asset to be paid
6 directly to the creditor, the trustee shall transfer from
7 principal to income an amount equal to the income paid to
8 the creditor in reduction of the principal balance of the
9 obligation.

11 2-3-828. Transfers from income to principal for
12 depreciation.

14 (a) In this section, "depreciation" means a reduction
15 in value due to wear, tear, decay, corrosion or gradual
16 obsolescence of a fixed asset having a useful life of more
17 than one (1) year and the purchase cost or value of such
18 fixed asset is less than that amount provided by section
19 179 of the United States Internal Revenue Code or
20 subsequent amendment to the Internal Revenue Code.

22 (b) A trustee may transfer to principal a reasonable
23 amount of the net cash receipts from a principal asset that

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1 is subject to depreciation, but may not transfer any amount
2 for depreciation:

4 (i) Of that portion of real property used or
5 available for use by a beneficiary as a residence or of
6 tangible personal property held or made available for the
7 personal use or enjoyment of a beneficiary;

9 (ii) During the administration of a decedent's
10 estate; or

12 (iii) Under this section if the trustee is
13 accounting under W.S. 2-3-813 for the business or activity
14 in which the asset is used.

16 (c) An amount transferred to principal need not be
17 held as a separate fund.

19 2-3-829. Transfers from income to reimburse
20 principal.

22 (a) If a trustee makes or expects to make a principal
23 disbursement described in this section, the trustee may
24 transfer an appropriate amount from income to principal in

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1 one (1) or more accounting periods to reimburse principal
2 or to provide a reserve for future principal disbursements.

4 (b) Principal disbursements to which subsection (a)
5 of this section applies include the following, but only to
6 the extent that the trustee has not been and does not
7 expect to be reimbursed by a third party:

9 (i) An amount chargeable to income but paid from
10 principal because it is unusually large, including
11 extraordinary repairs;

13 (ii) A capital improvement to a principal asset,
14 whether in the form of changes to an existing asset or the
15 construction of a new asset, including special assessments;

17 (iii) Disbursements made to prepare property for
18 rental, including tenant allowances, leasehold improvements
19 and broker's commissions;

21 (iv) Periodic payments on an obligation secured
22 by a principal asset to the extent that the amount
23 transferred from income to principal for depreciation is
24 less than the periodic payments; and

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2 (v) Disbursements described in W.S.
3 2-3-827(a)(vii).

5 (c) If the asset whose ownership gives rise to the
6 disbursements becomes subject to a successive income
7 interest after an income interest ends, a trustee may
8 continue to transfer amounts from income to principal as
9 provided in subsection (a) of this section.

11 2-3-830. Income taxes.

13 (a) A tax required to be paid by a trustee based on
14 receipts allocated to income must be paid from income.

16 (b) A tax required to be paid by a trustee based on
17 receipts allocated to principal must be paid from
18 principal, even if the tax is called an income tax by the
19 taxing authority.

21 (c) A tax required to be paid by a trustee on the
22 trust's share of an entity's taxable income must be paid
23 proportionately:

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1 (i) From income to the extent that receipts from
2 the entity are allocated to income; and

4 (ii) From principal to the extent that:

6 (A) Receipts from the entity are allocated
7 to principal; and

9 (B) The trust's share of the entity's
10 taxable income exceeds the total receipts described in
11 paragraph (i) and subparagraph (ii)(A) of this subsection.

13 (d) For purposes of this section, receipts allocated
14 to principal or income must be reduced by the amount
15 distributed to a beneficiary from principal or income for
16 which the trust receives a deduction in calculating the
17 tax.

19 2-3-831. Adjustments between principal and income
20 because of taxes.

22 (a) A fiduciary may make adjustments between
23 principal and income to offset the shifting of economic

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1 interests or tax benefits between income beneficiaries and
2 remainder beneficiaries which arise from:

4 (i) Elections and decisions, other than those
5 described in subsection (b) of this section, that the
6 fiduciary makes from time to time regarding tax matters;

8 (ii) An income tax or any other tax that is
9 imposed upon the fiduciary or a beneficiary as a result of
10 a transaction involving or a distribution from the estate
11 or trust; or

13 (iii) The ownership by an estate or trust of an
14 interest in an entity whose taxable income, whether or not
15 distributed, is includable in the taxable income of the
16 estate, trust or a beneficiary.

18 (b) If the amount of an estate tax marital deduction
19 or charitable contribution deduction is reduced because a
20 fiduciary deducts an amount paid from principal for income
21 tax purposes instead of deducting it for estate tax
22 purposes, and as a result estate taxes paid from principal
23 are increased and income taxes paid by an estate, trust or
24 beneficiary are decreased, each estate, trust or

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1 beneficiary that benefits from the decrease in income tax
2 shall reimburse the principal from which the increase in
3 estate tax is paid. The total reimbursement must equal the
4 increase in the estate tax to the extent that the principal
5 used to pay the increase would have qualified for a marital
6 deduction or charitable contribution deduction but for the
7 payment. The proportionate share of the reimbursement for
8 each estate, trust or beneficiary whose income taxes are
9 reduced must be the same as its proportionate share of the
10 total decrease in income tax. An estate or trust shall
11 reimburse principal from income.

13 2-3-832. Judicial control of discretionary powers.

15 (a) A court shall not change a fiduciary's decision
16 to exercise or not to exercise a discretionary power
17 conferred by this act unless it determines that the
18 decision was an abuse of the fiduciary's discretion. A
19 court shall not determine that a fiduciary abused its
20 discretion merely because the court would have exercised
21 the discretion in a different manner or would not have
22 exercised the discretion.

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1 (b) The decisions to which subsection (a) of this
2 section applies include:

4 (i) A determination under W.S. 2-3-804(a) of
5 whether and to what extent an amount should be transferred
6 from principal to income or from income to principal;

8 (ii) A determination of the factors that are
9 relevant to the trust and its beneficiaries, the extent to
10 which they are relevant, and the weight, if any, to be
11 given to the relevant factors, in deciding whether and to
12 what extent to exercise the power conferred by W.S.
13 2-3-804(a).

15 (c) If a court determines that a fiduciary has abused
16 its discretion, the remedy is to restore the income and
17 remainder beneficiaries to the positions they would have
18 occupied if the fiduciary had not abused its discretion,
19 according to the following rules:

21 (i) To the extent that the abuse of discretion
22 has resulted in no distribution to a beneficiary or a
23 distribution that is too small, the court shall require the
24 fiduciary to distribute from the trust to the beneficiary

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1 an amount that the court determines will restore the
2 beneficiary, in whole or in part, to his appropriate
3 position;

5 (ii) To the extent that the abuse of discretion
6 has resulted in a distribution to a beneficiary that is too
7 large, the court shall restore the beneficiaries, the
8 trust, or both, in whole or in part, to their appropriate
9 positions by requiring the fiduciary to withhold an amount
10 from one (1) or more future distributions to the
11 beneficiary who received the distribution that was too
12 large or requiring that beneficiary to return some or all
13 of the distribution to the trust;

15 (iii) To the extent that the court is unable,
16 after applying paragraphs (i) and (ii) of this subsection,
17 to restore the beneficiaries, the trust, or both, to the
18 positions they would have occupied if the fiduciary had not
19 abused its discretion, the court may require the fiduciary
20 to pay an appropriate amount from its own funds to one (1)
21 or more of the beneficiaries or the trust or both.

23 (d) Upon a petition by the fiduciary, the court
24 having jurisdiction over the trust or estate shall

Page 56

1 determine whether a proposed exercise or nonexercise by the
2 fiduciary of a discretionary power conferred by this act
3 will result in an abuse of the fiduciary's discretion. If
4 the petition describes the proposed exercise or nonexercise
5 of the power and contains sufficient information to inform
6 the beneficiaries of the reasons for the proposal, the
7 facts upon which the fiduciary relies, and an explanation
8 of how the income and remainder beneficiaries will be
9 affected by the proposed exercise or nonexercise of the
10 power, a beneficiary who challenges the proposed exercise
11 or nonexercise has the burden of establishing that it will
12 result in an abuse of discretion.

14 2-3-833. Uniformity of application and construction.

16 In applying and construing this uniform act, consideration
17 must be given to the need to promote uniformity of the law
18 with respect to its subject matter among states that enact
19 it.

21 2-3-834. Application of act to existing trusts and
22 estates.

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1 This act applies to every trust or decedent's estate
2 existing on the effective date of this act except as
3 otherwise expressly provided in the will or terms of the
4 trust or in this act.

6 Section 2. W.S. 2-3-601 through 2-3-614 are repealed.

8 Section 3. This act is effective July 1, 2001.

10 (END)

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