SEA 8 - SF0039

ORIGINAL SENATE

FILE NO. 0039

ENROLLED ACT NO. 8, SENATE

FIFTY-SIXTH LEGISLATURE OF THE STATE OF WYOMING

2001 GENERAL SESSION

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

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

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

ARTICLE 8

PRINCIPAL AND INCOME

2-3-801. Short title.

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

2-3-802. Definitions.

(a) As used in this act:

(i) "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;

(ii) "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;

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(iii) "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;

(iv) "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 W.S. 2-3-811 through 2-3-825;

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

(vi) "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;

(vii) "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;

(viii) "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 act to or from income during the
period;

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

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

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

(xii) "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; and

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

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

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

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

(i) 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 act;

(ii) 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

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result required or permitted by this act, and no inference
that the fiduciary has improperly exercised the discretion
arises from the fact that the fiduciary has made an
allocation contrary to a provision of this act;

(iii) Shall administer a trust or estate in
accordance with this act 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; and

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

(b) In exercising the power to adjust under W.S.
2-3-804(a) or a discretionary power of administration
regarding a matter within the scope of this act, whether
granted by the terms of a trust, a will, or this act, 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 (1) or more of the
beneficiaries. A determination in accordance with this act
is presumed to be fair and reasonable to all of the
beneficiaries.

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

(a) Subject to subsections (b) and (c) of this
section, a trustee may adjust between principal and income
to the extent the trustee considers necessary if the trustee
invests and manages trust assets as a prudent investor, the
terms of the trust describe the amount that may or must be

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distributed to a beneficiary by referring to the trust's
income, and the trustee determines, after applying the rules
in W.S. 2-3-803(a), and considering any power the trustee
may have under the trust to invade principal or accumulate
income, that the trustee is unable to comply with W.S.
2-3-803(b).

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

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

(ii) The intent of the settlor;

(iii) The identity and circumstances of the
beneficiaries;

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

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

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

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

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

(ix) The anticipated tax consequences of an
adjustment.

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

(ii) That reduces the actuarial value of the
income interest in a trust to which a person transfers
property with the intent to qualify for a gift tax
exclusion;

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

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

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

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

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

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

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

(e) A trustee may release the entire power conferred
by subsection (a) of this section or may release only the
power to adjust from income to principal or the power to
adjust from principal to income if the trustee is uncertain
about whether possessing or exercising the power will cause
a result described in paragraphs (c)(i) through (vi) or
(viii) of this section or if the trustee determines that
possessing or exercising the power will or may deprive the

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trust of a tax benefit or impose a tax burden not described
in subsection (c) of this section. The release may be
permanent or for a specified period, including a period
measured by the life of an individual.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(i) 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 W.S. 2-3-808
through 2-3-831 which apply to trustees and the rules in
paragraph (v) of this subsection. The fiduciary shall
distribute the net income and net principal receipts to the
beneficiary who is to receive the specific property;

(ii) A fiduciary shall determine the remaining
net income of a decedent's estate or a terminating income

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interest under the rules in W.S. 2-3-808 through 2-3-831
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; and

(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.

(iii) 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 paragraph (ii) of this subsection 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 shall distribute the interest or other amount
to which the beneficiary would be entitled under applicable

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

(iv) A fiduciary shall distribute the net income
remaining after distributions required by paragraph (iii) of
this subsection in the manner described in W.S. 2-3-807 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;

(v) A fiduciary may not reduce principal or
income receipts from property described in paragraph (i) of
this subsection because of a payment described in W.S.
2-3-826 or 2-3-827 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.

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

(a) Each beneficiary described in W.S. 2-3-806(a)(iv)
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.

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If a fiduciary makes more than one (1) 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.

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

(i) 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;

(ii) 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;

(iii) 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; and

(iv) 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.

(c) 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

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appropriate records showing the interest of each beneficiary
in that net income.

(d) 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.

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

(a) 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.

(b) An asset becomes subject to a trust:

(i) 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;

(ii) 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; or

(iii) 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.

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ends, as determined under subsection (d) of this section,
even if there is an intervening period of administration to
wind up the preceding income interest.

(d) 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.

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

(a) A trustee shall allocate an income receipt or
disbursement other than one to which W.S. 2-3-806(a)(i)
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.

(b) 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.

(c) 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 act. Distributions to shareholders or other owners
from an entity to which W.S. 2-3-810 applies are deemed to
be due on the date fixed by the entity for determining who

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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 or disbursements 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.

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

(a) 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.

(b) 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 (5%) of the trust immediately before the
income interest ends. In the latter case, the undistributed
income from the portion of the trust that may be revoked
must be added to principal.

(c) 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.

2-3-811. Character of receipts.

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(a) 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 W.S.
2-3-811 applies, a business or activity to which W.S.
2-3-813 applies or an asset-backed security to which W.S.
2-3-825 applies.

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

(i) Property other than money;

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

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

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

(d) Money is received in partial liquidation:

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

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

(e) Money is not received in partial liquidation, nor
may it be taken into account under paragraph (d)(ii) of
this section, 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.

(f) 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.

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

A trustee shall allocate to income an 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, W.S. 2-3-811 or
2-3-825 applies to a receipt from the trust.

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

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

(b) A trustee who accounts separately for a business
or other activity may determine the extent to which its net
cash receipts must be retained for working capital, the
acquisition or replacement of fixed assets, and 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.

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

(ii) Farming;

(iii) Raising and selling livestock and other
animals;

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(iv) Management of rental properties;

(v) Extraction of minerals and other natural
resources;

(vi) Timber operations; and

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

2-3-814. Principal receipts.

(a) A trustee shall allocate to principal:

(i) To the extent not allocated to income under
this act, 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;

(ii) Money or other property received from the
sale, exchange, liquidation or change in form of a
principal asset, including realized profit, subject to W.S.
2-3-811 through 2-3-825;

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

(iv) 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;

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

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

2-3-815. Rental property.

To the extent that a trustee accounts for receipts from
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 or renewal 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.

2-3-816. Obligation to pay money.

(a) 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.

(b) 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 (1)
year after it is purchased or acquired by the trustee,
including an obligation the purchase price or value of
which when it is acquired is less than its value at

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maturity. If the obligation matures within one (1) 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.

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

(a) Except as otherwise provided in subsection (b) of
this section, 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.

(b) 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 W.S. 2-3-813, loss of profits from a business.

2-3-818. Insubstantial allocation not required.

(a) If a trustee determines that an allocation
between principal and income required by W.S. 2-3-819
through 2-3-822 or 2-3-825 is insubstantial, the trustee
may allocate the entire amount to principal unless one of

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the circumstances described in W.S. 2-3-804(c) applies to
the allocation. This power may be exercised by a cotrustee
in the circumstances described in W.S. 2-3-804(d) and may
be released for the reasons and in the manner described in
W.S. 2-3-804(e). An allocation is presumed to be
insubstantial if:

(i) The amount of the allocation would increase
or decrease net income in an accounting period, as
determined before the allocation, by less than ten percent
(10%); or

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

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

(a) In this section, "payment" means a payment that a
trustee may receive over a fixed number of years or during
the life of one (1) 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, including a private or
commercial annuity, an individual retirement account, and a
pension, profit-sharing, stock-bonus or stock-ownership
plan.

(b) To the extent that a payment is characterized as
interest or a dividend or a payment made in lieu of
interest or a dividend, a trustee shall allocate it to
income. The trustee shall allocate to principal the balance
of the payment and any other payment received in the same

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accounting period that is not characterized as interest, a
dividend or an equivalent payment.

(c) If no part of a payment is characterized as
interest, a dividend or an equivalent payment, and all or
part of the payment is required to be made, a trustee shall
allocate to income ten percent (10%) 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.

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

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

2-3-820. Liquidating asset.

(a) In this section, "liquidating asset" means an
asset whose value will diminish or terminate because the
asset is expected to produce receipts for a period of
limited duration. The term includes a leasehold, patent,
copyright, royalty right and right to receive payments
during a period of more than one (1) 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 W.S. 2-3-819, resources subject to W.S.

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2-3-821, timber subject to W.S. 2-3-822, an activity
subject to W.S. 2-3-824, an asset subject to W.S. 2-3-825
or any asset for which the trustee establishes a reserve
for depreciation under W.S. 2-3-828.

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

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

(a) 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:

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

(ii) 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 to principal;

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

(iv) If an amount is received from a working
interest or any other interest not provided for in
paragraph (i), (ii) or (iii) of this subsection, twenty-
seven and one-half percent (27.5%) of the net amount

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received must be allocated to principal and the balance to
income.

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

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

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

2-3-822. Timber.

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

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

(ii) To principal to the extent that the amount
of timber removed from the land exceeds the estimated rate

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of growth of the timber or the net receipts are from the
sale of standing timber;

(iii) To or between income and principal if the
net receipts are from the lease of timberland or from a
contract to cut timber from land owned by a trust, by
determining the amount of timber removed from the land
under the lease or contract and applying the rules in
paragraphs (i) and (ii) of this subsection; or

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

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

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

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

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

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

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

2-3-824. Derivatives and options.

(a) 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.

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

Page 28

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.

2-3-825. Asset-backed securities.

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

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

(c) If a trust receives one (1) or more payments in
exchange for the trust's entire interest in an asset-backed
security in one (1) accounting period, the trustee shall
allocate the payments to principal. If a payment is one (1)
of a series of payments that will result in the liquidation

Page 29

of the trust's interest in the security over more than one
(1) accounting period, the trustee shall allocate ten
percent (10%) of the payment to income and the balance to
principal.

2-3-826. Disbursements from income.

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

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

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

(iii) 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; and

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

2-3-827. Disbursements from principal.

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

Page 30

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

(ii) 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;

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

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

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

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

(vii) 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.

(b) If a principal asset is encumbered with an
obligation that requires income from that asset to be paid

Page 31

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.

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

(a) 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 (1) year and the purchase cost or value of such
fixed asset is less than that amount provided by section
179 of the United States Internal Revenue Code or
subsequent amendment to the Internal Revenue Code.

(b) 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:

(i) 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;

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

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

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

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

(b) Principal disbursements to which subsection (a)
of this section 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:

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

(ii) 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;

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

(iv) 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; and

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

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interest after an income interest ends, a trustee may
continue to transfer amounts from income to principal as
provided in subsection (a) of this section.

2-3-830. Income taxes.

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

(b) 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.

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

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

(ii) From principal to the extent that:

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

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

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

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

(a) 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:

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

(ii) 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; or

(iii) 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.

(b) 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. The proportionate share of the reimbursement for

Page 35

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 from income.

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

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

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

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

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

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

Page 36

(i) To the extent that the abuse of discretion
has resulted in no distribution to a beneficiary or a
distribution that is too small, the court shall require the
fiduciary to distribute from the trust to the beneficiary
an amount that the court determines will restore the
beneficiary, in whole or in part, to his appropriate
position;

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

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

(d) Upon a petition by the fiduciary, the court
having jurisdiction over the trust or estate shall
determine whether a proposed exercise or nonexercise by the
fiduciary of a discretionary power conferred by this act
will result in an abuse of the fiduciary's discretion. If
the petition describes the proposed exercise or nonexercise
of the power and contains sufficient information to inform
the beneficiaries of the reasons for the proposal, the
facts upon which the fiduciary relies, and an explanation
of how the income and remainder beneficiaries will be

Page 37

affected by the proposed exercise or nonexercise of the
power, a beneficiary who challenges the proposed exercise
or nonexercise has the burden of establishing that it will
result in an abuse of discretion.

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

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

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

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

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

Page 38

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

(END)

Speaker of the House President of the Senate

Governor

TIME APPROVED: _________

DATE APPROVED: _________

I hereby certify that this act originated in the Senate.

Chief Clerk

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