Text: HF00583 Text: HF00585 Text: HF00500 - HF00599 Text: HF Index Bills and Amendments: General Index Bill History: General Index
PAG LIN
20 HOUSE FILE 584
30
50 AN ACT
70 RELATING TO THE UNIFORM PRINCIPAL AND INCOME ACT AND PROVIDING
80 FOR ITS APPLICABILITY.
90
100 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
110
130 CHAPTER 637
140 UNIFORM PRINCIPAL AND INCOME ACT
150 SUBCHAPTER 1
160 DEFINITIONS AND FIDUCIARY DUTIES
180 Section 1. NEW SECTION. 637.101 SHORT TITLE.
190 This Act may be cited as the "Uniform Principal and Income
200 Act".
210 Sec. 2. NEW SECTION. 637.102 DEFINITIONS.
220 As used in this chapter:
230 1. "Accounting period" means a calendar year, unless
240 another twelve-month period is selected by a fiduciary. The
250 term includes a portion of a calendar year or other twelve-
260 month period that begins when an income interest begins or
270 ends when an income interest ends.
280 2. "Beneficiary" includes, in the case of a decedent's
290 estate, an heir, legatee, and devisee, and, in the case of a
300 trust, an income beneficiary and a remainder beneficiary.
310 3. "Fiduciary" means a personal representative or a
320 trustee. The term includes an executor, administrator,
330 successor personal representative, special administrator, and
340 a person performing substantially the same function.
350 4. "Income" means money or property a fiduciary receives
360 as the current return from a principal asset. The term
370 includes a portion of the receipts from a sale, exchange, or
380 liquidation of a principal asset, to the extent provided in
390 subchapter 4.
400 5. "Income beneficiary" means a person to whom a trust's
410 net income is or may be payable.
420 6. "Income interest" means an income beneficiary's right
430 to receive all or part of the net income, whether the terms of
440 the trust require it to be distributed or authorize it to be
450 distributed in the trustee's discretion.
460 7. "Mandatory income interest" means an income
470 beneficiary's right to receive net income that the terms of
480 the trust require the fiduciary to distribute.
490 8. "Net income" means the total receipts allocated to
500 income during an accounting period minus the disbursements
510 made from income during the period. In this definition,
520 receipts and disbursements include items transferred to or
530 from income during the period under this chapter.
540 9. "Person" means an individual, corporation, business
550 trust, estate, trust, partnership, limited liability company,
560 association, joint venture, or any other legal or commercial
570 entity. The term does not include a government or
580 governmental subdivision, agency, or instrumentality.
590 10. "Principal" means property held in trust for
600 distribution to a remainder beneficiary when the trust
610 terminates.
620 11. "Remainder beneficiary" means a person, including
630 another trust, entitled to receive principal when an income
640 interest ends.
650 12. "Terms of a trust" means the manifestation of the
660 intent of a settlor or decedent with respect to the trust,
670 expressed in a manner that admits of its proof in a judicial
680 proceeding, whether by written or spoken words or by conduct.
690 13. "Trustee" includes an original, additional, or
700 successor trustee, whether or not appointed or confirmed by a
710 court.
720 Sec. 3. NEW SECTION. 637.103 FIDUCIARY DUTIES – GENERAL
730 PRINCIPLES.
740 1. In allocating receipts and disbursements to or between
750 principal and income, and in any matter within the scope of
760 subchapters 2 and 3, a fiduciary shall do all of the
770 following:
780 a. Administer a trust or estate in accordance with the
790 terms of the trust or the will, even if there is a different
800 provision in this chapter.
810 b. Administer a trust or estate by the exercise of a
820 discretionary power of administration given the fiduciary by
830 the terms of the trust or the will, although the fiduciary may
840 exercise that power in a manner different from a provision of
850 this chapter.
860 c. Administer a trust or estate in accordance with this
870 chapter if the terms of the trust or the will do not contain a
880 different provision or do not give the fiduciary a
890 discretionary power of administration.
900 d. Add a receipt or charge a disbursement to principal to
910 the extent that the terms of the trust and this chapter do not
920 provide a rule for allocating the receipt or disbursement to
930 or between principal and income.
940 2. In exercising a discretionary power of administration
950 regarding a matter within the scope of this chapter, whether
960 granted by the terms of a trust, a will, or this chapter, a
970 fiduciary shall administer a trust or estate impartially,
980 based on what is fair and reasonable to all of the
990 beneficiaries, unless the terms of the trust or the will
1000 clearly manifest an intention that the fiduciary shall or may
1010 favor one or more of the beneficiaries. A determination in
1020 accordance with this chapter is presumed to be fair and
1030 reasonable to all of the beneficiaries.
1050 SUBCHAPTER 2
1060 DECEDENT'S ESTATE OR TERMINATING INCOME INTEREST
1080 Sec. 4. NEW SECTION. 637.201 DETERMINATION AND
1090 DISTRIBUTION OF NET INCOME.
1100 After a decedent dies, in the case of an estate, or after
1110 an income interest in a trust ends, the following rules apply:
1120 1. A fiduciary of an estate or a terminating income
1130 interest shall determine the amount of net income and net
1140 principal receipts received from property specifically given
1150 to a beneficiary under the rules in subchapters 3 through 5
1160 that apply to trustees, and under the rules in subsection 5.
1170 The fiduciary shall distribute the net income and net
1180 principal receipts to the beneficiary who is to receive the
1190 specific property.
1200 2. A fiduciary shall determine the remaining net income of
1210 a decedent's estate or a terminating income interest under the
1220 rules in subchapters 3 through 5 that apply to trustees, and
1230 by doing the following:
1240 a. Including in net income all income from property used
1250 to discharge liabilities.
1260 b. Paying from income or principal, in the fiduciary's
1270 discretion, fees of attorneys, accountants, and fiduciaries;
1280 court costs and other expenses of administration; and interest
1290 on death taxes, but the fiduciary may pay those expenses from
1300 income of property passing to a trust for which the fiduciary
1310 claims an estate tax marital or charitable deduction only to
1320 the extent that the payment of those expenses from income will
1330 not cause the loss of the deduction.
1340 c. Paying from principal all other disbursements made or
1350 incurred in connection with the settlement of a decedent's
1360 estate or the winding up of a terminating income interest,
1370 including debts, funeral expenses, disposition of remains,
1380 family allowances, and death taxes and related penalties that
1390 are apportioned to the estate or terminating income interest
1400 by the will, the terms of the trust, or applicable law.
1410 3. A fiduciary shall distribute to a beneficiary who
1420 receives a pecuniary amount outright the amount, if any,
1430 provided by the will, the terms of the trust, or applicable
1440 law, from net income determined under subsection 2 or from
1450 principal to the extent the net income is insufficient. If a
1460 beneficiary is to receive a pecuniary amount outright from a
1470 trust after an income interest ends and no amount is provided
1480 for by the terms of the trust or applicable law, the fiduciary
1490 shall distribute the amount to which the beneficiary would be
1500 entitled under applicable law if the pecuniary amount were
1510 required to be paid under a will.
1520 4. A fiduciary shall distribute the net income remaining
1530 after distributions required by subsection 3 in the manner
1540 described in section 637.202 to all other beneficiaries,
1550 including a beneficiary who receives a pecuniary amount in
1560 trust, even if the beneficiary holds an unqualified power to
1570 withdraw assets from the trust or other presently exercisable
1580 general power of appointment over the trust.
1590 5. A fiduciary shall not reduce principal or income
1600 receipts from property described in subsection 1 because of a
1610 payment described in section 637.501 or 637.502 to the extent
1620 that the will, the terms of the trust, or applicable law
1630 requires the fiduciary to make the payment from assets other
1640 than the property or to the extent that the fiduciary recovers
1650 or expects to recover the payment from a third party. The
1660 property's net income and principal receipts are determined by
1670 including all of the amounts the fiduciary receives or pays
1680 with respect to the property, whether those amounts accrued or
1690 became due before, on, or after the date of a decedent's death
1700 or an income interest's terminating event, and by making a
1710 reasonable provision for amounts that the fiduciary believes
1720 the estate or terminating income interest may become obligated
1730 to pay after the property is distributed.
1740 Sec. 5. NEW SECTION. 637.202 DISTRIBUTION TO RESIDUARY
1750 AND REMAINDER BENEFICIARIES.
1760 1. Each beneficiary described in section 637.201,
1770 subsection 4, is entitled to receive a portion of the net
1780 income equal to the beneficiary's fractional interest in
1790 undistributed principal assets, using values as of the
1800 distribution date. If a fiduciary makes more than one
1810 distribution of assets to beneficiaries to whom this section
1820 applies, each beneficiary, including one who does not receive
1830 part of the distribution, is entitled, as of each distribution
1840 date, to the net income the fiduciary has received after the
1850 date of death or terminating event or earlier distribution
1860 date but has not distributed as of the current distribution
1870 date.
1880 2. In determining a beneficiary's share of net income, the
1890 following rules apply:
1900 a. The beneficiary is entitled to receive a portion of the
1910 net income equal to the beneficiary's fractional interest in
1920 the undistributed principal assets immediately before the
1930 distribution date, including assets that later may be sold to
1940 meet principal obligations.
1950 b. The beneficiary's fractional interest in the
1960 undistributed principal assets must be calculated without
1970 regard to property specifically given to a beneficiary and
1980 property required to be pay pecuniary amounts not in trust.
1990 c. The beneficiary's fractional interest in the
2000 undistributed principal assets must be calculated on the basis
2010 of the aggregate value of those assets as of the distribution
2020 date without reducing the value by any unpaid principal
2030 obligation.
2040 d. The distribution date for purposes of this section may
2050 be the date as of which the fiduciary calculates the value of
2060 the assets if that date is reasonably near the date on which
2070 assets are actually distributed.
2080 3. The rules in this section apply to net gain or loss
2090 realized after the date of death or terminating event or
2100 earlier distribution date from the disposition of a principal
2110 asset if this section applies to the income from the asset.
2120 4. If a fiduciary does not distribute all of the collected
2130 but undistributed net income or gain to each person as of a
2140 distribution date, the fiduciary shall maintain appropriate
2150 records showing the interest of each beneficiary in that net
2160 income or gain.
2180 SUBCHAPTER 3
2190 APPORTIONMENT AT BEGINNING AND END OF INCOME INTEREST
2210 Sec. 6. NEW SECTION. 637.301 WHEN RIGHT TO INCOME BEGINS
2220 AND ENDS.
2230 1. An income beneficiary is entitled to net income from
2240 the date on which the income interest begins. An income
2250 interest begins on the date specified in the terms of the
2260 trust or, if no date is specified, on the date an asset
2270 becomes subject to a trust or successive income interest.
2280 2. An asset becomes subject to a trust at the first
2290 occurrence of one of the following events:
2300 a. On the date it is transferred to the trust in the case
2310 of an asset that is transferred to a trust during the
2320 transferor's life.
2330 b. On the date of a testator's death in the case of an
2340 asset that becomes subject to a trust by reason of a will,
2350 even if there is an intervening period of administration of
2360 the testator's estate.
2370 c. On the date of an individual's death in the case of an
2380 asset that is transferred to a fiduciary by a third party
2390 because of the individual's death.
2400 3. An asset becomes subject to a successive income
2410 interest on the day after the preceding income interest ends,
2420 as determined under subsection 4, even if there is an
2430 intervening period of administration to wind up the preceding
2440 income interest.
2450 4. An income interest ends on the day before an income
2460 beneficiary dies or another terminating event occurs. For
2470 purposes of this chapter, an income interest also ends on the
2480 last day of a period during which there is no beneficiary to
2490 whom a trustee may distribute income.
2500 Sec. 7. NEW SECTION. 637.302 APPORTIONMENT OF RECEIPTS
2510 AND DISBURSEMENTS WHEN DECEDENT DIES OR INCOME INTEREST
2520 BEGINS.
2530 1. An income receipt or disbursement other than one to
2540 which section 637.201, subsection 1, applies must be allocated
2550 to principal if its due date occurs before a decedent dies in
2560 the case of an estate, or before an income interest begins in
2570 the case of a trust or successive income interest.
2580 2. An income receipt or disbursement must be allocated to
2590 income if its due date occurs on or after the date on which a
2600 decedent dies or an income interest begins and it is a
2610 periodic due date. An income receipt or disbursement must be
2620 treated as accruing from day to day if its due date is not
2630 periodic or it has no due date. The portion of the receipt or
2640 disbursement accruing before the date on which a decedent dies
2650 or an income interest begins must be allocated to principal
2660 and the balance must be allocated to income.
2670 3. An item of income or an obligation is due on the date
2680 on which the payor is required to make a payment. If there is
2690 no stated payment date, there is no due date for the purposes
2700 of this chapter. Distributions to shareholders or other
2710 owners from an entity to which section 637.401 applies are
2720 deemed to be due on the date fixed by the entity for
2730 determining who is entitled to receive the distribution or, if
2740 no date is fixed, on the declaration date for the
2750 distribution. A due date is periodic for receipts or
2760 disbursements that must be paid at regular intervals under a
2770 lease or an obligation to pay interest or if an entity
2780 customarily makes distributions at regular intervals.
2790 Sec. 8. NEW SECTION. 637.303 APPORTIONMENT WHEN INCOME
2800 INTEREST ENDS.
2810 1. For purposes of this section, "undistributed income"
2820 means net income received before the date on which an income
2830 interest ends. The term does not include an item of income or
2840 expense that is due or accrued or net income that has been
2850 added or is required to be added to principal pursuant to the
2860 terms of the trust.
2870 2. When a mandatory income interest ends, the trustee
2880 shall pay to a mandatory income beneficiary who survives that
2890 date, or the estate of a deceased mandatory income beneficiary
2900 whose death causes the interest to end, the beneficiary's
2910 share of the undistributed income that is not disposed of
2920 pursuant to the terms of the trust unless the beneficiary has
2930 an unqualified power to revoke more than five percent of the
2940 trust immediately before the income interest ends. In the
2950 latter case, the undistributed income from the portion of the
2960 trust that may be revoked must be added to principal.
2970 3. When a trustee's obligation to pay a fixed annuity or a
2980 fixed fraction of the value of the trust's assets ends, the
2990 trustee shall prorate the final payment if and to the extent
3000 required by applicable law to accomplish a purpose of the
3010 trust or its settlor relating to income, gift, estate, or
3020 other tax requirements.
3040 SUBCHAPTER 4
3050 ADMINISTRATION OF TRUST
3060 Part 1
3070 RECEIPTS FROM ENTITIES
3090 Sec. 9. NEW SECTION. 637.401 CHARACTER OF RECEIPTS.
3100 1. For purposes of this section, "entity" means a
3110 corporation, partnership, joint venture, limited liability
3120 company, regulated investment company, real estate investment
3130 trust, common trust fund, and any other organization in which
3140 a trustee has an interest other than a trust or estate to
3150 which section 637.402 applies or a business or activity to
3160 which section 637.403 applies.
3170 2. Except as otherwise provided in this section, cash
3180 received by a trustee from an entity must be allocated to
3190 income.
3200 3. Receipts from an entity which must be allocated to
3210 principal include the following items:
3220 a. Property other than cash, except as otherwise provided
3230 in paragraph "d".
3240 b. Cash or property received in one distribution or a
3250 series of related distributions in exchange for part or all of
3260 a trust's interest in the entity.
3270 c. Cash or property received in total or partial
3280 liquidation of the entity.
3290 d. Cash or property received from an entity that is a
3300 regulated investment company or a real estate investment trust
3310 if the distribution is a capital gain dividend for federal
3320 income tax purposes.
3330 4. Cash or property is received in partial liquidation
3340 according to one of the following principles:
3350 a. To the extent that the entity, at or near the time of a
3360 distribution, indicates that it is a distribution in partial
3370 liquidation.
3380 b. If the total amount received in a distribution or
3390 series of related distributions is greater than twenty percent
3400 of the entity's gross assets, as shown by the entity's year-
3410 end financial statements immediately preceding the initial
3420 receipt.
3430 5. Cash shall not be received in partial liquidation, nor
3440 shall it be taken into account under subsection 4, paragraph
3450 "b", to the extent that it does not exceed the amount of
3460 income tax that a trustee or beneficiary must pay on taxable
3470 income of the entity that distributes the cash.
3480 6. A trustee may rely upon a statement made by an entity
3490 about the source or character of a distribution if the
3500 statement is made at or near the time of distribution by the
3510 entity's board of directors or other person or group of
3520 persons authorized to exercise powers to pay money or transfer
3530 property comparable to those of a corporation's board of
3540 directors.
3550 Sec. 10. NEW SECTION. 637.402 DISTRIBUTION FROM TRUST OR
3560 ESTATE.
3570 1. Subject to the terms of a recipient trust, an amount
3580 received as a distribution of income from a trust or an estate
3590 in which the trust has an interest other than a purchased
3600 interest shall be allocated to income.
3610 2. An amount received as a distribution of principal from
3620 such a trust or estate shall be allocated to principal.
3630 3. If a trustee purchases an interest in a trust that is
3640 an investment entity, or a decedent or donor transfers an
3650 interest in such a trust to a trustee, section 637.401 applies
3660 to a receipt from the trust.
3670 Sec. 11. NEW SECTION. 637.403 BUSINESS AND OTHER
3680 ACTIVITIES CONDUCTED BY TRUSTEE.
3690 1. If a trustee who conducts a business or other activity
3700 determines that it is in the best interest of all the
3710 beneficiaries to account separately for the business or
3720 activity instead of accounting for it as part of the trust's
3730 general accounting records, the trustee may maintain separate
3740 accounting records for its transactions, whether or not its
3750 assets are segregated from other trust assets.
3760 2. A trustee who accounts separately for a business or
3770 other activity shall determine the extent to which its net
3780 cash receipts must be retained for working capital, the
3790 acquisition or replacement of fixed assets, and other
3800 reasonably foreseeable needs of the business or activity, and
3810 the extent to which the remaining net cash receipts are
3820 accounted for as principal or income in the trust's general
3830 accounting records. If a trustee sells assets of the business
3840 or other activity, other than in the ordinary course of the
3850 business or activity, the trustee shall account for the net
3860 amount received as principal in the trust's general accounting
3870 records to the extent the trustee determines that the amount
3880 received is no longer required in the conduct of the business.
3890 3. The trustee may maintain separate accounting records
3900 for any of the following activities:
3910 a. Retail, manufacturing, service, and other traditional
3920 business activities.
3930 b. Farming.
3940 c. Raising and selling livestock and other animals.
3950 d. Management of rental properties.
3960 e. Extraction of minerals and other natural resources.
3970 f. Timber operations.
3980 g. Activities to which section 637.426 applies.
4000 Part 2
4010 RECEIPTS NOT NORMALLY APPORTIONED
4030 Sec. 12. NEW SECTION. 637.410 PRINCIPAL RECEIPTS.
4040 The following items must be allocated to principal:
4050 1. To the extent not allocated to income under this
4060 chapter, assets received from any of the following sources:
4070 a. A transferor during the transferor's lifetime.
4080 b. A decedent's estate.
4090 c. A trust with a terminating income interest.
4100 d. A payor pursuant to a contract naming the trust or its
4110 trustee as beneficiary.
4120 2. Cash or other property received from the sale,
4130 exchange, liquidation, or change in form of a principal asset,
4140 including realized profit, subject to this subchapter.
4150 3. Amounts recovered from third parties to reimburse the
4160 trust because of disbursements described in section 637.502,
4170 subsection 1, paragraph "g", or for other reasons to the
4180 extent not based on the loss of income.
4190 4. Proceeds of property taken by eminent domain, but a
4200 separate award made for the loss of income with respect to an
4210 accounting period during which a current income beneficiary
4220 had a mandatory income interest is income.
4230 5. Net income received in a period during which there is
4240 no beneficiary to whom a trustee may or must distribute
4250 income.
4260 6. Other receipts, as provided in part 3.
4270 Sec. 13. NEW SECTION. 637.411 RENTAL PROPERTY.
4280 1. An amount received as rent of real or personal
4290 property, including an amount received for cancellation or
4300 renewal of a lease, must be allocated to income.
4310 2. An amount received as a refundable deposit, including a
4320 security deposit or a deposit that is to be applied as rent
4330 for future periods, must be added to principal and held
4340 subject to the terms of the lease and is not available for
4350 distribution to a beneficiary until the trustee's contractual
4360 obligations have been satisfied with respect to that amount.
4370 Sec. 14. NEW SECTION. 637.412 OBLIGATION TO PAY MONEY.
4380 1. An amount received as interest, whether determined at a
4390 fixed, variable, or floating rate, on an obligation to pay
4400 money to the trustee, including an amount received as
4410 consideration for prepaying principal, must be allocated to
4420 income without any provision for amortization of premium.
4430 2. An amount received from the sale, redemption, or other
4440 disposition of an obligation to pay money to the trustee more
4450 than one year after it is purchased or acquired by the
4460 trustee, including an obligation whose purchase price or value
4470 when it is acquired is less than its value at maturity, must
4480 be allocated to principal. If the obligation matures within
4490 one year after it is purchased or acquired by the trustee, an
4500 amount received in excess of its purchase price or its value
4510 when acquired by the trust must be allocated to income.
4520 3. This section does not apply to obligations to which
4530 sections 637.421 through 637.424, 637.426, and 637.427 apply.
4540 Sec. 15. NEW SECTION. 637.413 INSURANCE POLICIES AND
4550 SIMILAR CONTRACTS.
4560 1. Proceeds from a life insurance policy whose beneficiary
4570 is the trust or its trustee or a policy that insures the trust
4580 or its trustee against loss for the damage or destruction of,
4590 or loss of title to, a principal asset must be allocated to
4600 principal. Dividends received from an insurance policy and
4610 the proceeds of any other contract in which the trust or its
4620 trustee is named as beneficiary must also be allocated to
4630 principal.
4640 2. Insurance proceeds must be allocated to income if they
4650 are from a policy that insures the trustee against the loss of
4660 occupancy or other use by an income beneficiary, the loss of
4670 income, or, subject to section 637.403, the loss of profits
4680 from a business.
4690 3. This section does not apply to a contract to which
4700 section 637.421 applies.
4720 Part 3
4730 RECEIPTS NORMALLY APPORTIONED
4750 Sec. 16. NEW SECTION. 637.420 INSUBSTANTIAL ALLOCATIONS
4760 NOT REQUIRED.
4770 1. If a trustee determines that an allocation between
4780 principal and income required by sections 637.421 through
4790 637.424 or section 637.427 is insubstantial, the trustee may
4800 allocate the entire receipt to principal.
4810 2. An allocation is presumed to be insubstantial if either
4820 of the following would be true if an allocation was made:
4830 a. The amount of the allocation would increase or decrease
4840 an accounting period's net income, as determined before the
4850 allocation, by less than ten percent.
4860 b. The value of the asset producing the receipt for which
4870 the allocation would be made is less than ten percent of the
4880 total value of the trust's assets at the beginning of the
4890 accounting period.
4900 Sec. 17. NEW SECTION. 637.421 DEFERRED COMPENSATION,
4910 ANNUITIES, AND SIMILAR PAYMENTS.
4920 1. This section applies to payments that a trustee may
4930 receive over a fixed number of years or during the life of one
4940 or more individuals because of services rendered or property
4950 transferred to the payor in exchange for future payments. The
4960 payments include those made in cash or property from the
4970 payor's general assets or from a separate fund created by the
4980 payor, including a private or commercial annuity, an
4990 individual retirement account, and a pension, profit sharing,
5000 stock bonus, or stock ownership plan. This section does not
5010 apply to payments to which section 637.422 applies.
5020 2. To the extent that a payment is characterized as
5030 interest or a dividend or a payment made in lieu of interest
5040 or a dividend, it must be allocated to income. The balance of
5050 the payment and any other payment received in the same
5060 accounting period that is not characterized as interest, a
5070 dividend, or an equivalent payment must be allocated to
5080 principal.
5090 3. If no part of a payment is characterized as interest, a
5100 dividend, or an equivalent payment, and all or part of the
5110 payment is required to be made, a trustee shall allocate to
5120 income ten percent of the part that is required to be made
5130 during the accounting period and the balance to principal. If
5140 no part of a payment is required to be made or the payment
5150 received is the entire amount to which the trustee is
5160 entitled, the entire payment must be allocated to principal.
5170 4. If, to obtain an estate tax marital deduction for a
5180 trust, a trustee must allocate more of a payment to income
5190 than provided for by this section, the trustee shall allocate
5200 to income the additional amount necessary to obtain the
5210 marital deduction.
5220 Sec. 18. NEW SECTION. 637.422 LIQUIDATING ASSET.
5230 1. In this section, "liquidating asset" means an asset
5240 whose value will diminish or terminate because the asset is
5250 expected to produce receipts for a period of limited duration.
5260 The term includes leaseholds, patents, trademarks, copyrights,
5270 royalty rights, and rights to receive payments during a period
5280 of more than one year under an arrangement that does not
5290 provide for the payment of interest on the unpaid balance.
5300 The term does not include deferred compensation that is
5310 subject to section 637.421, natural resources that are subject
5320 to section 637.423, timber that is subject to section 637.424,
5330 an activity that is subject to section 637.426, or any asset
5340 for which the trustee establishes a reserve for depreciation
5350 under section 637.503.
5360 2. A trustee shall allocate to income ten percent of the
5370 receipts from a liquidating asset and the balance to
5380 principal.
5390 Sec. 19. NEW SECTION. 637.423 MINERALS, WATER, AND OTHER
5400 NATURAL RESOURCES.
5410 1. Receipts from an interest in minerals or other natural
5420 resources must be allocated according to the type of payment,
5430 as follows:
5440 a. If received as nominal delay rental or annual rent on a
5450 lease, a receipt must be allocated to income.
5460 b. If received from a production payment, a receipt must
5470 be allocated to income to the extent that the agreement
5480 creating the production payment provides a factor for interest
5490 or its equivalent. The balance must be allocated to
5500 principal.
5510 c. If an amount received as a royalty, bonus, or delay
5520 rental is more than nominal, ninety percent must be allocated
5530 to principal and the balance to income.
5540 d. If an amount is received from a working interest or any
5550 other interest not provided for in paragraph "a", "b", or "c",
5560 ninety percent of the net amount received must be allocated to
5570 principal and the balance to income.
5580 2. An amount received on account of an interest in water
5590 that is renewable must be allocated to income. If the water
5600 is not renewable, ninety percent of the amount must be
5610 allocated to principal and the balance to income.
5620 3. This chapter applies without regard to whether a
5630 decedent or donor was extracting minerals, water, or other
5640 natural resources before the interest became subject to the
5650 trust.
5660 4. If a trust owns an interest in minerals, water, or
5670 other natural resources on or before July 1, 1999, the trustee
5680 may allocate receipts from the interest as provided in this
5690 section or in the manner used by the trustee before July 1,
5700 1999. If the trust acquires an interest in minerals, water,
5710 or other natural resources after July 1, 1999, the trustee
5720 shall allocate receipts from the interest as provided in this
5730 section.
5740 Sec. 20. NEW SECTION. 637.424 TIMBER.
5750 1. A trustee may account for net receipts from the sale of
5760 timber and related products under subsection 2 or section
5770 637.403 or, if the trustee determines that net receipts are
5780 insubstantial, may allocate the net receipts to principal.
5790 The presumptions in section 637.420 apply in determining
5800 whether net receipts are insubstantial. If a trust owns more
5810 than one block of timberland, the trustee may use different
5820 methods to account for net receipts from different blocks.
5830 2. If a trustee does not account under section 637.403 for
5840 net receipts from the sale of timber and related products or
5850 allocate the net receipts to principal because they are
5860 insubstantial, the trustee shall allocate the net receipts
5870 according to one of the following rules:
5880 a. Allocate the net receipts to income to the extent that
5890 the amount of timber removed from the land does not exceed the
5900 rate of growth of the block as a whole during the accounting
5910 periods in which a beneficiary has a mandatory income
5920 interest.
5930 b. Allocate the net receipts to principal to the extent
5940 that the amount of timber removed from the land exceeds the
5950 block's rate of growth or the net receipts are from the sale
5960 of standing timber.
5970 c. Allocate the net receipts to or between income and
5980 principal if the net receipts are from the lease of timberland
5990 or from a contract to cut timber from land owned by a trust,
6000 by determining the amount of timber removed from the land
6010 under the lease or contract and applying the rules in
6020 paragraphs "a" and "b".
6030 d. Allocate the net receipts to principal to the extent
6040 that advance payments, bonuses, and other payments are not
6050 allocated pursuant to paragraph "a", "b", or "c".
6060 3. In determining the net receipts from the sale of
6070 timber, a trustee shall deduct and transfer to principal a
6080 reasonable amount for depletion.
6090 4. This chapter applies regardless of whether a decedent
6100 or transferor was harvesting timber from the property before
6110 it became subject to the trust.
6120 5. If a trust owns an interest in timberland on or before
6130 July 1, 1999, the trustee may allocate net receipts from the
6140 sale of timber and related products as provided in this
6150 section or in the manner used by the trustee before July 1,
6160 1999. If the trust acquires an interest in timberland after
6170 July 1, l999, the trustee shall allocate net receipts from the
6180 sale of timber and related products as provided in this
6190 section.
6200 Sec. 21. NEW SECTION. 637.425 PROPERTY NOT PRODUCTIVE OF
6210 INCOME.
6220 1. If a marital deduction is allowed for all or part of a
6230 trust whose assets consist substantially of property that does
6240 not provide the surviving spouse with sufficient income from
6250 or use of the trust assets, the spouse may require the trustee
6260 to make property productive of income or convert property
6270 within a reasonable time. The trustee may decide which action
6280 or combination of actions to take.
6290 2. In all other cases, proceeds from the sale or other
6300 disposition of an asset are principal without regard to the
6310 amount of income the asset produces during any accounting
6320 period.
6330 Sec. 22. NEW SECTION. 637.426 DERIVATIVES AND OPTIONS.
6340 1. For purposes of this section, "derivative" means a
6350 contract or financial instrument or a combination of contracts
6360 and financial instruments which gives a trust the right or
6370 obligation to participate in some or all changes in the price
6380 of a tangible or intangible asset or group of assets, or
6390 changes in a rate, an index of prices or rates, or other
6400 market indicator for an asset or a group of assets.
6410 2. To the extent that a trustee does not account under
6420 section 637.403 for transactions in derivatives, receipts from
6430 and disbursements made in connection with those transactions
6440 must be allocated to principal.
6450 3. If a trustee grants an option to buy property from the
6460 trust, whether or not the trust owns the property when the
6470 option is granted, grants an option that permits another
6480 person to sell property to the trust, or acquires an option to
6490 buy property for the trust or an option to sell an asset owned
6500 by the trust, and the trustee or other owner of the asset is
6510 required to deliver the asset if the option is exercised, an
6520 amount received for granting the option must be allocated to
6530 principal, and an amount paid to acquire the option must be
6540 paid from principal. A gain or loss realized upon the
6550 exercise of an option, including an option granted to a
6560 settlor of the trust for services rendered, must be allocated
6570 to principal.
6580 Sec. 23. NEW SECTION. 637.427 ASSET-BACKED SECURITIES.
6590 1. For purposes of this section, "asset-backed security"
6600 means an asset whose value is based upon the right it gives
6610 the owner to receive distributions from the proceeds of
6620 financial assets that provide collateral for the security.
6630 The term includes an asset that gives the owner the right to
6640 receive only the interest or other current return from the
6650 collateral financial assets or only the proceeds from the
6660 capital investment in the collateral financial assets. It
6670 does not include an asset to which section 637.401 or 637.421
6680 applies.
6690 2. If a trust receives a payment from the interest or
6700 other current return and the capital investment of the
6710 collateral financial assets, the trustee shall allocate to
6720 income the portion of a payment that the payor identifies as
6730 being from the interest or other current return, and shall
6740 allocate the balance of the payment to principal.
6750 3. If a trust receives one or more payments in exchange
6760 for the trust's entire interest in an asset-backed security in
6770 one accounting period, the trustee shall allocate the payments
6780 to principal. If a payment is one of a series of payments
6790 that will result in the liquidation of the trust's interest in
6800 the security over more than one accounting period, the trustee
6810 shall allocate ten percent of the payment to income and the
6820 balance to principal.
6840 SUBCHAPTER 5
6850 ALLOCATION OF DISBURSEMENTS DURING
6860 ADMINISTRATION OF TRUST
6880 Sec. 24. NEW SECTION. 637.501 DISBURSEMENTS FROM INCOME.
6890 A trustee shall make disbursements from income, to the
6900 extent that they are not disbursements to which section
6910 637.201, subsection 2, paragraph "b" or "c", applies,
6920 according to the following:
6930 1. One-half of the regular compensation of the trustee and
6940 of any person providing investment advisory or custodial
6950 services to the trustee.
6960 2. One-half of all expenses for accountings, judicial
6970 proceedings, or other matters that involve both the income and
6980 remainder interests.
6990 3. All of the other ordinary expenses incurred in
7000 connection with the administration, management, or
7010 preservation of trust property and the distribution of income,
7020 including interest, ordinary repairs, regularly recurring
7030 taxes assessed against principal, and expenses of a proceeding
7040 or other matter that concerns primarily the income interest.
7050 4. Recurring premiums on insurance covering the loss of a
7060 principal asset or the loss of income from or use of the
7070 asset.
7080 Sec. 25. NEW SECTION. 637.502 DISBURSEMENTS FROM
7090 PRINCIPAL.
7100 1. A trustee shall make disbursements from principal
7110 according to the following:
7120 a. The remaining one-half of the disbursements described
7130 in section 637.501, subsections 1 and 2.
7140 b. All of the trustee's compensation calculated on
7150 principal as an acceptance, distribution, or termination fee,
7160 and disbursements made to prepare property for sale.
7170 c. Payments on the principal of a trust debt.
7180 d. Expenses of a proceeding that concerns primarily
7190 principal, including a proceeding to construe the trust or to
7200 protect the trust or its property.
7210 e. Insurance premiums paid on a policy not described in
7220 section 637.501, subsection 4, of which the trust is the owner
7230 and beneficiary.
7240 f. Estate, inheritance, and other transfer taxes,
7250 including penalties, apportioned to the trust.
7260 g. Disbursements related to environmental matters,
7270 including reclamation, assessing environmental conditions,
7280 remedying and removing environmental contamination, monitoring
7290 remedial activities and the release of substances, preventing
7300 future releases of substances, collecting amounts from persons
7310 liable or potentially liable for the costs of those
7320 activities, penalties imposed under environmental laws or
7330 regulations and other payments made to comply with those laws
7340 or regulations, statutory or common law claims by third
7350 parties, and defending claims based on environmental matters.
7360 2. If a trust owns a policy of insurance on the life of an
7370 individual and the trust is not the beneficiary of the policy,
7380 premiums paid on the policy are a distribution from principal
7390 to the policy beneficiary.
7400 3. If a principal asset is encumbered with an obligation
7410 that requires income from that asset to be paid directly to
7420 the creditor, the trustee shall transfer from principal to
7430 income an amount equal to the income paid to the creditor in
7440 reduction of the obligation's principal balance.
7450 Sec. 26. NEW SECTION. 637.503 TRANSFERS FROM INCOME TO
7460 PRINCIPAL FOR DEPRECIATION.
7470 1. For purposes of this section, "depreciation" means a
7480 reduction in value of a fixed asset having a useful life of
7490 more than one year due to wear, tear, decay, corrosion, or
7500 gradual obsolescence.
7510 2. A trustee may transfer to principal a reasonable amount
7520 of the net cash receipts from a principal asset that is
7530 subject to depreciation, but a transfer shall not be made for
7540 depreciation under any of the following circumstances:
7550 a. When the depreciation involves the portion of real
7560 property used or available for use by a beneficiary as a
7570 residence, or tangible personal property held or made
7580 available for the personal use or enjoyment of a beneficiary.
7590 b. When the depreciation occurs during the administration
7600 of a decedent's estate.
7610 c. If the trustee is accounting under section 637.403 for
7620 the business or activity in which the asset is used.
7630 3. An amount transferred to principal need not be held as
7640 a separate fund.
7650 Sec. 27. NEW SECTION. 637.504 TRANSFERS FROM INCOME TO
7660 REIMBURSE PRINCIPAL.
7670 1. If a trustee makes or expects to make a principal
7680 disbursement described in this section, the trustee may
7690 transfer an appropriate amount from income to principal in one
7700 or more accounting periods to reimburse principal or to
7710 provide a reserve for future principal disbursements.
7720 2. Principal disbursements to which subsection 1 applies
7730 include all of the following, but only to the extent that the
7740 trustee has not been and does not expect to be reimbursed by a
7750 third party:
7760 a. An amount chargeable to income but paid from principal
7770 because it is unusually large, including extraordinary
7780 repairs.
7790 b. A capital improvement to a principal asset, whether in
7800 the form of changes to an existing asset or the construction
7810 of a new asset, including special assessments.
7820 c. Disbursements made to prepare property for rental,
7830 including leasehold improvements and broker's commissions.
7840 d. Periodic payments on an obligation secured by a
7850 principal asset to the extent that the amount transferred from
7860 income to principal for depreciation is less than the periodic
7870 payments.
7880 e. Disbursements described in section 637.502, subsection
7890 1, paragraph "g".
7900 3. If the asset whose ownership gives rise to the
7910 disbursements becomes subject to a successive income interest
7920 after an income interest ends, a trustee may continue to
7930 transfer amounts from income to principal as provided in
7940 subsection 1.
7950 Sec. 28. NEW SECTION. 637.505 INCOME TAXES.
7960 1. A tax required to be paid by a trustee based on
7970 receipts allocated to income must be paid from income.
7980 2. A tax required to be paid by a trustee based on
7990 receipts allocated to principal must be paid from principal,
8000 even if the tax is called an income tax by the taxing
8010 authority.
8020 3. A tax required to be paid by a trustee on the trust's
8030 share of an entity's taxable income must be paid
8040 proportionately, according to all of the following principles:
8050 a. From income, to the extent that receipts from the
8060 entity are allocated to income.
8070 b. From principal, to the extent that the following
8080 principles are observed:
8090 (1) Receipts from the entity are allocated to principal.
8100 (2) The trust's share of the entity's taxable income
8110 exceeds the total receipts in paragraph "a" and in
8120 subparagraph (1).
8130 4. For purposes of this section, receipts allocated to
8140 principal or income shall be reduced by the amount distributed
8150 to a beneficiary from principal or income for which the trust
8160 receives a deduction in calculating the tax.
8170 Sec. 29. NEW SECTION. 637.506 ADJUSTMENTS BETWEEN
8180 PRINCIPAL AND INCOME BECAUSE OF TAXES.
8190 1. A fiduciary may make adjustments between principal and
8200 income to offset the shifting of economic interests or tax
8210 benefits between income beneficiaries and remainder
8220 beneficiaries which arise from any of the following:
8230 a. Elections and decisions, other than those described in
8240 subsection 2, that the fiduciary makes from time to time
8250 regarding tax matters.
8260 b. An income tax or any other tax that is imposed upon the
8270 fiduciary or a beneficiary as a result of a transaction
8280 involving or a distribution from the estate or trust.
8290 c. The ownership by an estate or trust of an interest in
8300 an entity whose taxable income, whether or not distributed, is
8310 includable in the taxable income of the estate, trust, or a
8320 beneficiary.
8330 2. If the amount of an estate tax marital deduction or
8340 charitable contributions deduction is reduced because a
8350 fiduciary deducts an amount that is paid from principal for
8360 income tax purposes instead of deducting it for estate tax
8370 purposes, and as a result estate taxes paid from principal are
8380 increased and income taxes paid by an estate, trust, or
8390 beneficiary are decreased, each estate, trust, or beneficiary
8400 that benefits from the decrease in income tax shall reimburse
8410 the principal from which the increase in estate tax is paid.
8420 The total reimbursement must equal the increase in the estate
8430 tax to the extent that the principal used to pay the increase
8440 would have qualified for a martial deduction or charitable
8450 contributions deduction but for the payment. The
8460 proportionate share of the reimbursement for each estate,
8470 trust, or beneficiary whose income taxes are reduced must be
8480 the same as its proportionate share of the total decrease in
8490 income tax. An estate or trust shall reimburse principal from
8500 income.
8520 SUBCHAPTER 6
8530 MISCELLANEOUS PROVISIONS
8550 Sec. 30. NEW SECTION. 637.601 APPLICATION OF CHAPTER TO
8560 EXISTING TRUSTS AND ESTATES – CHAPTER PREVAILS.
8570 This chapter applies to every trust or decedent's estate on
8580 and after July 1, 2000, except as otherwise expressly provided
8590 in the will, the terms of the trust, or in this chapter.
8600 Notwithstanding any Code provision to the contrary, the
8610 provisions of this chapter shall prevail over any other
8620 applicable Code provision.
8630 Sec. 31. Section 633.352, Code 1999, is amended to read as
8640 follows:
8650 633.352 COLLECTION OF RENTS AND PAYMENT OF TAXES AND
8660 CHARGES.
8670 Unless otherwise provided by the will, the personal
8680 representative shall collect the income from the property of
8690 which the personal representative has possession, pay the
8700 taxes and fixed charges thereon and apply the balance of such
8710 income to general estate obligations allocate and distribute
8720 income of an estate in accordance with chapter 637. Unless
8730 otherwise provided by will, any unexpended portion of such
8740 income shall become a part of the general assets of such
8750 estate.
8760 Sec. 32. Section 633.103, Code 1999, is repealed.
8780
8790
8800
8810 BRENT SIEGRIST
8820 Speaker of the House
8830
8840
8850
8860 MARY E. KRAMER
8870 President of the Senate
8880
8890 I hereby certify that this bill originated in the House and
8900 is known as House File 584, Seventy-eighth General Assembly.
8910
8920
8930
8940 ELIZABETH ISAACSON
8950 Chief Clerk of the House
8960 Approved , 1999
8970
8980
8990
9000 THOMAS J. VILSACK
9010 Governor
Text: HF00583 Text: HF00585 Text: HF00500 - HF00599 Text: HF Index Bills and Amendments: General Index Bill History: General Index
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