14-7418

14-7418. Deferred compensation, annuities and
similar payments; definition

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

B. 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 per cent 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 the 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.

C. 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.
Except as otherwise provided in subsection D of this section, subsections E and F of this
section apply, and subsections A and B of this section do not apply, in determining the
allocation of a payment made from a separate fund to:

1. A trust to which an election to qualify for a marital deduction under 26 United
States Code section 2056(b)(7), as amended, has been made.

2. A trust that qualifies for the marital deduction under 26 United States Code
section 2056(b)(5), as amended.

D. Subsections C, E and F of this section do not apply to the extent that the
series of payments, without the application of subsection C of this section, would
qualify for the marital deduction under 26 United States Code section 2056(b)(7)(C), as
amended.

E. A trustee shall determine the internal income of each separate fund for the
accounting period as if the separate fund were a trust subject to this article. On
request of the surviving spouse, the trustee shall demand that the person administering
the separate fund distribute the internal income to the trust. The trustee shall allocate
a payment from the separate fund to income to the extent of the internal income of the
separate fund and distribute that amount to the surviving spouse. The trustee shall
allocate the balance of the payment to the principal. On request of the surviving spouse,
the trustee shall allocate principal to income to the extent the internal income of the
separate fund exceeds payments made from the separate fund to the trust during the
accounting period.

F. If a trustee cannot determine the internal income of a separate fund but can
determine the value of the separate fund, the internal income of the separate fund is
deemed to equal four per cent of the fund's value, according to the most recent statement
of value preceding the beginning of the accounting period. If the trustee cannot
determine the internal income of the separate fund or the fund's value, the internal
income of the fund is deemed to equal the product of the interest rate and the present
value of the expected future payments, as determined under section 7520 of the internal
revenue code of 1986, as amended, 26 United States Code section 7520, as amended, for the
month preceding the accounting period for which the computation is made.

G. This section does not apply to a payment to which section 14-7419 applies.

H. For the purposes of this section, "payment" means a payment that a trustee may
receive over a fixed number of years or during the life of one or more individuals
because of services rendered or property transferred to the payer in exchange for future
payments. Payment 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. For purposes of subsections C, D, E and F of this section, payment
also includes any payment from any separate fund, regardless of the reason for the
payment.