14-7430. 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 that arise from:
1. Elections and decisions, other than those described in subsection B, that the
fiduciary makes from time to time regarding tax matters.
2. An income tax or any other tax that is imposed on the fiduciary or a beneficiary
as a result of a transaction involving or a distribution from the estate or trust.
3. The ownership by an estate or trust of an interest in an entity whose taxable
income, whether or not distributed, is includible in the taxable income of the estate,
the 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 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.
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