[§557A-506]  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
upon the fiduciary or a beneficiary as a result of a transaction involving or a
distribution from the estate or trust; or



(3)  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 contributions deduction is reduced because a fiduciary
deducts an amount that is 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 shall 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
contributions deduction but for the payment.  The proportionate share of the
reimbursement for each estate, trust, or beneficiary whose income taxes are
reduced shall be the same as its proportionate share of the total decrease in
income tax.  An estate or trust shall reimburse principal from income. [L 2000,
c 191, pt of §1]