CHAPTER 14. UNIFORM PRINCIPAL AND INCOME ACT
IC 30-2-14
Chapter 14. Uniform Principal and Income Act
IC 30-2-14-1
"Accounting period" defined
Sec. 1. As used in this chapter, "accounting period" means acalendar year unless another twelve (12) month period is selected bya fiduciary. The term includes a portion of a calendar year or othertwelve (12) month period that begins when an income interest beginsor ends when an income interest ends.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-2
"Beneficiary" defined
Sec. 2. As used in this chapter, "beneficiary" includes, in the caseof:
(1) a decedent's estate, an heir, and a devisee; and
(2) a trust, an income beneficiary, and a remainder beneficiary.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-3
"Fiduciary" defined
Sec. 3. As used in this chapter, "fiduciary" means a personalrepresentative or a trustee. The term includes an executor, anadministrator, a successor personal representative, a specialadministrator, and a person performing substantially the samefunction.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-4
"Income" defined
Sec. 4. As used in this chapter, "income" means money orproperty that a fiduciary receives as current return from a principalasset. The term includes a portion of receipts from a sale, exchange,or liquidation of a principal asset, to the extent provided in sections21 through 35 of this chapter.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-5
"Income beneficiary" defined
Sec. 5. As used in this chapter, "income beneficiary" means aperson to whom net income of a trust is or may be payable.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-6
"Income interest" defined
Sec. 6. As used in this chapter, "income interest" means the rightof an income beneficiary to receive all or part of net income, whetherthe terms of the trust require it to be distributed or authorize it to bedistributed in the trustee's discretion.As added by P.L.84-2002, SEC.2.
IC 30-2-14-7
"Mandatory income interest" defined
Sec. 7. As used in this chapter, "mandatory income interest"means the right of an income beneficiary to receive net income thatthe terms of the trust require the fiduciary to distribute.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-8
"Net income" defined
Sec. 8. As used in this chapter, "net income" means the totalreceipts allocated to income during an accounting period minus thedisbursements made from income during the period, plus or minustransfers under this chapter to or from income during the period.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-9
"Person" defined
Sec. 9. As used in this chapter, "person" means an individual,corporation, business trust, estate, trust, partnership, limited liabilitycompany, association, joint venture, government; governmentalsubdivision, agency, or instrumentality; public corporation, or anyother legal or commercial entity.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-10
"Principal" defined
Sec. 10. As used in this chapter, "principal" means property thatis held in trust for distribution to a remainder beneficiary when thetrust terminates or that will remain perpetually vested in the trustee.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-11
"Remainder beneficiary" defined
Sec. 11. As used in this chapter, "remainder beneficiary" meansa person entitled to receive principal when an income interest ends.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-12
"Terms of a trust" defined
Sec. 12. As used in this chapter, "terms of a trust" means themanifestation of the intent of a settlor or decedent with respect to thetrust, expressed in a manner that admits of its proof in a judicialproceeding, whether by written or spoken words or by conduct.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-13
"Trustee" defined
Sec. 13. As used in this chapter, "trustee" includes an original,
additional, or successor trustee, whether or not appointed orconfirmed by a court.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-14
Allocating receipts and disbursements between principal andincome
Sec. 14. (a) The following applies to a fiduciary in allocatingreceipts and disbursements to or between principal and income, andwith respect to any matter within the scope of this chapter:
(1) A fiduciary shall administer a trust or estate in accordancewith the terms of the trust or the will, even if there is a differentprovision in this chapter.
(2) A fiduciary may administer a trust or estate by the exerciseof a discretionary power of administration given to the fiduciaryby the terms of the trust or the will, even if the exercise of thepower produces a result different from a result required orpermitted by this chapter. An inference that the fiduciary hasimproperly exercised the discretion does not arise from the factthat the fiduciary has made or has not made an allocationcontrary to a provision of this chapter.
(3) A fiduciary shall administer a trust or an estate inaccordance with this chapter if the terms of the trust or the willdo not contain a different provision or do not give the fiduciarya discretionary power of administration.
(4) A fiduciary shall add a receipt or charge a disbursement toprincipal to the extent that the terms of the trust or the will andthis chapter do not provide a rule for allocating the receipt ordisbursement to or between principal and income.
(b) In exercising the power to adjust under section 15 of thischapter or a discretionary power of administration regarding a matterwithin the scope of this chapter, whether granted by the terms of atrust, a will, or this chapter, a fiduciary shall administer a trust or anestate impartially, based on what is fair and reasonable to all of thebeneficiaries, except to the extent that the terms of the trust or thewill clearly manifest an intention that the fiduciary shall or may favorone (1) or more of the beneficiaries. A determination in accordancewith this chapter is presumed to be fair and reasonable to all of thebeneficiaries.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-15
Power of trustee to adjust between principal and income
Sec. 15. (a) A trustee may adjust between principal and income tothe extent the trustee considers necessary if:
(1) the trustee invests and manages trust assets as a prudentinvestor;
(2) the terms of the trust describe the amount that may or mustbe distributed to a beneficiary by referring to the trust's income;and (3) the trustee determines:
(A) after applying the rules in section 14(a) of this chapter;and
(B) considering any power the trustee may have under thetrust or the will to invade principal or accumulate income;
that the trustee is unable to comply with section 14(b) of thischapter.
(b) In deciding whether and to what extent to exercise the powerconferred by subsection (a), a trustee may consider, but is not limitedto, any of the following:
(1) The nature, purpose, and expected duration of the trust.
(2) The intent of the settlor.
(3) The identity and circumstances of the beneficiaries.
(4) The needs for liquidity, regularity of income, andpreservation and appreciation of capital.
(5) The assets held in the trust; the extent to which they consistof financial assets, interests in closely held enterprises, tangibleand intangible personal property, or real property; the extent towhich an asset is used by a beneficiary; and whether an assetwas purchased by the trustee or received from the settlor.
(6) The net amount allocated to income under this chapter andthe increase or decrease in the value of the principal assets,which the trustee may estimate as to assets for which marketvalues are not readily available.
(7) Whether and to what extent the terms of the trust give thetrustee the power to invade principal or accumulate income orprohibit the trustee from invading principal or accumulatingincome, and the extent to which the trustee has exercised apower from time to time to invade principal or accumulateincome.
(8) The actual and anticipated effect of economic conditions onprincipal and income and effects of inflation and deflation.
(9) The anticipated tax consequences of an adjustment.
(c) A trustee may not make an adjustment:
(1) that diminishes the income interest in a trust that requires allof the income to be paid at least annually to a spouse and forwhich an estate tax or gift tax marital deduction would beallowed, in whole or in part, if the trustee did not have thepower to make the adjustment;
(2) that reduces the actuarial value of the income interest in atrust to which a person transfers property with the intent toqualify for a gift tax exclusion;
(3) that changes the amount payable to a beneficiary as a fixedannuity or a fixed fraction of the value of the trust assets;
(4) from any amount that is permanently set aside for charitablepurposes under a will or the terms of a trust unless both incomeand principal are so set aside;
(5) if possessing or exercising the power to make an adjustmentcauses an individual to be treated as the owner of all or part ofthe trust for income tax purposes, and the individual would not
be treated as the owner if the trustee did not possess the powerto make an adjustment;
(6) if possessing or exercising the power to make an adjustmentcauses all or part of the trust assets to be included for estate taxpurposes in the estate of an individual who has the power toremove a trustee or appoint a trustee, or both, and the assetswould not be included in the estate of the individual if thetrustee did not possess the power to make an adjustment; or
(7) if the trustee is a beneficiary of the trust.
(d) If subsection (c)(5), (c)(6), or (c)(7) applies to a trustee andthere is more than one (1) trustee, a cotrustee to whom the provisiondoes not apply may make the adjustment unless the exercise of thepower by the remaining trustee or trustees is not permitted by theterms of the trust.
(e) A trustee may release the entire power conferred by subsection(a) or may release only the power to adjust from income to principalor the power to adjust from principal to income if the trustee:
(1) is uncertain about whether possessing or exercising thepower will cause a result described in subsection (c)(1) through(c)(6); or
(2) determines that possessing or exercising the power will ormay deprive the trust of a tax benefit or impose a tax burden notdescribed in subsection (c).
The release may be permanent or for a specified period, including aperiod measured by the life of an individual.
(f) Terms of a trust that limit the power of a trustee to make anadjustment between principal and income do not affect theapplication of this section unless it is clear from the terms of the trustthat the terms are intended to deny the trustee the power ofadjustment conferred by subsection (a).
(g) Nothing in this chapter is intended to create or imply a duty tomake an adjustment. A trustee incurs no liability for:
(1) not considering whether to make an adjustment; or
(2) choosing not to make an adjustment.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-16
Notice of proposed action
Sec. 16. (a) A trustee may give a notice of proposed actionregarding a matter governed by this chapter as set forth in thissection. For purposes of this section, a proposed action includes acourse of action and a decision not to take action.
(b) The trustee shall mail notice of the proposed action to allliving beneficiaries who:
(1) are receiving; or
(2) are entitled to receive:
(A) income under the trust; or
(B) a distribution of principal;
if the trust were terminated at the time the notice is given.
If a beneficiary described in this subsection is a minor, the trustee
may comply with this subsection by mailing the notice to any courtappointed or natural guardian of the minor.
(c) A trustee is not required to give notice of proposed action toany person who consents in writing to the proposed action. Theconsent may be executed at any time before or after the proposedaction is taken.
(d) The notice of proposed action shall state that the notice isgiven as set forth in this section and shall state all of the following:
(1) The name and mailing address of the trustee.
(2) The name and telephone number of a person who may becontacted for additional information.
(3) A description of the action proposed to be taken and anexplanation of the reasons for the action.
(4) The time within which objections to the proposed actionmay be made, which shall be at least thirty (30) days after themailing of the notice of proposed action.
(5) The date on or after which the proposed action may be takenor is effective.
(6) A beneficiary may object to the proposed action by mailinga written objection to the trustee at the address stated in thenotice of proposed action within the period specified in thenotice of proposed action.
(e) A trustee is not liable to a beneficiary for an action regardinga matter governed by this chapter if:
(1) the trustee does not receive a written objection to theproposed action from the beneficiary within the applicableperiod; and
(2) the other requirements of this section are satisfied.
If a beneficiary not entitled to notice objects under this section, thetrustee is not liable to any current or future beneficiary with respectto the proposed action.
(f) If the trustee receives a written objection within the applicableperiod, either the trustee or a beneficiary may petition the court tohave the proposed action taken as proposed, taken withmodifications, or denied. In the proceeding, a beneficiary objectingto the proposed action has the burden of proving that the trustee'sproposed action should not be taken. A beneficiary who has notobjected is not estopped from opposing the proposed action in theproceeding. If the trustee decides not to implement the proposedaction, the trustee shall mail notice to the beneficiaries described insubsection (b) of the decision not to take the action. The trustee'sdecision not to implement the proposed action does not itself giverise to liability to any current or future beneficiary. Within thirty (30)days after the mailing of the notice not to implement the proposedaction, a beneficiary may petition the court to have the action takenand has the burden of proving that it should be taken.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-17
Discretionary powers of fiduciary; failure to exercise power;
remedies
Sec. 17. (a) A court shall not change a fiduciary's decision toexercise or not to exercise a discretionary power conferred by thischapter unless it determines that the decision was an abuse of thefiduciary's discretion. A court shall not determine that a fiduciaryabused its discretion merely because the court would have exercisedthe discretion in a different manner or would not have exercised thediscretion.
(b) The decisions to which subsection (a) applies include thefollowing:
(1) A determination under section 15(a) of this chapter ofwhether and to what extent an amount should be transferredfrom principal to income or from income to principal.
(2) In deciding whether and to what extent to exercise thepower conferred by section 15(a) of this chapter, adetermination of the following:
(A) The factors that are relevant to the trust and the trust'sbeneficiaries.
(B) The extent to which the factors are relevant.
(C) The weight, if any, to be given to the relevant factors.
(c) If a court determines that a fiduciary has abused the fiduciary'sdiscretion, the remedy shall be to restore the income and remainderbeneficiaries to the positions they would have occupied if thefiduciary had not abused the fiduciary's discretion, subject to thefollowing:
(1) To the extent that the abuse of discretion has resulted in nodistribution to a beneficiary or a distribution that is too small,the court shall require the fiduciary to distribute to thebeneficiary an amount that the court determines will restore thebeneficiaries, in whole or in part, to their appropriate positions.
(2) To the extent that the abuse of discretion has resulted in adistribution to a beneficiary that is too large, the court shallrestore the beneficiaries, in whole or in part, to their appropriatepositions by requiring:
(A) the fiduciary to withhold an amount from at least one (1)future distribution to that beneficiary; or
(B) the beneficiary to return some or all of the distributionto the trust.
(3) To the extent the court is unable, after applying subdivisions(1) and (2), to restore the beneficiaries to the positions theywould have occupied if the fiduciary had not abused thefiduciary's discretion, the court shall require the fiduciary to payan appropriate amount to:
(A) at least one (1) of the beneficiaries;
(B) the trust; or
(C) entities under both clauses (A) and (B).
(d) Upon a petition by the fiduciary, the court having jurisdictionover the trust or estate shall determine whether a proposed exerciseor nonexercise of a discretionary power by the fiduciary will resultin an abuse of the fiduciary's discretion. The petition shall: (1) describe the proposed exercise or nonexercise of the power;
(2) contain sufficient information to inform the beneficiaries of:
(A) the reasons for the proposal; and
(B) the facts upon which the fiduciary relies; and
(3) contain an explanation of how the income and remainderbeneficiaries will be affected by the proposed exercise ornonexercise of the power.
(e) A beneficiary who challenges a fiduciary's proposed decisionor actual decision to exercise or not to exercise a discretionary powerconferred by this chapter shall have the burden of establishing thatit will result or did result in an abuse of discretion.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-18
Distributions to beneficiaries; payment of fees and costs
Sec. 18. After an income interest in a trust ends, the followingrules apply:
(1) A fiduciary of a terminating income interest shall determinethe amount of net income and net principal receipts receivedfrom property specifically given to a beneficiary under the rulesin sections 20 through 43 of this chapter that apply to trusteesand the rules in subdivision (5). The fiduciary shall distributethe net income and net principal receipts to the beneficiary whois to receive the specific property.
(2) A fiduciary shall determine the remaining net income of aterminating income interest under the rules in sections 20through 43 of this chapter that apply to trustees and by:
(A) including in net income all income from property usedto discharge liabilities;
(B) paying from income or principal, in the fiduciary'sdiscretion:
(i) fees of attorneys, accountants, and fiduciaries;
(ii) court costs and other expenses of administration; and
(iii) interest on death taxes;
but the fiduciary may pay those expenses from income ofproperty passing to a trust for which the fiduciary claims anestate tax marital or charitable deduction only to the extentthat the payment of those expenses from income will notcause the reduction or loss of the deduction; and
(C) paying from principal all other disbursements made orincurred in connection with the winding up of a terminatingincome interest, including debts; funeral expenses;disposition of remains; family allowances; and death taxesand related penalties that are apportioned to the terminatingincome interest by the terms of the trust or applicable law.
(3) If a beneficiary is to receive a pecuniary amount outrightfrom a trust after an income interest ends and no interest orother amount is provided for by the terms of the trust orapplicable law, the fiduciary shall distribute the interest or otheramount to which the beneficiary would be entitled under
applicable law if the pecuniary amount were required to be paidunder a will.
(4) A fiduciary shall distribute the net income remaining afterdistributions required by subdivision (3) in the mannerdescribed in section 19 of this chapter to all residuarybeneficiaries, even if the beneficiary holds an unqualifiedpower to withdraw assets from the trust or other presentlyexercisable general power of appointment over the trust.
(5) A fiduciary may not reduce principal or income receiptsfrom property described in subdivision (1) because of apayment described in section 38 or 39 of this chapter to theextent that the will, the terms of the trust, or applicable lawrequires the fiduciary to make the payment from assets otherthan the property or to the extent that the fiduciary recovers orexpects to recover the payment from a third party. The netincome and principal receipts from the property are determinedby:
(A) including all of the amounts the fiduciary receives orpays with respect to the property, whether those amounts:
(i) accrued or became due before, on, or after the date ofan individual's death; or
(ii) an income interest's terminating event; and
(B) making a reasonable provision for amounts that thefiduciary believes the terminating income interest maybecome obligated to pay after the property is distributed.
As added by P.L.84-2002, SEC.2. Amended by P.L.61-2006, SEC.6.
IC 30-2-14-19
Beneficiary's share of net income
Sec. 19. (a) Each beneficiary described in section 18(4) of thischapter is entitled to receive a portion of the net income equal to thebeneficiary's fractional interest in undistributed principal assets,using values as of the distribution date. If a fiduciary makes morethan one (1) distribution of assets to beneficiaries to whom thissection applies, each beneficiary, including a beneficiary who doesnot receive part of the distribution, is entitled, as of each distributiondate, to the net income the fiduciary has received after the date ofdeath or terminating event or earlier distribution date but has notdistributed as of the current distribution date.
(b) In determining a beneficiary's share of net income, thefollowing rules apply:
(1) The beneficiary is entitled to receive a portion of the netincome equal to the beneficiary's fractional interest in theundistributed principal assets immediately before thedistribution date, including assets that later may be sold to meetprincipal obligations.
(2) The beneficiary's fractional interest in the undistributedprincipal assets must be calculated without regard to propertyspecifically given to a beneficiary and property required to paypecuniary amounts not in trust. (3) The beneficiary's fractional interest in the undistributedprincipal assets must be calculated on the basis of the aggregatevalue of those assets as of the distribution date without reducingthe value by any unpaid principal obligation.
(4) The distribution date for purposes of this section may be thedate as of which the fiduciary calculates the value of the assetsif that date is reasonably near the date on which assets areactually distributed.
(c) If a fiduciary does not distribute all of the collected butundistributed net income to each person as of a distribution date, thefiduciary shall maintain appropriate records showing the interest ofeach beneficiary in that net income.
(d) A fiduciary may apply the rules in this section, to the extentthat the fiduciary considers it appropriate, to net gain or loss realizedafter the date of death or terminating event or earlier distribution datefrom the disposition of a principal asset if this section applies to theincome from the asset.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-20
Income interest; asset subject to trust
Sec. 20. (a) An income beneficiary is entitled to net income fromthe date on which the income interest begins. An income interestbegins on the date specified in the terms of the trust or, if no date isspecified, on the date an asset becomes subject to a trust orsuccessive income interest.
(b) An asset becomes subject to a trust:
(1) on the date it is transferred to the trust in the case of an assetthat is transferred to a trust during the transferor's life;
(2) on the date of a testator's death in the case of an asset thatbecomes subject to a trust by reason of a will, even if there is anintervening period of administration of the testator's estate; or
(3) on the date of an individual's death in the case of an assetthat is transferred to a fiduciary by a third party because of theindividual's death.
(c) An asset becomes subject to a successive income interest onthe day after the preceding income interest ends, as determined undersubsection (d), even if there is an intervening period ofadministration to wind up the preceding income interest.
(d) An income interest ends on the day before an incomebeneficiary dies or another terminating event occurs, or on the lastday of a period during which there is no beneficiary to whom atrustee may distribute income.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-21
Income receipts and disbursements
Sec. 21. (a) A trustee shall allocate an income receipt ordisbursement other than one to which section 18(1) of this chapterapplies to principal if its due date occurs before: (1) an individual dies in the case of an estate; or
(2) an income interest begins in the case of a trust or successiveincome interest.
(b) A trustee shall allocate an income receipt or disbursement toincome if its due date occurs on or after the date on which anindividual dies or an income interest begins and it is a periodic duedate. An income receipt or disbursement must be treated as accruingfrom 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 dateon which an individual dies or an income interest begins must beallocated to principal and the balance must be allocated to income.
(c) An item of income or an obligation is due on the date the payeris required to make a payment. If a payment date is not stated, thereis no due date for the purposes of this chapter. Distributions toshareholders or other owners from an entity to which section 23 ofthis chapter applies are considered to be due on:
(1) the date fixed by the entity for determining who is entitledto receive the distribution; or
(2) if no date is fixed, the declaration date for the distribution.
A due date is periodic for receipts or disbursements that must be paidat regular intervals under a lease or an obligation to pay interest orif an entity customarily makes distributions at regular intervals.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-22
Termination of mandatory income interest
Sec. 22. (a) As used in this section, "undistributed income" meansnet income received before the date on which an income interestends. The term does not include an item of income or expense that isdue or accrued or net income that has been added or is required to beadded to principal under the terms of the trust.
(b) When a mandatory income interest ends, the trustee shall payto a mandatory income beneficiary who survives that date, or theestate of a deceased mandatory income beneficiary whose deathcauses the interest to end, the beneficiary's share of the undistributedincome that is not disposed of under the terms of the trust unless thebeneficiary has an unqualified power to revoke more than fivepercent (5%) of the trust immediately before the income interestends. In the latter case, the undistributed income from the portion ofthe trust that may be revoked must be added to principal.
(c) When a trustee's obligation to pay a fixed annuity or a fixedfraction of the value of the trust's assets ends, the trustee shall proratethe final payment if and to the extent required by applicable law toaccomplish a purpose of the trust or its settlor relating to income,gift, estate, or other tax requirements.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-23
Receipts from an entity
Sec. 23. (a) As used in this section, "entity" means a corporation,
partnership, limited liability company, regulated investmentcompany, real estate investment trust, common trust fund, or anyother organization in which a trustee has an interest. The term doesnot include the following:
(1) A trust or an estate to which section 24 of this chapterapplies.
(2) A business or an activity to which section 25 of this chapterapplies.
(3) An asset backed security to which section 37 of this chapterapplies.
(b) Except as otherwise provided in this section, a trustee shallallocate to income money received from an entity.
(c) A trustee shall allocate the following receipts from an entityto principal:
(1) Property other than money.
(2) Money received in one (1) distribution or a series of relateddistributions in exchange for part or all of a trust's interest in theentity.
(3) Money received in total or partial liquidation of the entity.
(4) Money received from an entity that is:
(A) a regulated investment company; or
(B) a real estate investment trust;
if the money distributed is a capital gain dividend for federalincome tax purposes.
(d) Money is received in partial liquidation:
(1) to the extent that the entity, at or near the time of adistribution, indicates that it is a distribution in partialliquidation; or
(2) if the total amount of money and property received in adistribution or series of related distributions is greater thantwenty percent (20%) of the entity's gross assets, as shown bythe entity's year-end financial statements immediately precedingthe initial receipt.
(e) Money is not received in partial liquidation, nor may it betaken into account under subsection (d)(2), to the extent that it doesnot exceed the amount of income tax that a trustee or beneficiarymust pay on taxable income of the entity that distributes the money.
(f) A trustee may rely upon a statement made by an entity aboutthe source or character of a distribution if the statement is made at ornear the time of distribution by:
(1) the entity's board of directors; or
(2) a person or group of persons authorized to exercise powersto pay money or transfer property comparable to those of acorporation's board of directors.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-24
Distributions of principal and income from trust or estate
Sec. 24. A trustee shall allocate to:
(1) income an amount received as a distribution of income; and (2) principal an amount received as a distribution of principal;
from a trust or an estate in which the trust has an interest other thana purchased interest. If a trustee purchases an interest in a trust thatis an investment entity, or a decedent or donor transfers an interestin such a trust to a trustee, section 23 or 37 of this chapter applies toa receipt from the trust.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-25
Separate accounting records for business or activity
Sec. 25. (a) If a trustee who conducts a business or other activitydetermines that it is in the best interest of all the beneficiaries toaccount separately for the business or activity instead of accountingfor it as part of the trust's general accounting records, the trustee maymaintain separate accounting records for its transactions, whether ornot its assets are segregated from other trust assets.
(b) A trustee who accounts separately for a business or otheractivity may determine the extent to which:
(1) its net cash receipts must be retained for:
(A) working capital;
(B) the acquisition or replacement of fixed assets; and
(C) other reasonably foreseeable needs of the business oractivity; and
(2) the remaining net cash receipts are accounted for asprincipal or income in the trust's general accounting records.
If a trustee sells assets of the business or other activity, other than inthe ordinary course of the business or activity, the trustee shallaccount for the net amount received as principal in the trust's generalaccounting records to the extent the trustee determines that theamount received is no longer required in the conduct of the business.
(c) Activities for which a trustee may maintain separateaccounting records include:
(1) retail, manufacturing, service, and other traditional businessactivities;
(2) farming;
(3) raising and selling livestock and other animals;
(4) management of rental properties;
(5) extraction of minerals and other natural resources;
(6) timber operations; and
(7) activities to which section 36 of this chapter applies.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-26
Receipts and property allocated to principal
Sec. 26. A trustee shall allocate to principal:
(1) to the extent not allocated to income under this chapter,assets received from:
(A) a transferor during the transferor's lifetime;
(B) a decedent's estate;
(C) a trust with a terminating income interest; or (D) a payer under a contract naming the trust or its trustee asbeneficiary;
(2) money or other property received from the sale, exchange,liquidation, or change in form of a principal asset, includingrealized profit, subject to sections 23 through 37 of this chapter;
(3) amounts recovered from third parties to reimburse the trustbecause of disbursements described in section 39(a)(7) of thischapter or for other reasons to the extent not based on the lossof income;
(4) proceeds of property taken by eminent domain, but aseparate award made for the loss of income with respect to anaccounting period during which a current income beneficiaryhad a mandatory income interest is income;
(5) net income received in an accounting period during whichthere is no beneficiary to whom a trustee may or must distributeincome; and
(6) other receipts as provided in sections 30 through 37 of thischapter.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-27
Rental property receipts
Sec. 27. To the extent that a trustee accounts for receipts fromrental property under this section, the trustee shall allocate to incomean amount received as rent of real or personal property, including anamount received for cancellation or renewal of a lease. An amountreceived as a refundable deposit, including a security deposit or adeposit that is to be applied as rent for future periods, must be addedto principal and held subject to the terms of the lease and is notavailable for distribution to a beneficiary until the trustee'scontractual obligations have been satisfied with respect to thatamount.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-28
Obligation to pay money to trustee
Sec. 28. (a) An amount received as interest, whether determinedat a fixed, variable, or floating rate, on an obligation to pay money tothe trustee, including an amount received as consideration forprepaying principal, must be allocated to income without anyprovision for amortization of premium.
(b) A trustee shall allocate to principal an amount received fromthe sale, redemption, or other disposition of an obligation to paymoney to the trustee more than one (1) year after it is purchased oracquired by the trustee, including an obligation whose purchase priceor value when it is acquired is less than its value at maturity. If theobligation matures within one (1) year after it is purchased oracquired by the trustee, an amount received in excess of its purchaseprice or its value when acquired by the trust must be allocated toincome. (c) Notwithstanding any other provision of this section, when anobligation described in this section is held as an asset of a charitableremainder trust, an increase in the value of the obligation over thevalue of the obligation at the time of acquisition by the trust isdistributable as income. For purposes of this subsection, the increasein value is available for distribution only when the trustee receivescash on account of the obligation. If the obligation is surrendered orliquidated partially, the cash available shall be attributed first to theincrease. The increase is distributable to the income beneficiary whois the income beneficiary at the time the cash is received.
(d) This section does not apply to an obligation to which section31, 32, 33, 34, 36, or 37 of this chapter applies.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-29
Life insurance policy proceeds; proceeds of other contracts
Sec. 29. (a) Except as otherwise provided in subsection (b), atrustee shall allocate to principal the proceeds of a life insurancepolicy or other contract in which the trust or its trustee is named asbeneficiary, including a contract that insures the trust or its trusteeagainst loss for damage to, destruction of, or loss of title to a trustasset. The trustee shall allocate dividends on an insurance policy toincome if the premiums on the policy are paid from income, and toprincipal if the premiums are paid from principal.
(b) A trustee shall allocate to income proceeds of a contract thatinsures the trustee against loss of occupancy or other use by anincome beneficiary, loss of income, or, subject to section 25 of thischapter, loss of profits from a business.
(c) This section does not apply to a contract to which section 31of this chapter applies.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-30
Insubstantial allocation between principal and income
Sec. 30. If a trustee determines that an allocation betweenprincipal and income required by section 31, 32, 33, 34, or 37 of thischapter is insubstantial, the trustee may allocate the entire amount toprincipal unless one (1) of the circumstances described in section15(c) of this chapter applies to the allocation. This power may beexercised by a cotrustee in the circumstances described in section15(d) of this chapter and may be released for the reasons and in themanner described in section 15(e) of this chapter. An allocation ispresumed to be insubstantial if:
(1) the amount of the allocation would increase or decrease netincome in an accounting period, as determined before theallocation, by less than ten percent (10%); or
(2) the value of the asset producing the receipt for which theallocation would be made is less than ten percent (10%) of thetotal value of the trust's assets at the beginning of theaccounting period.As added by P.L.84-2002, SEC.2.
IC 30-2-14-31
Allocating payments to principal or income
Sec. 31. (a) This section does not apply to a payment to whichsection 32 of this chapter applies.
(b) As used in this section, "payment" means a payment that atrustee may receive over a fixed number of years or during the life ofone (1) or more individuals because of services rendered or propertytransferred to the payer in exchange for future payments, regardlessof whether the trustee also has the option to receive the payment ina lump sum or other form of payment, whether the payment is madein money or other property, and whether the payment is made fromthe payer's general assets or from a separate fund created by thepayer. For purposes of subsection (h), the term also includes anypayment from any separate fund, regardless of the reason for thepayment.
(c) As used in this section, "separate fund" includes a private orcommercial annuity, an individual retirement account, and a pension,profit sharing, stock bonus, or stock ownership plan (including anindividual account under a plan and a separate share of any accountdescribed in this subsection).
(d) To the extent that a payment is characterized as interest, adividend, or a payment made in lieu of interest or a dividend, atrustee shall allocate the payment to income. The trustee shallallocate to principal the balance of the payment and any otherpayment received in the same accounting period that is notcharacterized as interest, a dividend, or an equivalent payment.
(e) If a payment is not characterized as interest, a dividend, or anequivalent payment and is made from a separate fund, the paymentshall be allocated between income and principal as follows:
(1) A trustee shall determine the internal income of eachseparate fund for the accounting period as if the separate fundwere a trust subject to this chapter. The trustee shall allocate apayment from the separate fund to income to the extent of theinternal income of the separate fund and allocate the balance ofthe payment to principal.
(2) If a trustee cannot determine the internal income of theseparate fund but can determine the value of the separate fund,the internal income of the separate fund is deemed to equal fivepercent (5%) of the fund's value, according to the most recentstatement of value preceding the beginning of the accountingperiod. If the trustee cannot determine the internal income ofthe separate fund or the fund's value, the internal income of thefund is deemed to equal the product of the interest rate and thepresent value of the expected future payments, as determinedunder section 7520 of the Internal Revenue Code, for the monthpreceding the accounting period for which the computation ismade.
(f) If no part of a payment is characterized as interest, a dividend,
or an equivalent payment, and the payment is made otherwise thanfrom a separate fund, then the trustee shall allocate to income tenpercent (10%) of any part of the payment that is required to be madeduring the accounting period and the balance to principal, unless nopart of the payment is required to be made or the payment receivedis the entire amount to which the trustee is entitled, in which case thetrustee shall allocate the entire payment to principal. For purposes ofthis subsection, a payment is not "required to be made" to the extentthat it is made because the trustee exercises a right of withdrawal.
(g) Notwithstanding any other provision of this section, when aprivate or commercial deferred annuity is held as an asset of acharitable remainder trust, an increase in the value of the obligationover the value of the obligation at the time of the acquisition by thetrust is distributable as income. For purposes of this subsection, theincrease in value is available for distribution only when the trusteeexercises a right of withdrawal or otherwise receives cash on accountof the obligation. If the obligation is surrendered wholly or partiallybefore annuitization, the cash available shall be attributed first to theincrease. The increase is distributable to the income beneficiary whois the income beneficiary at the time the cash is received.
(h) Except as provided in subdivision (2), trusts described insubdivision (1) are subject to the following special rules regardingallocations and distributions of income provided in subdivision (3):
(1) This subsection applies to:
(A) a trust to which an election to qualify for a maritaldeduction under Section 2056(b)(7) of the Internal RevenueCode has been made; or
(B) a trust that qualifies for the marital deduction underSection 2056(b)(5) of the Internal Revenue Code.
(2) This subsection does not apply to a series of payments if andto the extent that the series of payments would, without theapplication of this subsection, qualify for the marital deductionunder Section 2056(b)(7)(C) of the Internal Revenue Code.
(3) Except as provided in subdivision (2), a payment made froma separate fund to a trust described in subdivision (1) shall beallocated between income and principal in accordance withsubsection (e)(1) and (e)(2) and not in accordance withsubsection (d) or (f), even if part or all of the payment ischaracterized as interest, a dividend, or an equivalent payment,and even if the payment is the entire amount to which thetrustee is entitled. The trustee shall distribute to the survivingspouse the part of the payment allocated to income. Uponrequest of the surviving spouse, the trustee shall demand thatthe person administering the separate fund distribute all of theinternal income of the fund to the trust. Upon request of thesurviving spouse, the trustee shall allocate principal to incometo the extent the internal income of the separate fund exceedspayments from the separate fund to the trust during theaccounting period.
As added by P.L.84-2002, SEC.2. Amended by P.L.143-2009,
SEC.19.
IC 30-2-14-32
Receipts from liquidating asset
Sec. 32. (a) As used in this section, "liquidating asset" means anasset whose value will diminish or terminate because the asset isexpected to produce receipts for a period of limited duration. Theterm includes a leasehold, patent, copyright, royalty right, and rightto receive payments during a period of more than one (1) year underan arrangement that does not provide for the payment of interest onthe unpaid balance. The term does not include the following:
(1) A payment subject to section 31 of this chapter.
(2) Resources subject to section 33 of this chapter.
(3) Timber subject to section 34 of this chapter.
(4) An activity subject to section 36 of this chapter.
(5) An asset subject to section 37 of this chapter.
(6) Any asset for which the trustee establishes a reserve fordepreciation under section 40 of this chapter.
(b) A trustee shall allocate to income ten percent (10%) of thereceipts from a liquidating asset and the balance to principal.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-33
Receipts from an interest in minerals or other natural resources
Sec. 33. (a) To the extent that a trustee accounts for receipts froman interest in minerals or other natural resources under this section,the trustee shall allocate them as follows:
(1) If received as nominal delay rental or nominal annual renton a lease, a receipt must be allocated to income.
(2) If received from a production payment, a receipt must beallocated to income if and to the extent that the agreementcreating the production payment provides a factor for interestor its equivalent. The balance must be allocated to principal.
(3) If an amount received as a royalty, shut-in-well payment,take-or-pay payment, bonus, or delay rental is more thannominal, ninety percent (90%) must be allocated to principaland the balance to income.
(4) If an amount is received from a working interest or anyother interest not provided for in subdivision (1), (2), or (3),ninety percent (90%) of the net amount received must beallocated to principal and the balance to income.
(b) An amount received on account of an interest in water that isrenewable must be allocated to income. If the water is not renewable,ninety percent (90%) of the amount must be allocated to principaland the balance to income.
(c) This chapter applies whether or not a decedent or donor wasextracting minerals, water, or other natural resources before theinterest became subject to the trust.
(d) If a trust owns an interest in minerals, water, or other naturalresources on January 1, 2003, the trustee may allocate receipts from
the interest as provided in this chapter or in the manner used by thetrustee before January 1, 2003. If the trust acquires an interest inminerals, water, or other natural resources after December 31, 2002,the trustee shall allocate receipts from the interest as provided in thischapter.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-34
Net receipts from the sale of timber and related products
Sec. 34. (a) To the extent that a trustee accounts for receipts fromthe sale of timber and related products under this section, the trusteeshall allocate the net receipts:
(1) to income to the extent that the amount of timber removedfrom the land does not exceed the rate of growth of the timberduring the accounting periods in which a beneficiary has amandatory income interest;
(2) to principal to the extent that the amount of timber removedfrom the land exceeds the rate of growth of the timber or the netreceipts are from the sale of standing timber;
(3) to or between income and principal if the net receipts arefrom:
(A) the lease of timberland; or
(B) a contract to cut timber from land owned by a trust;
by determining the amount of timber removed from the landunder the lease or contract and applying the rules insubdivisions (1) and (2); or
(4) to principal to the extent that advance payments, bonuses,and other payments are not allocated under subdivision (1), (2),or (3).
(b) In determining net receipts to be allocated under subsection(a), a trustee shall deduct and transfer to principal a reasonableamount for depletion.
(c) This chapter applies whether or not a decedent or transferorwas harvesting timber from the property before it became subject tothe trust.
(d) If a trust owns an interest in timberland, the trustee mayallocate net receipts from the sale of timber and related products asprovided in this chapter or in the manner used by the trustee beforeJanuary 1, 2003. If the trust acquires an interest in timberland afterDecember 31, 2002, the trustee shall allocate net receipts from thesale of timber and related products as provided in this chapter.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-35
Marital deduction for trust assets
Sec. 35. (a) If:
(1) a marital deduction is allowed for all or part of a trust whoseassets consist substantially of property that does not provide thespouse with sufficient income from or use of the trust assets;and (2) the amounts that the trustee transfers from principal toincome under section 15 of this chapter and distributes to thespouse from principal under the terms of the trust areinsufficient to provide the spouse with the beneficial enjoymentrequired to obtain the marital deduction;
the spouse may require the trustee to make property productive ofincome, convert property within a reasonable time, or exercise thepower conferred by section 15(a) of this chapter. The trustee maydecide which action or combination of actions to take.
(b) In cases not governed by subsection (a), proceeds from thesale or other disposition of an asset are principal without regard tothe amount of income the asset produces during any accountingperiod.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-36
Transactions in derivatives; granting, acquiring, or exercising anoption
Sec. 36. (a) As used in this section, "derivative" means a contractor financial instrument or a combination of contracts and financialinstruments that gives a trust the right or obligation to participate in:
(1) some or all changes in the price of a tangible or intangibleasset or group of assets; or
(2) changes in a rate, an index of prices or rates, or other marketindicator for an asset or a group of assets.
(b) To the extent that a trustee does not account under section 25of this chapter for transactions in derivatives, the trustee shallallocate to principal receipts from and disbursements made inconnection with those transactions.
(c) If a trustee:
(1) grants an option to buy property from the trust, whether ornot the trust owns the property when the option is granted;
(2) grants an option that permits another person to sell propertyto the trust; or
(3) acquires an option to buy property for the trust or an optionto sell an asset owned by the trust;
and the trustee or other owner of the asset is required to deliver theasset if the option is exercised, an amount received for granting theoption must be allocated to principal. An amount paid to acquire theoption must be paid from principal. A gain or loss realized upon theexercise of an option, including an option granted to a settlor of thetrust for services rendered, must be allocated to principal.
As added by P.L.84-2002, SEC.2.
IC 30-2-14-37
Asset backed securities
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