House of Representatives

SB 1187

uniform principal and income act

Sponsors: Senator Bundgaard

dp	Committee on Judiciary
dp	Caucus and COW
x	As Passed the House

SB 1187 repeals Arizona’s Revised Uniform Principal and Income Act and replaces it with the version of the Uniform Principal and Income Act most recently adopted National Conference of Commissioners on Uniform State Laws (NCCUSL).

History

The NCCUSL develops uniform and model law proposals for adoption by state governments. There have been three incarnations of the NCCUSL’s Uniform Principal and Income Act (UPIA), the first in 1931, second in 1962, and most recent in 1997. The NCCUSL revised the UPIA in 1997 with two purposes:

1. To address the widespread use of the revocable living trust as a will substitute, to change rules in the Act that experience shows need to be changed and to establish new rules that were not provided for in the old Acts, including rules that apply to financial instruments developed since 1962.

2. To provide a means for transitioning to investment principles of the Uniform Prudent Investor Act, adopted by Arizona in 1996.

Provisions

· Repeals the Revised Uniform Principal and Income Act and adds a new Revised Uniform Principal and Income Act.

· Defines the terms accounting period, beneficiary, fiduciary, income, income beneficiary, income interest, mandatory income interest, net income, person, principal, remainder beneficiary, terms of a trust and trustee.

· Establishes fiduciary duties regarding allocation of receipts and disbursements to or between principal and income.

· Authorizes a trustee to adjust between principal and income in the trustee’s discretion if the trustee invests and manages trust assets as a prudent investor.

· Prohibits a court from changing or interfering with a fiduciary’s discretion unless the fiduciary abused his discretion.

· Provides for determination and distribution of net income after a decedent dies.

· Provides for distribution of assets to residuary and remainder beneficiaries.

· Specifies when an income beneficiary’s right to income begins and ends.

· Requires specific apportionment of receipts and disbursements when a decedent dies or income interest begins and ends.

· Specifies certain income money received from an entity that a trustee must allocate to principal.

· Stipulates that a trustee must allocate income distribution received from a trust or estate to income, and principal distribution to principal.

· Authorizes a trustee to maintain separate accounting records for certain transactions, whether or not assets are segregated from other trust assets.

· Mandates certain monies that the trustee must allocate to principal.

· Requires a trustee to allocate rental monies to income to the extent that the trustee accounts for the rental receipts.

· Provides for allocation of monies received due to an obligation to pay the trustee.

· Outlines requirements for the allocation of proceeds of a life insurance policy or other contract.

· Authorizes a trustee who determines that an allocation between principal and income is insubstantial to allocate the entire amount to principal.

· Mandates that a trustee allocates an interest or dividend payment to income and the balance to principal. If no part of the payment is interest or dividend, ten per cent must go to income and the balance to principal. Defines payment.

· Requires a trustee to allocate ten per cent of monies received from liquidating assets to income and the balance to principal. Makes exceptions for certain transactions.

· Outlines allocation requirements for receipts from an interest in minerals or other natural resources.

· Provides requirements for allocating net receipts from the sale of timber.

· Allows a marital deduction for all or part of a trust whose assets do not provide the spouse with sufficient income from or use of the assets. Authorizes the spouse in this case to require the trustee to make the property productive of income.

· Provides requirements for allocating income from transactions in derivatives and options. Defines derivative.

· Requires a trustee to allocate the portion of the payment that the payer identifies as interest or other current return to income and the balance to principal. Defines asset-backed security.

· Specifies certain disbursements from income and principal that a trustee must make.

· Authorizes a trustee to transfer receipts from a principal asset that is subject to depreciation to principal. Defines depreciation.

· Allows a trustee to transfer from income to reimburse principal.

· Mandates that a tax based on income receipts is paid from income, and a tax based on principal receipts is paid from principal.

· Provides for adjustments between principal and income to offset shifting economic interests or tax benefits.

· Authorizes but does not require a trustee to give notice of allocation of receipts. Defines proposed action.

· Applies this article to every trust or decedent’s estate in existence on the effective date of the article unless otherwise expressly provided in the will or terms of the trust.

· Names the act the Revised Uniform Principal and Income Act.

· Makes the act effective from and after December 31, 2001.

SB 1187 passed the Judiciary Committee unamended.

SB 1187 passed the House as introduced.

---------- DOCUMENT FOOTER ---------

45th Legislature

First Regular Session 3 April 18, 2001

---------- DOCUMENT FOOTER ---------