ARIZONA STATE SENATE
Phoenix, Arizona
REVISED
uniform principal and income
act
Purpose
Replaces the current Uniform
Principal and Income Act with an updated version.
Background
The Uniform Principle and Income Act addresses issues involved in the administration of trusts and decedents’ estates. The act provides accounting rules for determining whether amounts received and expenses incurred by trusts and decedents’ estates should b allocated to income or principal. These accounting rules are necessary since many trusts and estates have one group of beneficiaries receiving income and another group of beneficiaries receiving principal.
The current Uniform
Principal and Income Act, adopted in 1984, is the 1962 version. The purpose of revising the act is to
support the now widespread use of the revocable living trust as a will
substitute and to establish new rules to cover situations not provided for in
the old acts, including rules that apply to financial instruments invented
since 1962. Another purpose is to provide a means for implementing the
transition to an investment regime based on principles embodied in the Uniform
Prudent Investor Act, in particular, the principle of investing for total
return rather than a certain level of “income” as traditionally perceived in
terms of interest, dividends and rents.
Provisions
1. Creates rules to address the probate of revocable living trusts and other terminating trusts after the settlor’s death.
2. Clarifies that an income beneficiary’s estate will be entitled to receive only net income actually received by a trust before the beneficiary’s death and not items of accrued income.
3. Stipulates that income from a partnership is based on actual distributions from the partnership, in the same manner as corporate distributions.
4. Designates distribution from corporations and partnerships that exceed 20 percent of the entity’s gross assets as principal, whether or not intended by the entity to be a partial liquidation.
5. Clarifies rules concerning deferred compensation.
6. Allocates 90 percent of the amounts received for patents, copyrights and royalties to principal, and the balance to income.
7. Changes to 90 percent the allocated amounts received from oil and gas receipts that must go to principal and stipulates that the balance must go to income.
8. Eliminates the unproductive property rule for trusts other than for marital deduction trusts.
9. Makes discretionary the charging of depreciation against income by a trustee.
10. Delineates the duties of a fiduciary.
11. Defines a trustee’s power to adjust between principal and income.
12. Limits a court’s ability to change a fiduciary’s decision to exercise a discretionary power.
13. Describes procedures for termination and distribution of an estate or trust after a decedent dies.
14. Describes procedures for distributing interest income to beneficiaries.
15. Stipulates when a beneficiary’s right to income begins and ends.
16. Apportions interest income to principal or income, dependant upon the date of death in the case of an estate or the date income interest begins in the case of a trust.
17. Defines apportionment when income interest ends.
18. Describes receipts to be allocated to income or principle.
19. Allows a trustee to maintain separate accounting records for a business regardless of whether its assets are segregated from other trust assets.
20. Allocates income from rental property to income.
21. Allocates monies received as interest on obligations to pay money, to income, and monies received from the sale or redemption of an obligation to pay money, to principal.
22. Allocates to principal the proceeds of a life insurance policy if the trustee is named as beneficiary.
23. Allocates to income proceeds of a contract that insures the trustee against loss of occupancy, income or profits from a business.
24. Allows a trustee to allocate to principle any amount the trustee deems insubstantial and describes the circumstances of that decision.
25. Allows a trustee to allocate to income ten percent of the receipts from a liquidation asset and the balance to principal.
26. Allows fees to be disbursed from a trust to compensate the trustee, investment advisors or custodians whether those fees are based on a percentage of income or principal, a fixed amount or an hourly charge.
27. Allows fees to be charged to a trust for regularly recurring income tax preparation services.
28. Describes allocation of receipts for an interest in minerals or other natural resources.
29. Defines allocation of income from derivatives, options and securities.
30. Defines instances and policies for transferring principle for the purpose of depreciation.
31. Describes allowable adjustments for tax purposes.
32. Applies provisions to all estates and trusts existing on the effective date of the act unless other provisions are expressed in a will or terms of the trust.
33. Provides necessary definitions.
34. Provides for a citable short title.
35. Provides for a delayed effective date of January 1, 2002.
Amendments Adopted by Committee
1.
Clarifies
that fees may be disbursed from the trust to compensate the trustee, investment
advisors or custodians whether those fees are based on a percentage of income
or principal, a fixed amount or an hourly charge.
2.
Allows
fees to be charged for regularly recurring income tax preparation services.
Senate Action
FIN 2/5/01 DPA 8-0-0-0
Prepared by Senate Staff
February 7, 2001