164.865 - Allocation of certain payments received because of services rendered or property transferred to payor in exchange for future payments to income or principal, or both; certain exceptions for
164.865 Allocation of certain payments received because of services rendered or property transferred to payor in exchange for future payments to income or principal, or both; certain exceptions for trusts that qualify for marital deduction under federal law.
1. As used in this section:
(a) “Payment” means a payment that a trustee may receive over a fixed number of years or during the life of one or more natural persons because of services rendered or property transferred to the payor in exchange for future payments. The term includes a payment made in money or property from the payor’s general assets or from a separate fund created by the payor. As used in subsections 4 to 7, inclusive, the term also includes any payment from any separate fund, regardless of the reason for the payment.
(b) “Separate fund” includes a private or commercial annuity, an individual retirement account, and a pension, profit-sharing, stock-bonus or stock-ownership plan.
2. To the extent that a payment is characterized as interest, a dividend or a payment made in lieu of interest or a dividend, a trustee shall allocate the payment to income. The trustee shall allocate to principal the balance of the payment and any other payment received in the same accounting period that is not characterized as interest, a dividend or an equivalent payment.
3. If no part of a payment is characterized as interest, a dividend or an equivalent payment, and all or part of the payment is required to be made, a trustee shall allocate to income 10 percent of the part that is required to be made during the accounting period and the balance to principal. If no part of a payment is required to be made or the payment received is the entire amount to which the trustee is entitled, the trustee shall allocate the entire payment to principal. For purposes of this subsection, a payment is not “required to be made” to the extent that it is made because the trustee exercises a right of withdrawal.
4. Except as otherwise provided in subsection 5, the provisions of subsections 6 and 7 apply and the provisions of subsections 2 and 3 do not apply in determining the allocation of a payment made from a separate fund to:
(a) A trust to which an election to qualify for a marital deduction under section 2056(b)(7) of the Internal Revenue Code, 26 U.S.C. § 2056(b)(7), has been made; or
(b) A trust that qualifies for the marital deduction under section 2056(b)(5) of the Internal Revenue Code, 26 U.S.C. § 2056(b)(5).
5. The provisions of subsections 4, 6 and 7 do not apply if and to the extent that the series of payments would, without the application of subsection 4, qualify for the marital deduction under section 2056(b)(7)(C) of the Internal Revenue Code, 26 U.S.C. § 2056(b)(7)(C).
6. A trustee shall determine the internal income of each separate fund for the accounting period as if the separate fund were a trust subject to NRS 164.780 to 164.925, inclusive. Upon request of the surviving spouse, the trustee shall demand that the person administering the separate fund distribute the internal income to the trust. The trustee shall allocate a payment from the separate fund to income to the extent of the internal income of the separate fund and distribute that amount to the surviving spouse. The trustee shall allocate the balance of the payment to principal. Upon request of the surviving spouse, the trustee shall allocate principal to income to the extent the internal income of the separate fund exceeds payments made from the separate fund to the trust during the accounting period.
7. If a trustee cannot determine the internal income of a separate fund but can determine the value of the separate fund, the internal income of the separate fund is deemed to equal 4 percent of the value of the fund, according to the most recent statement of value preceding the beginning of the accounting period. If the trustee can determine neither the internal income of the separate fund nor the value of the fund, the internal income of the fund is deemed to equal the product of the interest rate and the present value of the expected future payments, as determined under section 7520 of the Internal Revenue Code, 26 U.S.C. § 7520, for the month preceding the accounting period for which the computation is made.
8. This section does not apply to a payment to which NRS 164.870 applies.
(Added to NRS by 2003, 1977; A 2009, 330)