§ 37A-1-104. Trustee's power to adjust.
§ 37A‑1‑104. Trustee's power to adjust.
(a) A trustee mayadjust between principal and income to the extent the trustee considersnecessary if the trustee invests and manages trust assets as a prudentinvestor, the terms of the trust describe the amount that may or shall bedistributed to a beneficiary by referring to the trust's income, and thetrustee determines, after applying the rules in G.S. 37A‑1‑103(a),that the trustee is unable to comply with G.S. 37A‑1‑103(b). Inlieu of exercising the power to adjust, the trustee may convert the trust to aunitrust as permitted under Part 2 of this Article, in which case the unitrustamount shall become the net income of the trust.
(b) In deciding whetherand to what extent to exercise the power conferred by subsection (a) of thissection, a trustee shall consider all factors relevant to the trust and itsbeneficiaries, including the following factors to the extent they are relevant:
(1) The nature, purpose,and expected duration of the trust;
(2) The intent of thegrantor or settlor;
(3) The identity andcircumstances of the beneficiaries;
(4) The needs forliquidity, regularity of income, and preservation and appreciation of capital;
(5) The assets held inthe trust; the extent to which they consist of financial assets, interests inclosely held enterprises, tangible and intangible personal property, or realproperty; the extent to which an asset is used by a beneficiary; and whether anasset was purchased by the trustee or received from the settlor;
(6) The net amountallocated to income under the other sections of this Chapter and the increaseor decrease in the value of the principal assets, which the trustee mayestimate as to assets for which market values are not readily available;
(7) Whether and to whatextent the terms of the trust give the trustee the power to invade principal oraccumulate income or prohibit the trustee from invading principal oraccumulating income, and the extent to which the trustee has exercised a powerfrom time to time to invade principal or accumulate income;
(8) The actual andanticipated effect of economic conditions on principal and income and effectsof inflation and deflation; and
(9) The anticipated taxconsequences of an adjustment.
(c) A trustee shall notmake an adjustment:
(1) That diminishes theincome interest in a trust that requires all of the income to be paid at leastannually to a spouse and for which an estate tax or gift tax marital deductionwould be allowed, in whole or in part, if the trustee did not have the power tomake the adjustment;
(2) That reduces theactuarial value of the income interest in a trust to which a person transfersproperty with the intent to qualify for a gift tax exclusion;
(3) That changes theamount payable to a beneficiary as a fixed annuity or a fixed fraction of thevalue of the trust assets;
(4) From any amount thatis permanently set aside for charitable purposes under a will or the terms of atrust unless both income and principal are so set aside;
(5) If possessing orexercising the power to make an adjustment causes an individual to be treatedas the owner of all or part of the trust for income tax purposes and theindividual would not be treated as the owner if the trustee did not possess thepower to make an adjustment;
(6) If possessing orexercising the power to make an adjustment causes all or part of the trustassets to be included for estate tax purposes in the estate of an individualwho has the power to remove a trustee or appoint a trustee, or both, and theassets would not be included in the estate of the individual if the trustee didnot possess the power to make an adjustment;
(7) If the trustee is abeneficiary of the trust;
(8) If the trustee isnot a beneficiary but the adjustment would benefit the trustee directly orindirectly, except that a trustee may make an adjustment that also benefits abeneficiary even if the terms of the trust provide for trustee compensation asa percentage of the trust's income; or
(9) If the trust hasbeen converted to, and is then operating as, a unitrust under Part 2 of thisArticle.
(d) If subdivision (5),(6), (7), or (8) of subsection (c) of this section applies to a trustee andthere is more than one trustee, a cotrustee to whom the provision does notapply may make the adjustment unless the exercise of the power by the remainingtrustee or trustees is not permitted by the terms of the trust.
(e) A trustee mayrenounce the entire power conferred by subsection (a) of this section or mayrenounce only the power to adjust from income to principal or the power toadjust from principal to income if the trustee is uncertain about whetherpossessing or exercising the power will cause a result described insubdivisions (1) through (6) or subdivision (8) of subsection (c) of thissection or if the trustee determines that possessing or exercising the powerwill or may deprive the trust of a tax benefit or impose a tax burden notdescribed in subsection (c) of this section. The renunciation may be permanentor for a specified period, including a period measured by the life of anindividual.
(f) Terms of a trustthat limit the power of a trustee to make an adjustment between principal andincome do not affect the application of this section unless it is clear fromthe terms of the trust that the terms are intended to deny the trustee thepower of adjustment conferred by subsection (a) of this section. (2003‑232, s. 2; 2007‑106,s. 44.)