§ 18-4-28 - Trustee's power to adjust.
SECTION 18-4-28
§ 18-4-28 Trustee's power to adjust.– (a) A trustee may adjust between principal and income to the extent the trusteeconsiders it to be advisable if the trustee invests and manages trust assets asa prudent investor and the terms of the trust describe the amount that may ormust be distributed to a beneficiary by referring to the trust's income.
(b) In deciding whether and to what extent to exercise thepower conferred by subsection (a), a trustee shall consider all factorsrelevant to the trust and its beneficiaries, including the following factors tothe extent they are relevant:
(1) The nature, purpose and expected duration of the trust;
(2) The intent of the settler;
(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 theyconsist of financial assets, interests in closely held enterprises, tangibleand intangible personal property or real property, the extent to which an assetis used by a beneficiary, and whether an asset was purchased by the trustee orreceived from the settler;
(6) The increase or decrease in the value of the principalassets, which the trustee may estimate as to assets for which market values arenot readily available;
(7) Whether and to what extent the terms of the trust givethe trustee the power to invade principal or accumulate income or prohibit thetrustee from invading principal or accumulating income, and the extent to whichthe trustee has exercised a power from time to time to invade principal oraccumulate income;
(8) The actual and anticipated effect of economic conditionson principal and income and effects of inflation and deflation; and
(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 thatrequires all of the income to be used at least annually to a surviving spouseand for which an estate tax or gift tax marital deduction would be allowed, inwhole or in part, if the trustee did not have the power to make the adjustment;
(2) That reduces the actuarial value of the income interestin a trust to which a person transfers property with the intent to qualify fora gift tax exclusion;
(3) That changes the amount payable to a beneficiary as afixed annuity or a fixed fraction of the value of the trust assets;
(4) From any amount that is permanently set aside forcharitable purposes under a will or the terms of a trust unless both income andprincipal are so set aside;
(5) If possessing or exercising the power to make anadjustment causes an individual to be treated as the owner of all or a part ofthe trust for income tax purposes, and the individual would not be treated asthe owner if the trustee did not possess the power to make an adjustment;
(6) If possessing or exercising the power to make anadjustment causes all or part of the trust assets to be included for estate taxpurposes in the estate of an individual who has the power to remove a trusteeor appoint a trustee, or both, and the assets would not be included in theestate of the individual if the trustee did not possess the power to make anadjustment;
(7) If the trustee is a beneficiary of the trust; or
(8) If the trustee is not a beneficiary, but the adjustmentwould benefit the trustee directly or indirectly.
(d) If subsections (c)(5), (6), (7) or (8) herein apply to atrustee and there is more than one trustee, a co-trustee to whom the provisiondoes not apply may make the adjustment unless the exercise of the power by theremaining trustee or trustees is not permitted by the terms of the trust.
(e) A trustee may release the entire power conferred bysubsection (a) or may release only the power to adjust from income to principalor the power to adjust from principal to income if the trustee is uncertainabout whether possessing or exercising the power will cause a result describedin subsections (c)(1) – (6) or (c)(8) herein or if the trustee determinesthat possessing or exercising the power will or may deprive the trust of a taxbenefit or impose a tax burden not described in subsection (c) herein. Therelease may be permanent or for a specified period, including a period measuredby the life of an individual.
(f) Terms of a trust that limit the power of a trustee tomake an adjustment between principal and income do not affect the applicationof this section unless it is clear from the terms of the trust that the termsare intended to deny the trustee the power of adjustment conferred insubsection (a) herein.