§ 18-4-29 - Total return unitrusts – Alternative definition of income.
SECTION 18-4-29
§ 18-4-29 Total return unitrusts –Alternative definition of income. – (a) The following provisions shall apply to a trust which by its governinginstrument, pursuant to court reformation or pursuant to adjustment inaccordance with § 18-4-28 requires the distribution at least annually ofan amount equal to a fixed percentage of not less than three percent (3%) normore than five percent (5%) per year of the net fair market value of thetrust's assets (the "Unitrust Amount") valued at least annually, such trust tobe referred to as a "Total Return Unitrust":
(1) The Unitrust Amount may be determined by reference to thenet fair market value of the trust's assets in one year or more than one year.
(2) Distribution of such a fixed percentage Unitrust Amountis considered a distribution of all of the income of the Total Return Unitrustand shall not be considered a fundamental departure from state law.
(3) Such a distribution of the fixed percentage of not lessthan three percent (3%) not more than five percent (5%) is considered to be areasonable apportionment of the total return of a Total Return Unitrust.
(4) A Total Return Unitrust that provides for a fixedpercentage in excess of five percent (5%) per year shall be considered to havepaid out all of the income of the Total Return Unitrust, and to have paid outprincipal of the Total Return Unitrust to the extent that the fixed percentagepayout exceeds five percent (5%) per year.
(5) The governing instrument (including any changes effectedby court reformation) may or may not grant discretion to the trustee to adopt aconsistent practice of treating capital gains as part of the unitrustdistribution, to the extent that the Unitrust Amount exceeds the net accountingincome, or it may specify the ordering of such classes of income.
(b) Unless the terms of the governing instrument (includingany changes effected by court reformation) specifically provide otherwise orgrant discretion to the trustee as set forth above, a distribution of theUnitrust Amount shall be considered to have been made from the followingsources in order of priority:
(1) From ordinary income determined as if the trust were nota unitrust;
(2) From ordinary income not allocable to net accountingincome;
(3) From net realized short-term capital gains;
(4) From net realized long-term capital gains; and
(5) From the principal of the trust estate.
(c) The governing instrument (including any changes effectedby court reformation or adjustment by the trustee) may provide that assets usedby the trust beneficiary, such as residence property or tangible personalproperty, may be excluded from the net fair market value for computing to theUnitrust Amount. Such use may be considered equivalent to income or theUnitrust Amount.