22-3-104 - Trustee's power to adjust.
22-3-104. Trustee's power to adjust.
(1) A trustee may adjust between principal and income to the extent the trustee considersnecessary if the trustee invests and manages trust assets as a prudent investor, the terms of thetrust describe the amount that may or must be distributed to a beneficiary by referring to thetrust's income, and the trustee determines, after applying the rules in Subsection 22-3-103(1), thatthe trustee is unable to comply with Subsection 22-3-103(2).
(2) In deciding whether and to what extent to exercise the power conferred by Subsection(1), a trustee shall consider all factors relevant to the trust and its beneficiaries, including thefollowing factors to the extent they are relevant:
(a) the nature, purpose, and expected duration of the trust;
(b) the intent of the settlor;
(c) the identity and circumstances of the beneficiaries;
(d) the needs for liquidity, regularity of income, and preservation and appreciation ofcapital;
(e) the assets held in the trust; the extent to which they consist of financial assets,interests in closely held enterprises, tangible and intangible personal property, or real property;the extent to which an asset is used by a beneficiary; and whether an asset was purchased by thetrustee or received from the settlor;
(f) the net amount allocated to income under the other sections of this chapter and theincrease or decrease in the value of the principal assets, which the trustee may estimate as toassets for which market values are not readily available;
(g) whether and to what extent the terms of the trust give the trustee the power to invadeprincipal or accumulate income or prohibit the trustee from invading principal or accumulatingincome, and the extent to which the trustee has exercised a power from time to time to invadeprincipal or accumulate income;
(h) the actual and anticipated effect of economic conditions on principal and income andeffects of inflation and deflation; and
(i) the anticipated tax consequences of an adjustment.
(3) A trustee may not make an adjustment:
(a) that diminishes the income interest in a trust that requires all of the income to be paidat least annually to a spouse and for which an estate tax or gift tax marital deduction would beallowed, in whole or in part, if the trustee did not have the power to make the adjustment;
(b) that reduces the actuarial value of the income interest in a trust to which a persontransfers property with the intent to qualify for a gift tax exclusion;
(c) that changes the amount payable to a beneficiary as a fixed annuity or a fixed fractionof the value of the trust assets;
(d) from any amount that is permanently set aside for charitable purposes under a will orthe terms of a trust unless both income and principal are so set aside;
(e) if possessing or exercising the power to make an adjustment causes an individual tobe treated as the owner of all or part of the trust for income tax purposes, and the individualwould not be treated as the owner if the trustee did not possess the power to make an adjustment;
(f) if possessing or exercising the power to make an adjustment causes all or part of thetrust assets to be included for estate tax purposes in the estate of an individual who has the powerto remove a trustee or 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 an adjustment;
(g) if the trustee is a beneficiary of the trust; or
(h) if the trustee is not a beneficiary, but the adjustment would benefit the trustee directlyor indirectly.
(4) If Subsection (3)(e), (f), (g), or (h) applies to a trustee and there is more than onetrustee, a cotrustee to whom the provision does not apply may make the adjustment unless theexercise of the power by the remaining trustee or trustees is not permitted by the terms of thetrust.
(5) A trustee may release the entire power conferred by Subsection (1) or may releaseonly the power to adjust from income to principal or the power to adjust from principal toincome if the trustee is uncertain about whether possessing or exercising the power will cause aresult described in Subsections (3)(a) through (f) or Subsection (3)(h) or if the trustee determinesthat possessing or exercising the power will or may deprive the trust of a tax benefit or impose atax burden not described in Subsection (3). The release may be permanent or for a specifiedperiod, including a period measured by the life of an individual.
(6) Terms of a trust that limit the power of a trustee to make an adjustment betweenprincipal and income do not affect the application of this section unless it is clear from the termsof the trust that the terms are intended to deny the trustee the power of adjustment conferred bySubsection (1).
Enacted by Chapter 285, 2004 General Session