72nd OREGON LEGISLATIVE ASSEMBLY--2003 Regular Session
NOTE: Matter within { + braces and plus signs + } in an
amended section is new. Matter within { - braces and minus
signs - } is existing law to be omitted. New sections are within
{ + braces and plus signs + } .
LC 465
House Bill 2063
Ordered printed by the Speaker pursuant to House Rule 12.00A (5).
Presession filed (at the request of Joint Interim Committee on
Judiciary for Oregon State Bar Estate Planning and
Administration Section)
SUMMARY
The following summary is not prepared by the sponsors of the
measure and is not a part of the body thereof subject to
consideration by the Legislative Assembly. It is an editor's
brief statement of the essential features of the measure as
introduced.
Enacts 1997 Uniform Principal and Income Act.
A BILL FOR AN ACT
Relating to Uniform Principal and Income Act; creating new
provisions; amending ORS 97.830 and 116.007; and repealing ORS
129.005, 129.015, 129.025, 129.035, 129.045, 129.055, 129.065,
129.075, 129.085, 129.090, 129.100, 129.105, 129.115 and
129.125.
Be It Enacted by the People of the State of Oregon:
{ +
DEFINITIONS AND FIDUCIARY DUTIES + }
SECTION 1. { + Short title. Sections 1 to 31 of this 2003 Act
may be cited as the Uniform Principal and Income Act. + }
SECTION 2. { + Definitions. In sections 1 to 31 of this 2003
Act:
(1) 'Accounting period' means a calendar year unless another
12-month period is selected by a fiduciary. The term includes a
portion of a calendar year or other 12-month period that begins
when an income interest begins or ends when an income interest
ends.
(2) 'Beneficiary' includes, in the case of a decedent's estate,
an heir and devisee and, in the case of a trust, an income
beneficiary and a remainder beneficiary.
(3) 'Fiduciary' means a personal representative or a trustee.
The term includes an executor, administrator, successor personal
representative, special administrator and a person performing
substantially the same function.
(4) 'Income' means money or property that a fiduciary receives
as current return from a principal asset. The term includes a
portion of receipts from a sale, exchange or liquidation of a
principal asset, to the extent provided in sections 10 to 24 of
this 2003 Act.
(5) 'Income beneficiary' means a person to whom net income of a
trust is or may be payable.
(6) 'Income interest' means the right of an income beneficiary
to receive all or part of net income, whether the terms of the
trust require it to be distributed or authorize it to be
distributed in the trustee's discretion.
(7) 'Mandatory income interest' means the right of an income
beneficiary to receive net income that the terms of the trust
require the fiduciary to distribute.
(8) 'Net income' means the total receipts allocated to income
during an accounting period minus the disbursements made from
income during the period, plus or minus transfers under sections
1 to 31 of this 2003 Act to or from income during the period.
(9) 'Person' means an individual, corporation, business trust,
estate, trust, partnership, limited liability company,
association, joint venture, government, governmental subdivision,
agency or instrumentality, public corporation or any other legal
or commercial entity.
(10) 'Principal' means property held in trust for distribution
to a remainder beneficiary when the trust terminates.
(11) 'Remainder beneficiary' means a person entitled to receive
principal when an income interest ends.
(12) 'Terms of a trust' means the manifestation of the intent
of a settlor or decedent with respect to the trust, expressed in
a manner that admits of its proof in a judicial proceeding,
whether by written or spoken words or by conduct.
(13) 'Trustee' includes an original, additional or successor
trustee, whether or not appointed or confirmed by a court. + }
SECTION 3. { + Fiduciary duties; general principles. (1) In
allocating receipts and disbursements to or between principal and
income, and with respect to any matter within the scope of
sections 5 to 9 of this 2003 Act, a fiduciary:
(a) Shall administer a trust or estate in accordance with the
terms of the trust or the will, even if there is a different
provision in sections 1 to 31 of this 2003 Act;
(b) May administer a trust or estate by the exercise of a
discretionary power of administration given to the fiduciary by
the terms of the trust or the will, even if the exercise of the
power produces a result different from a result required or
permitted by sections 1 to 31 of this 2003 Act;
(c) Shall administer a trust or estate in accordance with
sections 1 to 31 of this 2003 Act if the terms of the trust or
the will do not contain a different provision or do not give the
fiduciary a discretionary power of administration; and
(d) Shall add a receipt or charge a disbursement to principal
to the extent that the terms of the trust and sections 1 to 31 of
this 2003 Act do not provide a rule for allocating the receipt or
disbursement to or between principal and income.
(2) In exercising the power to adjust under section 4 (1) of
this 2003 Act, or a discretionary power of administration
regarding a matter within the scope of sections 1 to 31 of this
2003 Act, whether granted by the terms of a trust, a will or by
sections 1 to 31 of this 2003 Act, a fiduciary shall administer a
trust or estate impartially, based on what is fair and reasonable
to all of the beneficiaries, except to the extent that the terms
of the trust or the will clearly manifest an intention that the
fiduciary shall or may favor one or more of the beneficiaries. A
determination in accordance with sections 1 to 31 of this 2003
Act is presumed to be fair and reasonable to all of the
beneficiaries. + }
SECTION 4. { + Trustee's power to adjust. (1) A trustee may
adjust between principal and income to the extent the trustee
considers necessary if the trustee invests and manages trust
assets as a prudent investor, the terms of the trust describe the
amount that may or must be distributed to a beneficiary by
referring to the trust's income and the trustee determines, after
applying the rules in section 3 (1) of this 2003 Act, that the
trustee is unable to comply with section 3 (2) of this 2003 Act.
(2) In deciding whether and to what extent to exercise the
power conferred by subsection (1) of this section, a trustee
shall consider all factors relevant to the trust and its
beneficiaries, including the following 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 of capital;
(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 the trustee or received
from the settlor;
(f) The net amount allocated to income under the other sections
of sections 1 to 31 of this 2003 Act and the increase or decrease
in the value of the principal assets, which the trustee may
estimate as to assets 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 invade principal or accumulate income or
prohibit the trustee from invading principal or accumulating
income, and the extent to which the trustee has exercised a power
from time to time to invade principal or accumulate income;
(h) The actual and anticipated effect of economic conditions on
principal and income and effects 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 paid at least annually to a
spouse and for which an estate tax or gift tax marital deduction
would be allowed, 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 person transfers 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 fraction of the value of the trust assets;
(d) From any amount that is permanently set aside for
charitable purposes under a will or the 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 to be treated as the owner of all or part of
the trust for income tax purposes and the individual would 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 the trust assets to be included for estate
tax purposes in the estate of an individual who has the power to
remove a trustee or appoint a trustee, or both, and the assets
would not be included in the estate 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 directly or indirectly.
(4) If subsection (3)(e), (f), (g) or (h) of this section
applies to a trustee and there is more than one trustee, a
cotrustee to whom the provision does not apply may make the
adjustment unless the exercise of the power by the remaining
trustee or trustees is not permitted by the terms of the trust.
(5) A trustee may release the entire power conferred by
subsection (1) of this section or may release only the power to
adjust from income to principal or the power to adjust from
principal to income if the trustee is uncertain about whether
possessing or exercising the power will cause a result described
in subsection (3)(a) to (f) of this section or subsection (3)(h)
of this section, or if the trustee determines that possessing or
exercising the power will or may deprive the trust of a tax
benefit or impose a tax burden not described in subsection (3) of
this section. The release may be permanent or for a specified
period, 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 between principal and income do not affect the
application of this section unless it is clear from the terms of
the trust that the terms are intended to deny the trustee the
power of adjustment conferred by subsection (1) of this
section. + }
SECTION 4a. { + Judicial control of discretionary power. (1)
The court may not order a fiduciary to change a decision to
exercise or not to exercise a discretionary power conferred by
sections 1 to 31 of this 2003 Act unless it determines that the
decision was an abuse of the fiduciary's discretion. A
fiduciary's decision is not an abuse of discretion merely because
the court would have exercised the power in a different manner or
would not have exercised the power.
(2) The decisions to which subsection (1) of this section
applies include:
(a) A decision under section 4 (1) of this 2003 Act as to
whether and to what extent an amount should be transferred from
principal to income or from income to principal.
(b) A decision regarding the factors that are relevant to the
trust and its beneficiaries, the extent to which the factors are
relevant and the weight, if any, to be given to those factors in
deciding whether and to what extent to exercise the discretionary
power conferred by section 4 (1) of this 2003 Act.
(3) If the court determines that a fiduciary has abused the
fiduciary's discretion, the court may place the income and
remainder beneficiaries in the positions they would have occupied
if the discretion had not been abused, according to the following
rules:
(a) To the extent that the abuse of discretion has resulted in
no distribution to a beneficiary or in a distribution that is too
small, the court shall order the fiduciary to distribute from the
trust to the beneficiary an amount that the court determines will
restore the beneficiary, in whole or in part, to the
beneficiary's appropriate position.
(b) To the extent that the abuse of discretion has resulted in
a distribution to a beneficiary that is too large, the court
shall place the beneficiaries, the trust, or both, in whole or in
part, in their appropriate positions by ordering the fiduciary to
withhold an amount from one or more future distributions to the
beneficiary who received the distribution that was too large or
ordering that beneficiary to return some or all of the
distribution to the trust.
(c) To the extent that the court is unable, after applying
paragraphs (a) and (b) of this subsection, to place the
beneficiaries, the trust, or both, in the positions they would
have occupied if the discretion had not been abused, the court
may order the fiduciary to pay an appropriate amount from its own
funds to one or more of the beneficiaries or the trust or both.
(4) Upon petition by the fiduciary, the court having
jurisdiction over a trust or estate shall determine whether a
proposed exercise or nonexercise by the fiduciary of a
discretionary power conferred by sections 1 to 31 of this 2003
Act will result in an abuse of the fiduciary's discretion. If the
petition describes the proposed exercise or nonexercise of the
power and contains sufficient information to inform the
beneficiaries of the reasons for the proposal, the facts upon
which the fiduciary relies and an explanation of how the income
and remainder beneficiaries will be affected by the proposed
exercise or nonexercise of the power, a beneficiary who
challenges the proposed exercise or nonexercise has the burden of
establishing that it will result in an abuse of discretion. + }
{ +
DECEDENT'S ESTATE OR + }
{ +
TERMINATING INCOME INTEREST + }
SECTION 5. { + Determination and distribution of net income.
After a decedent dies, in the case of an estate, or after an
income interest in a trust ends, the following rules apply:
(1) A fiduciary of an estate or of a terminating income
interest shall determine the amount of net income and net
principal receipts received from property specifically given to a
beneficiary under the rules in sections 7 to 30 of this 2003 Act
that apply to trustees and the rules in subsection (5) of this
section. The fiduciary shall distribute the net income and net
principal receipts to the beneficiary who is to receive the
specific property.
(2) A fiduciary shall determine the remaining net income of a
decedent's estate or a terminating income interest under the
rules in sections 7 to 30 of this 2003 Act that apply to trustees
and by:
(a) Including in net income all income from property used to
discharge liabilities;
(b) Paying from income or principal, in the fiduciary's
discretion, fees of attorneys, accountants and fiduciaries, court
costs and other expenses of administration and interest on death
taxes, but the fiduciary may pay those expenses from income of
property passing to a trust for which the fiduciary claims an
estate tax marital or charitable deduction only to the extent
that the payment of those expenses from income will not cause the
reduction or loss of the deduction; and
(c) Paying from principal all other disbursements made or
incurred in connection with the settlement of a decedent's estate
or the winding up of a terminating income interest, including
debts, funeral expenses, disposition of remains, family
allowances, and death taxes and related penalties that are
apportioned to the estate or terminating income interest by the
will, the terms of the trust or applicable law.
(3) A fiduciary shall distribute to a beneficiary who receives
a pecuniary amount outright the interest or any other amount
provided by the will, the terms of the trust or applicable law
from net income determined under subsection (2) of this section
or from principal to the extent that net income is insufficient.
If a beneficiary is to receive a pecuniary amount outright from a
trust after an income interest ends and no interest or other
amount is provided for by the terms of the trust or applicable
law, the fiduciary shall distribute the interest or other amount
to which the beneficiary would be entitled under applicable law
if the pecuniary amount were required to be paid under a will.
(4) A fiduciary shall distribute the net income remaining after
distributions required by subsection (3) of this section in the
manner described in section 6 of this 2003 Act to all other
beneficiaries, including a beneficiary who receives a pecuniary
amount in trust, even if the beneficiary holds an unqualified
power to withdraw assets from the trust or other presently
exercisable general power of appointment over the trust.
(5) A fiduciary may not reduce principal or income receipts
from property described in subsection (1) of this section because
of a payment described in section 25 or 26 of this 2003 Act to
the extent that the will, the terms of the trust or applicable
law requires the fiduciary to make the payment from assets other
than the property or to the extent that the fiduciary recovers or
expects to recover the payment from a third party. The net income
and principal receipts from the property are determined by
including all of the amounts the fiduciary receives or pays with
respect to the property, whether those amounts accrued or became
due before, on or after the date of a decedent's death or an
income interest's terminating event, and by making a reasonable
provision for amounts that the fiduciary believes the estate or
terminating income interest may become obligated to pay after the
property is distributed. + }
SECTION 6. { + Distribution to residuary and remainder
beneficiaries. (1) Each beneficiary described in section 5 (4) of
this 2003 Act is entitled to receive a portion of the net income
equal to the beneficiary's fractional interest in undistributed
principal assets, using values as of the distribution date. If a
fiduciary makes more than one distribution of assets to
beneficiaries to whom this section applies, each beneficiary,
including one who does not receive part of the distribution, is
entitled, as of each distribution date, to the net income the
fiduciary has received after the date of death or terminating
event or earlier distribution date but has not distributed as of
the current distribution date.
(2) In determining a beneficiary's share of net income, the
following rules apply:
(a) The beneficiary is entitled to receive a portion of the net
income equal to the beneficiary's fractional interest in the
undistributed principal assets immediately before the
distribution date, including assets that later may be sold to
meet principal obligations.
(b) The beneficiary's fractional interest in the undistributed
principal assets must be calculated without regard to property
specifically given to a beneficiary and property required to pay
pecuniary amounts not in trust.
(c) The beneficiary's fractional interest in the undistributed
principal assets must be calculated on the basis of the aggregate
value of those assets as of the distribution date without
reducing the value by any unpaid principal obligation.
(d) The distribution date for purposes of this section may be
the date as of which the fiduciary calculates the value of the
assets if that date is reasonably near the date on which assets
are actually distributed.
(3) If a fiduciary does not distribute all of the collected but
undistributed net income to each person as of a distribution
date, the fiduciary shall maintain appropriate records showing
the interest of each beneficiary in that net income.
(4) A fiduciary may apply the rules in this section, to the
extent that the fiduciary considers it appropriate, to net gain
or loss realized after the date of death or terminating event or
earlier distribution date from the disposition of a principal
asset if this section applies to the income from the asset. + }
{ +
APPORTIONMENT AT BEGINNING + }
{ +
AND END OF INCOME INTEREST + }
SECTION 7. { + When right to income begins and ends. (1) An
income beneficiary is entitled to net income from the date on
which the income interest begins. An income interest begins on
the date specified in the terms of the trust or, if no date is
specified, on the date an asset becomes subject to a trust or
successive income interest.
(2) An asset becomes subject to a trust:
(a) On the date it is transferred to the trust in the case of
an asset that is transferred to a trust during the transferor's
life;
(b) On the date of a testator's death in the case of an asset
that becomes subject to a trust by reason of a will, even if
there is an intervening period of administration of the
testator's estate; or
(c) On the date of an individual's death in the case of an
asset that is transferred to a fiduciary by a third party because
of the individual's death.
(3) An asset becomes subject to a successive income interest on
the day after the preceding income interest ends, as determined
under subsection (4) of this section, even if there is an
intervening period of administration to wind up the preceding
income interest.
(4) An income interest ends on the day before an income
beneficiary dies or another terminating event occurs or on the
last day of a period during which there is no beneficiary to whom
a trustee may distribute income. + }
SECTION 8. { + Apportionment of receipts and disbursements
when decedent dies or income interest begins. (1) A trustee shall
allocate an income receipt or disbursement other than one to
which section 5 (1) of this 2003 Act applies to principal if its
due date occurs before a decedent dies in the case of an estate
or before an income interest begins in the case of a trust or
successive income interest.
(2) A trustee shall allocate an income receipt or disbursement
to income if its due date occurs on or after the date on which a
decedent dies or an income interest begins and it is a periodic
due date. An income receipt or disbursement must be treated as
accruing from day to day if its due date is not periodic or it
has no due date. The portion of the receipt or disbursement
accruing before the date on which a decedent dies or an income
interest begins must be allocated to principal and the balance
must be allocated to income.
(3) An item of income or an obligation is due on the date the
payer is required to make a payment. If a payment date is not
stated, there is no due date for the purposes of sections 1 to 31
of this 2003 Act. Distributions to shareholders or other owners
from an entity to which section 10 of this 2003 Act applies are
deemed to be due on the date fixed by the entity for determining
who is entitled to receive the distribution or, if no date is
fixed, on the declaration date for the distribution. A due date
is periodic for receipts or disbursements that must be paid at
regular intervals under a lease or an obligation to pay interest
or if an entity customarily makes distributions at regular
intervals. + }
SECTION 9. { + Apportionment when income interest ends. (1) In
this section, 'undistributed income' means net income received
before the date on which an income interest ends. The term does
not include an item of income or expense that is due or accrued
or net income that has been added or is required to be added to
principal under the terms of the trust.
(2) When a mandatory income interest ends, the trustee shall
pay to a mandatory income beneficiary who survives that date, or
the estate of a deceased mandatory income beneficiary whose death
causes the interest to end, the beneficiary's share of the
undistributed income that is not disposed of under the terms of
the trust unless the beneficiary has an unqualified power to
revoke more than five percent of the trust immediately before the
income interest ends. In the latter case, the undistributed
income from the portion of the trust that may be revoked must be
added to principal.
(3) When a trustee's obligation to pay a fixed annuity or a
fixed fraction of the value of the trust's assets ends, the
trustee shall prorate the final payment if and to the extent
required by applicable law to accomplish a purpose of the trust
or its settlor relating to income, gift, estate or other tax
requirements. + }
{ +
ALLOCATION OF RECEIPTS DURING + }
{ +
ADMINISTRATION OF TRUST + }
{ +
(Receipts From Entities) + }
SECTION 10. { + Character of receipts. (1) In this section, '
entity' means a corporation, partnership, limited liability
company, regulated investment company, real estate investment
trust, common trust fund or any other organization in which a
trustee has an interest other than a trust or estate to which
section 11 of this 2003 Act applies, a business or activity to
which section 12 of this 2003 Act applies or an asset-backed
security to which section 24 of this 2003 Act applies.
(2) Except as otherwise provided in this section, a trustee
shall allocate to income money received from an entity.
(3) A trustee shall allocate the following receipts from an
entity to principal:
(a) Property other than money;
(b) Money received in one distribution or a series of related
distributions in exchange for part or all of a trust's interest
in the entity;
(c) Money received in total or partial liquidation of the
entity; and
(d) Money received from an entity that is a regulated
investment company or a real estate investment trust if the money
distributed is a capital gain dividend for federal income tax
purposes.
(4) Money is received in partial liquidation:
(a) To the extent that the entity, at or near the time of a
distribution, indicates that it is a distribution in partial
liquidation; or
(b) If the total amount of money and property received in a
distribution or series of related distributions is greater than
20 percent of the entity's gross assets, as shown by the entity's
year-end financial statements immediately preceding the initial
receipt.
(5) Money is not received in partial liquidation, nor may it be
taken into account under subsection (4)(b) of this section, to
the extent that it does not exceed the amount of income tax that
a trustee or beneficiary must pay on taxable income of the entity
that distributes the money.
(6) A trustee may rely upon a statement made by an entity about
the source or character of a distribution if the statement is
made at or near the time of distribution by the entity's board of
directors or other person or group of persons authorized to
exercise powers to pay money or transfer property comparable to
those of a corporation's board of directors. + }
SECTION 11. { + Distribution from trust or estate. A trustee
shall allocate to income an amount received as a distribution of
income from a trust or an estate in which the trust has an
interest other than a purchased interest, and shall allocate to
principal an amount received as a distribution of principal from
such a trust or estate. If a trustee purchases an interest in a
trust that is an investment entity, or a decedent or donor
transfers an interest in such a trust to a trustee, section 10 or
24 of this 2003 Act applies to a receipt from the trust. + }
SECTION 12. { + Business and other activities conducted by
trustee. (1) If a trustee who conducts a business or other
activity determines that it is in the best interest of all the
beneficiaries to account separately for the business or activity
instead of accounting for it as part of the trust's general
accounting records, the trustee may maintain separate accounting
records for its transactions, whether or not its assets are
segregated from other trust assets.
(2) A trustee who accounts separately for a business or other
activity may determine the extent to which its net cash receipts
must be retained for working capital, the acquisition or
replacement of fixed assets, and other reasonably foreseeable
needs of the business or activity, and the extent to which the
remaining net cash receipts are accounted for as principal or
income in the trust's general accounting records. If a trustee
sells assets of the business or other activity, other than in the
ordinary course of the business or activity, the trustee shall
account for the net amount received as principal in the trust's
general accounting records to the extent the trustee determines
that the amount received is no longer required in the conduct of
the business.
(3) Activities for which a trustee may maintain separate
accounting records include:
(a) Retail, manufacturing, service and other traditional
business activities;
(b) Farming;
(c) Raising and selling livestock and other animals;
(d) Management of rental properties;
(e) Extraction of minerals and other natural resources;
(f) Timber operations; and
(g) Activities to which section 23 of this 2003 Act
applies. + }
{ +
(Receipts Not Normally Apportioned) + }
SECTION 13. { + Principal receipts. A trustee shall allocate
to principal:
(1) To the extent not allocated to income under sections 1 to
31 of this 2003 Act, assets received from a transferor during the
transferor's lifetime, a decedent's estate, a trust with a
terminating income interest or a payer under a contract naming
the trust or its trustee as beneficiary;
(2) Money or other property received from the sale, exchange,
liquidation or change in form of a principal asset, including
realized profit, subject to sections 10 to 24 of this 2003 Act;
(3) Amounts recovered from third parties to reimburse the trust
because of disbursements described in section 26 (1)(g) of this
2003 Act or for other reasons to the extent not based on the loss
of income;
(4) Proceeds of property taken by eminent domain, but a
separate award made for the loss of income with respect to an
accounting period during which a current income beneficiary had a
mandatory income interest is income;
(5) Net income received in an accounting period during which
there is no beneficiary to whom a trustee may or must distribute
income; and
(6) Other receipts as provided in sections 17 to 24 of this
2003 Act. + }
SECTION 14. { + Rental property. To the extent that a trustee
accounts for receipts from rental property pursuant to this
section, the trustee shall allocate to income an amount received
as rent of real or personal property, including an amount
received for cancellation or renewal of a lease. An amount
received as a refundable deposit, including a security deposit or
a deposit that is to be applied as rent for future periods, must
be added to principal and held subject to the terms of the lease
and is not available for distribution to a beneficiary until the
trustee's contractual obligations have been satisfied with
respect to that amount. + }
SECTION 15. { + Obligation to pay money. (1) An amount
received as interest, whether determined at a fixed, variable or
floating rate, on an obligation to pay money to the trustee,
including an amount received as consideration for prepaying
principal, must be allocated to income without any provision for
amortization of premium.
(2) A trustee shall allocate to principal an amount received
from the sale, redemption or other disposition of an obligation
to pay money to the trustee more than one year after it is
purchased or acquired by the trustee, including an obligation
whose purchase price or value when it is acquired is less than
its value at maturity. If the obligation matures within one year
after it is purchased or acquired by the trustee, an amount
received in excess of its purchase price or its value when
acquired by the trust must be allocated to income.
(3) This section does not apply to an obligation to which
section 18, 19, 20, 21, 23 or 24 of this 2003 Act applies. + }
SECTION 16. { + Insurance policies and similar contracts. (1)
Except as otherwise provided in subsection (2) of this section, a
trustee shall allocate to principal the proceeds of a life
insurance policy or other contract in which the trust or its
trustee is named as beneficiary, including a contract that
insures the trust or its trustee against loss for damage to,
destruction of or loss of title to a trust asset. The trustee
shall allocate dividends on an insurance policy to income if the
premiums on the policy are paid from income and to principal if
the premiums are paid from principal.
(2) A trustee shall allocate to income proceeds of a contract
that insures the trustee against loss of occupancy or other use
by an income beneficiary, loss of income or, subject to section
12 of this 2003 Act, loss of profits from a business.
(3) This section does not apply to a contract to which section
18 of this 2003 Act applies. + }
{ +
(Receipts Normally Apportioned) + }
SECTION 17. { + Insubstantial allocations not required. If a
trustee determines that an allocation between principal and
income required by section 18, 19, 20, 21 or 24 of this 2003 Act
is insubstantial, the trustee may allocate the entire amount to
principal unless one of the circumstances described in section 4
(3) of this 2003 Act applies to the allocation. This power may be
exercised by a cotrustee in the circumstances described in
section 4 (4) of this 2003 Act and may be released for the
reasons and in the manner described in section 4 (5) of this 2003
Act. An allocation is presumed to be insubstantial if:
(1) The amount of the allocation would increase or decrease net
income in an accounting period, as determined before the
allocation, by less than 10 percent; or
(2) The value of the asset producing the receipt for which the
allocation would be made is less than 10 percent of the total
value of the trust's assets at the beginning of the accounting
period. + }
SECTION 18. { + Deferred compensation, annuities and similar
payments. (1) In this section, 'payment' means a payment that a
trustee may receive over a fixed number of years or during the
life of one or more individuals because of services rendered or
property transferred to the payer in exchange for future
payments. The term includes a payment made in money or property
from the payer's general assets or from a separate fund created
by the payer, including 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
or a dividend or a payment made in lieu of interest or a
dividend, a trustee shall allocate it 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) If, to obtain an estate tax marital deduction for a trust,
a trustee must allocate more of a payment to income than provided
for by this section, the trustee shall allocate to income the
additional amount necessary to obtain the marital deduction.
(5) This section does not apply to payments to which section 19
of this 2003 Act applies. + }
SECTION 19. { + Liquidating asset. (1) In this section, '
liquidating asset' means an asset whose value will diminish or
terminate because the asset is expected to produce receipts for a
period of limited duration. The term includes a leasehold,
patent, copyright, royalty right and right to receive payments
during a period of more than one year under an arrangement that
does not provide for the payment of interest on the unpaid
balance. The term does not include a payment subject to section
18 of this 2003 Act, resources subject to section 20 of this 2003
Act, timber subject to section 21 of this 2003 Act, an activity
subject to section 23 of this 2003 Act, an asset subject to
section 24 of this 2003 Act or any asset for which the trustee
establishes a reserve for depreciation under section 27 of this
2003 Act.
(2) A trustee shall allocate to income 10 percent of the
receipts from a liquidating asset and the balance to
principal. + }
SECTION 20. { + Minerals, water and other natural resources.
(1) To the extent that a trustee accounts for receipts from an
interest in minerals or other natural resources pursuant to this
section, the trustee shall allocate them as follows:
(a) If received as nominal delay rental or nominal annual rent
on a lease, a receipt must be allocated to income.
(b) If received from a production payment, a receipt must be
allocated to income if and to the extent that the agreement
creating the production payment provides a factor for interest or
its equivalent. The balance must be allocated to principal.
(c) If an amount received as a royalty, shut-in-well payment,
take-or-pay payment, bonus or delay rental is more than nominal,
90 percent must be allocated to principal and the balance to
income.
(d) If an amount is received from a working interest or any
other interest not provided for in paragraph (a), (b) or (c) of
this subsection, 90 percent of the net amount received must be
allocated to principal and the balance to income.
(2) An amount received on account of an interest in water that
is renewable must be allocated to income. If the water is not
renewable, 90 percent of the amount must be allocated to
principal and the balance to income.
(3) Sections 1 to 31 of this 2003 Act apply whether or not a
decedent or donor was extracting minerals, water or other natural
resources before the interest became subject to the trust.
(4) If a trust owns an interest in minerals, water or other
natural resources on the effective date of sections 1 to 31 of
this 2003 Act, the trustee may allocate receipts from the
interest as provided in sections 1 to 31 of this 2003 Act or in
the manner used by the trustee before the effective date of
sections 1 to 31 of this 2003 Act. If the trust acquires an
interest in minerals, water or other natural resources after the
effective date of sections 1 to 31 of this 2003 Act, the trustee
shall allocate receipts from the interest as provided in sections
1 to 31 of this 2003 Act. + }
SECTION 21. { + Timber. (1) To the extent that a trustee
accounts for receipts from the sale of timber and related
products pursuant to this section, the trustee shall allocate the
net receipts:
(a) To income to the extent that the amount of timber removed
from the land does not exceed the rate of growth of the timber
during the accounting periods in which a beneficiary has a
mandatory income interest;
(b) To principal to the extent that the amount of timber
removed from the land exceeds the rate of growth of the timber or
the net receipts are from the sale of standing timber;
(c) To or between income and principal if the net receipts are
from the lease of timberland or from a contract to cut timber
from land owned by a trust, by determining the amount of timber
removed from the land under the lease or contract and applying
the rules in paragraphs (a) and (b) of this subsection; or
(d) To principal to the extent that advance payments, bonuses
and other payments are not allocated pursuant to paragraph (a),
(b) or (c) of this subsection.
(2) In determining net receipts to be allocated pursuant to
subsection (1) of this section, a trustee shall deduct and
transfer to principal a reasonable amount for depletion.
(3) Sections 1 to 31 of this 2003 Act apply whether or not a
decedent or transferor was harvesting timber from the property
before it became subject to the trust.
(4) If a trust owns an interest in timberland on the effective
date of sections 1 to 31 of this 2003 Act, the trustee may
allocate net receipts from the sale of timber and related
products as provided in sections 1 to 31 of this 2003 Act or in
the manner used by the trustee before the effective date of
sections 1 to 31 of this 2003 Act. If the trust acquires an
interest in timberland after the effective date of sections 1 to
31 of this 2003 Act, the trustee shall allocate net receipts from
the sale of timber and related products as provided in sections 1
to 31 of this 2003 Act. + }
SECTION 22. { + Property not productive of income. (1) If a
marital deduction is allowed for all or part of a trust whose
assets consist substantially of property that does not provide
the spouse with sufficient income from or use of the trust
assets, and if the amounts that the trustee transfers from
principal to income under section 4 of this 2003 Act and
distributes to the spouse from principal pursuant to the terms of
the trust are insufficient to provide the spouse with the
beneficial enjoyment required to obtain the marital deduction,
the spouse may require the trustee to make property productive of
income, convert property within a reasonable time or exercise the
power conferred by section 4 (1) of this 2003 Act. The trustee
may decide which action or combination of actions to take.
(2) In cases not governed by subsection (1) of this section,
proceeds from the sale or other disposition of an asset are
principal without regard to the amount of income the asset
produces during any accounting period. + }
SECTION 23. { + Derivatives and options. (1) In this section,
' derivative' means a contract or financial instrument or a
combination of contracts and financial instruments which gives a
trust the right or obligation to participate in some or all
changes in the price of a tangible or intangible asset or group
of assets, or changes in a rate, an index of prices or rates, or
other market indicator for an asset or a group of assets.
(2) To the extent that a trustee does not account under section
12 of this 2003 Act for transactions in derivatives, the trustee
shall allocate to principal receipts from and disbursements made
in connection with those transactions.
(3) If a trustee grants an option to buy property from the
trust, whether or not the trust owns the property when the option
is granted, grants an option that permits another person to sell
property to the trust or acquires an option to buy property for
the trust or an option to sell an asset owned by the trust, and
the trustee or other owner of the asset is required to deliver
the asset if the option is exercised, an amount received for
granting the option must be allocated to principal. An amount
paid to acquire the option must be paid from principal. A gain or
loss realized upon the exercise of an option, including an option
granted to a settlor of the trust for services rendered, must be
allocated to principal. + }
SECTION 24. { + Asset-backed securities. (1) In this section,
' asset-backed security' means an asset whose value is based upon
the right it gives the owner to receive distributions from the
proceeds of financial assets that provide collateral for the
security. The term includes an asset that gives the owner the
right to receive from the collateral financial assets only the
interest or other current return or only the proceeds other than
interest or current return. The term does not include an asset to
which section 10 or 18 of this 2003 Act applies.
(2) If a trust receives a payment from interest or other
current return and from other proceeds of the collateral
financial assets, the trustee shall allocate to income the
portion of the payment which the payer identifies as being from
interest or other current return and shall allocate the balance
of the payment to principal.
(3) If a trust receives one or more payments in exchange for
the trust's entire interest in an asset-backed security in one
accounting period, the trustee shall allocate the payments to
principal. If a payment is one of a series of payments that will
result in the liquidation of the trust's interest in the security
over more than one accounting period, the trustee shall allocate
10 percent of the payment to income and the balance to
principal. + }
{ +
ALLOCATION OF DISBURSEMENTS DURING + }
{ +
ADMINISTRATION OF TRUST + }
SECTION 25. { + Disbursements from income. A trustee shall
make the following disbursements from income to the extent that
they are not disbursements to which section 5 (2)(b) or (c) of
this 2003 Act applies:
(1) One-half of the regular compensation of the trustee and of
any person providing investment advisory or custodial services to
the trustee;
(2) One-half of all expenses for accountings, judicial
proceedings or other matters that involve both the income and
remainder interests;
(3) All of the other ordinary expenses incurred in connection
with the administration, management or preservation of trust
property and the distribution of income, including interest,
ordinary repairs, regularly recurring taxes assessed against
principal and expenses of a proceeding or other matter that
concerns primarily the income interest; and
(4) Recurring premiums on insurance covering the loss of a
principal asset or the loss of income from or use of the
asset. + }
SECTION 26. { + Disbursements from principal. (1) A trustee
shall make the following disbursements from principal:
(a) The remaining one-half of the disbursements described in
section 25 (1) and (2) of this 2003 Act;
(b) All of the trustee's compensation calculated on principal
as a fee for acceptance, distribution or termination and
disbursements made to prepare property for sale;
(c) Payments on the principal of a trust debt;
(d) Expenses of a proceeding that concerns primarily principal,
including a proceeding to construe the trust or to protect the
trust or its property;
(e) Premiums paid on a policy of insurance not described in
section 25 (4) of this 2003 Act of which the trust is the owner
and beneficiary;
(f) Estate, inheritance and other transfer taxes, including
penalties, apportioned to the trust; and
(g) Disbursements related to environmental matters, including
reclamation, assessing environmental conditions, remedying and
removing environmental contamination, monitoring remedial
activities and the release of substances, preventing future
releases of substances, collecting amounts from persons liable or
potentially liable for the costs of those activities, penalties
imposed under environmental laws or regulations and other
payments made to comply with those laws or regulations, statutory
or common law claims by third parties and defending claims based
on environmental matters.
(2) If a principal asset is encumbered with an obligation that
requires income from that asset to be paid directly to the
creditor, the trustee shall transfer from principal to income an
amount equal to the income paid to the creditor in reduction of
the principal balance of the obligation. + }
SECTION 27. { + Transfers from income to principal for
depreciation. (1) In this section, 'depreciation' means a
reduction in value due to wear, tear, decay, corrosion or gradual
obsolescence of a fixed asset having a useful life of more than
one year.
(2) A trustee may transfer to principal a reasonable amount of
the net cash receipts from a principal asset that is subject to
depreciation, but may not transfer any amount for depreciation:
(a) Of that portion of real property used or available for use
by a beneficiary as a residence or of tangible personal property
held or made available for the personal use or enjoyment of a
beneficiary;
(b) During the administration of a decedent's estate; or
(c) Under this section if the trustee is accounting under
section 12 of this 2003 Act for the business or activity in which
the asset is used.
(3) An amount transferred to principal need not be held as a
separate fund. + }
SECTION 28. { + Transfers from income to reimburse principal.
(1) If a trustee makes or expects to make a principal
disbursement described in this section, the trustee may transfer
an appropriate amount from income to principal in one or more
accounting periods to reimburse principal or to provide a reserve
for future principal disbursements.
(2) Principal disbursements to which subsection (1) of this
section applies include the following, but only to the extent
that the trustee has not been and does not expect to be
reimbursed by a third party:
(a) An amount chargeable to income but paid from principal
because it is unusually large, including extraordinary repairs;
(b) A capital improvement to a principal asset, whether in the
form of changes to an existing asset or the construction of a new
asset, including special assessments;
(c) Disbursements made to prepare property for rental,
including tenant allowances, leasehold improvements and broker's
commissions;
(d) Periodic payments on an obligation secured by a principal
asset to the extent that the amount transferred from income to
principal for depreciation is less than the periodic payments;
and
(e) Disbursements described in section 26 (1)(g) of this 2003
Act.
(3) If the asset whose ownership gives rise to the
disbursements becomes subject to a successive income interest
after an income interest ends, a trustee may continue to transfer
amounts from income to principal as provided in subsection (1) of
this section. + }
SECTION 29. { + Income taxes. (1) A tax required to be paid by
a trustee based on receipts allocated to income must be paid from
income.
(2) A tax required to be paid by a trustee based on receipts
allocated to principal must be paid from principal, even if the
tax is called an income tax by the taxing authority.
(3) A tax required to be paid by a trustee on the trust's share
of an entity's taxable income must be paid proportionately:
(a) From income to the extent that receipts from the entity are
allocated to income; and
(b) From principal to the extent that:
(A) Receipts from the entity are allocated to principal; and
(B) The trust's share of the entity's taxable income exceeds
the total receipts described in paragraph (a) of this subsection
and subparagraph (A) of this paragraph.
(4) For purposes of this section, receipts allocated to
principal or income must be reduced by the amount distributed to
a beneficiary from principal or income for which the trust
receives a deduction in calculating the tax. + }
SECTION 30. { + Adjustments between principal and income
because of taxes. (1) A fiduciary may make adjustments between
principal and income to offset the shifting of economic interests
or tax benefits between income beneficiaries and remainder
beneficiaries which arise from:
(a) Elections and decisions, other than those described in
subsection (2) of this section, that the fiduciary makes from
time to time regarding tax matters;
(b) An income tax or any other tax that is imposed upon the
fiduciary or a beneficiary as a result of a transaction involving
or a distribution from the estate or trust; or
(c) The ownership by an estate or trust of an interest in an
entity whose taxable income, whether or not distributed, is
includable in the taxable income of the estate, trust or a
beneficiary.
(2) If the amount of an estate tax marital deduction or
charitable contribution deduction is reduced because a fiduciary
deducts an amount paid from principal for income tax purposes
instead of deducting it for estate tax purposes, and as a result
estate taxes paid from principal are increased and income taxes
paid by an estate, trust or beneficiary are decreased, each
estate, trust or beneficiary that benefits from the decrease in
income tax shall reimburse the principal from which the increase
in estate tax is paid. The total reimbursement must equal the
increase in the estate tax to the extent that the principal used
to pay the increase would have qualified for a marital deduction
or charitable contribution deduction but for the payment. The
proportionate share of the reimbursement for each estate, trust
or beneficiary whose income taxes are reduced must be the same as
its proportionate share of the total decrease in income tax. An
estate or trust shall reimburse principal from income. + }
{ +
UNIFORMITY OF APPLICATION + }
SECTION 31. { + Uniformity of application and construction. In
applying and construing sections 1 to 31 of this 2003 Act,
consideration must be given to the need to promote uniformity of
the law with respect to its subject matter among states that
enact it. + }
{ +
CONFORMING AMENDMENTS + }
SECTION 32. ORS 97.830 is amended to read:
97.830. (1) The principal of all funds for endowed care shall
be invested, from time to time reinvested and kept invested. If a
trust agreement imposes upon the trustee or custodian the duty to
direct the investment or reinvestment of endowed care funds, the
trustee or custodian shall perform this duty governed by the
provisions of ORS 128.194 to 128.218. Otherwise, the cemetery
authority, governed by the provisions of ORS 128.194 to 128.218,
shall direct the investment and reinvestment of endowed care
funds in the time or savings deposits of the custodian bank or
savings association.
(2) The principal of invested endowed care funds shall never be
voluntarily reduced, but shall be maintained separate and
distinct by the trustee or custodian from all other funds except
that it shall be proper to commingle endowment care funds with
special care funds. The payment of charges chargeable against
principal under { - ORS 129.115 (3) - } { + sections 1 to 31
of this 2003 Act + } or of other expenses necessarily incurred in
the administration of the trust in accordance with subsection (1)
of this section shall not constitute a voluntary reduction of
principal. The net income earned shall be used solely for the
general care and maintenance of the cemetery property entitled to
endowment care, as stipulated in the resolution, bylaw and other
action or instrument by which the fund was established, and in
such manner as the cemetery authority may from time to time
determine to be in the best interests of such endowed property.
Such net income shall never be used for the improvement or
embellishment of undeveloped property offered for sale.
SECTION 33. ORS 116.007 is amended to read:
116.007. (1) Unless the will otherwise provides and subject to
subsection (2) of this section, all expenses incurred in
connection with the settlement of a decedent's estate, including
debts, funeral expenses, estate taxes, interest and penalties
concerning taxes, family allowances, fees of attorneys and
personal representatives, and court costs shall be charged
against the principal of the estate.
(2) Unless the will otherwise provides, income from the assets
of a decedent's estate after the death of the testator and before
distribution, including income from property used to discharge
liabilities, shall be determined in accordance with the rules
applicable to a trustee under { - ORS 129.005 to 129.125 - }
{ + sections 1 to 31 of this 2003 Act + } and this section and
distributed as follows:
(a) To specific legatees and devisees, the income from the
property bequeathed or devised to them respectively, less taxes,
ordinary repairs, and other expenses of management and operation
of the property, and an appropriate portion of interest accrued
since the death of the testator and of taxes imposed on income,
excluding taxes on capital gains, which accrue during the period
of administration.
(b) To all other legatees and devisees, except legatees of
pecuniary bequests that are not in trust and that do not qualify
for the marital deduction provided for in section 2056 of the
Internal Revenue Code of 1954 (26 U.S.C. 2056), the balance of
the income, less the balance of taxes, ordinary repairs, and
other expenses of management and operation of all property from
which the estate is entitled to income, interest accrued since
the death of the testator, and taxes imposed on income, excluding
taxes on capital gains, which accrue during the period of
administration, in proportion to their respective interests in
the undistributed assets of the estate computed at times of
distribution on the basis of inventory value.
(3) Income received by a trustee under subsection (2) of this
section shall be treated as income of the trust.
{ +
MISCELLANEOUS + }
SECTION 34. { + Except as may be expressly provided in a will
or in the terms of a trust or in sections 1 to 31 of this 2003
Act, sections 1 to 31 of this 2003 Act apply to the
administration of all trusts and estates, whether coming into
existence before, on or after the effective date of this 2003
Act. + }
{ +
CAPTIONS + }
SECTION 35. { + The unit and section captions used in this
2003 Act are provided only for the convenience of the reader and
do not become part of the statutory law of this state or express
any legislative intent in the enactment of this 2003 Act. + }
{ +
REPEALS + }
SECTION 36. { + ORS 129.005, 129.015, 129.025, 129.035,
129.045, 129.055, 129.065, 129.075, 129.085, 129.090, 129.100,
129.105, 129.115 and 129.125 are repealed. + }
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