00 SENATE BILL NO. 87 01 "An Act relating to principal and income in the administration of trusts and decedents' 02 estates and the mental health trust fund; adopting a version of the Uniform Principal 03 and Income Act; and providing for an effective date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05 * Section 1. AS 13.36.335 is amended to read: 06 Sec. 13.36.335. Application of special distribution provisions. The asset 07 distribution provisions of AS 13.16.540 - 13.16.550, 13.16.560, and AS 13.38.550(a) 08 [AS 13.38.030(a)] apply to the administration of a revocable trust following the death 09 of the settlor of the trust, unless the terms of the trust indicate a different intention. 10 * Sec. 2. AS 13.38 is amended by adding new sections to read: 11 Article 1. Preliminary Provisions; Power to Adjust. 12 Sec. 13.38.200. Fiduciary duties; general principles. (a) In allocating 13 receipts and disbursements to or between principal and income and with respect to any 14 matter within the scope of this chapter, a fiduciary 01 (1) shall administer a trust or estate in accordance with the governing 02 instrument, even if there is a different provision in this chapter; 03 (2) may administer a trust or estate by the exercise of a discretionary 04 power of administration regarding a matter within the scope of this chapter given to 05 the fiduciary by the governing instrument, even if the exercise of the power produces a 06 result different from a result required or permitted by this chapter; an inference that 07 the fiduciary has improperly exercised the discretionary power does not arise from the 08 fact that the fiduciary has made an allocation contrary to a provision of this chapter; 09 (3) shall administer a trust or estate in accordance with this chapter if 10 the governing instrument does not contain a different provision or does not give the 11 fiduciary a discretionary power of administration regarding a matter within the scope 12 of this chapter; and 13 (4) shall add a receipt or charge a disbursement to principal to the 14 extent that the governing instrument and this chapter do not provide a rule for 15 allocating the receipt or disbursement to or between principal and income. 16 (b) In exercising a discretionary power of administration regarding a matter 17 within the scope of this chapter, whether granted by the governing instrument or this 18 chapter, including AS 13.38.210 and 13.38.300 - 13.38.410, a fiduciary shall 19 administer a trust or estate impartially based on what is fair and reasonable to all of the 20 beneficiaries, except to the extent that the governing instrument clearly manifests an 21 intention that the fiduciary shall or may favor one or more of the beneficiaries. A 22 determination in accordance with this chapter is presumed to be fair and reasonable to 23 all of the beneficiaries. 24 Sec. 13.38.210. Trustee's power to adjust. (a) Subject to (c) and (f) of this 25 section, a trustee may adjust between principal and income by allocating an amount of 26 income to principal or an amount of principal to income to the extent the trustee 27 considers appropriate if 28 (1) the governing instrument describes what may or shall be distributed 29 to a beneficiary by referring to the trust's income; 30 (2) the trustee determines, after applying the rules in AS 13.38.200(a), 31 that the trustee is unable to comply with AS 13.38.200(b); and 01 (3) the trustee determines to follow an investment policy seeking a total return 02 for the investments held by the trust, whether the return is to be derived from 03 (A) appreciation of capital; 04 (B) earnings and distributions from capital; or 05 (C) both (A) and (B) of this paragraph. 06 (b) In deciding whether and to what extent to exercise the power conferred by 07 (a) of this section, a trustee may consider, among other things, 08 (1) the size of the trust; 09 (2) the nature and estimated duration of the trust; 10 (3) the liquidity and distribution requirements of the trust; 11 (4) the need for regular distributions and preservation and appreciation 12 of capital; 13 (5) the expected tax consequences of an adjustment; 14 (6) the net amount allocated to income under the other sections of this 15 chapter and the increase or decrease in the value of the principal assets, which the 16 trustee may estimate as to assets for which market values are not readily available; 17 (7) the assets held in the trust; the extent to which the assets consist of 18 financial assets, interests in closely held enterprises, tangible and intangible personal 19 property, or real property; the extent to which an asset is used by a beneficiary; and 20 whether an asset was purchased by the trustee or received from the settlor or testator; 21 (8) to the extent reasonably known to the trustee, the need of the 22 beneficiaries for present and future distributions authorized or required by the 23 governing instrument; 24 (9) whether and to what extent the governing instrument gives the 25 trustee the power to invade principal or accumulate income or prohibits the trustee 26 from invading principal or accumulating income, and the extent to which the trustee 27 has exercised a power from time to time to invade principal or accumulate income; 28 (10) the intent of the settlor or testator; and 29 (11) the actual and anticipated effect of economic conditions on 30 principal and income and the effects of inflation and deflation. 31 (c) A trustee may not make an adjustment under this section if 01 (1) the adjustment would diminish the income interest in a trust that 02 requires all of the income to be paid at least annually to a spouse and for which a 03 federal estate tax or gift tax marital deduction would be allowed, in whole or in part, if 04 the trustee did not have the power to make the adjustment; the prohibition in this 05 paragraph does not apply to a trust after the trustee determines that the marital 06 deduction has not been claimed or has not been allowed; 07 (2) the adjustment would reduce the actuarial value of the income 08 interest in a trust to which a person transfers property with the intent to qualify for a 09 federal gift tax exclusion; 10 (3) the adjustment would change the amount payable to a beneficiary 11 as a fixed annuity or a fixed fraction of the value of the trust assets; 12 (4) the adjustment is from any amount that is permanently set aside for 13 charitable purposes under the governing instrument and for which a federal estate or 14 gift tax charitable deduction has been taken, unless both income and principal are 15 permanently set aside for charitable purposes under the governing instrument; 16 (5) possessing or exercising the power to make an adjustment would 17 cause an individual to be treated as the owner of all or part of the trust for federal 18 income tax purposes, and the individual would not be treated as the owner if the 19 trustee did not possess the power to make an adjustment; 20 (6) possessing or exercising the power to make an adjustment would 21 cause all or part of the trust assets to be subject to federal estate or gift tax with respect 22 to an individual, and the assets would not be subject to federal estate or gift tax with 23 respect to the individual if the trustee did not possess the power to make an 24 adjustment; 25 (7) the trustee is a beneficiary of the trust; or 26 (8) the trust has been converted to a unitrust under AS 13.38.300 - 27 13.38.410. 28 (d) If (c)(5), (6), or (7) of this section applies to a trustee and there is more 29 than one trustee, a co-trustee to whom the provision does not apply may make the 30 adjustment unless the exercise of the power by the remaining trustee or trustees is 31 prohibited by the governing instrument. 01 (e) A trustee may release the entire power conferred by (a) of this section, the 02 power to adjust from income to principal, or the power to adjust from principal to 03 income if the trustee is uncertain about whether possessing or exercising the power 04 will cause a result described in (c)(1) - (6) of this section, or if the trustee determines 05 that possessing or exercising the power will or may deprive the trust of a tax benefit or 06 impose a tax burden not described in (c) of this section. The release may be 07 permanent or for a specified period, including a period measured by the life of an 08 individual. 09 (f) A governing instrument that limits the power of a trustee to make an 10 adjustment between principal and income does not affect the application of this 11 section unless it is clear from the governing instrument that it is intended to deny the 12 trustee the power of adjustment conferred by (a) of this section. 13 Sec. 13.38.220. Judicial control of discretionary powers. (a) A court may 14 not change a fiduciary's decision to exercise or not to exercise a discretionary power 15 conferred by this chapter unless the court determines that the decision was an abuse of 16 the fiduciary's discretion. 17 (b) If a court determines that a fiduciary has abused the fiduciary's discretion 18 regarding a discretionary power conferred by this chapter, the remedy is to restore the 19 income and remainder beneficiaries to the positions they would have occupied if the 20 fiduciary had not abused the fiduciary's discretion, according to the following rules: 21 (1) to the extent that the abuse of discretion has not resulted in a 22 distribution to a beneficiary or has resulted in a distribution that is too small, the court 23 shall require the fiduciary to distribute from the trust an amount to the beneficiary that 24 the court determines will restore the beneficiary, in whole or in part, to the 25 beneficiary's appropriate position; 26 (2) to the extent that the abuse of discretion has resulted in a 27 distribution to a beneficiary that is too large, the court shall restore the beneficiaries, 28 the trust, or both, in whole or in part, to their appropriate positions by requiring the 29 fiduciary to withhold an amount from one or more future distributions to the 30 beneficiary who received the distribution that was too large or by requiring that 31 beneficiary or that beneficiary's estate to return some or all of the distribution to the 01 trust, notwithstanding a spendthrift or similar provision; 02 (3) if the abuse of discretion concerns the power to convert a trust into 03 a unitrust, the court shall require the trustee either to convert into a unitrust or to 04 reconvert from a unitrust; 05 (4) to the extent that the court is unable, after applying (1) - (3) of this 06 subsection, to restore the beneficiaries, the trust, or both to the positions they would 07 have occupied if the fiduciary had not abused the fiduciary's discretion, the court may 08 require the fiduciary to pay an appropriate amount from the fiduciary's own funds to 09 one or more of the beneficiaries, the trust, or both. 10 Article 2. Conversion to Unitrust. 11 Sec. 13.38.300. Power to convert to unitrust. Unless expressly prohibited 12 by the governing instrument, a trustee may release the power to adjust under 13 AS 13.38.210 and may convert a trust into a unitrust as described in AS 13.38.300 - 14 13.38.410 if 15 (1) the trustee determines that the conversion will enable the trustee to 16 better carry out the intent of the settlor or testator and the purposes of the trust; 17 (2) the trustee gives written notice of the trustee's intention to release 18 the power to adjust, of the trustee's intention to convert the trust into a unitrust, and of 19 how the unitrust will operate, including what initial decisions the trustee will make 20 under this section, to all the sui juris beneficiaries who 21 (A) are currently eligible to receive income from the trust; 22 (B) would be eligible, if a power of appointment were not 23 exercised, to receive income from the trust if the interest of all of the 24 beneficiaries eligible to receive income under (A) of this paragraph were to 25 terminate immediately before the giving of the notice; and 26 (C) would, if a power of appointment were not exercised, 27 receive a distribution of principal if the trust were to terminate immediately 28 before the giving of the notice; 29 (3) there are at least one sui juris beneficiary under (2)(A) of this 30 section and at least one sui juris beneficiary under (2)(B) or (C) of this section; and 31 (4) a sui juris beneficiary does not object to the conversion to a unitrust 01 in a writing delivered to the trustee within 60 days after the mailing of the notice under 02 (2) of this section. 03 Sec. 13.38.310. Judicially approved conversion. (a) A trustee may petition 04 the court to approve the conversion to a unitrust if 05 (1) a beneficiary timely objects to the conversion to a unitrust; or 06 (2) there is not a sui juris beneficiary who is eligible under 07 AS 13.38.300(2)(A), and there is not a sui juris beneficiary who is eligible under 08 AS 13.38.300(2)(B) or (C). 09 (b) A beneficiary may request a trustee to convert to a unitrust. If the trustee 10 does not convert, the beneficiary may petition the superior court to order the 11 conversion. 12 (c) The superior court shall approve the conversion or direct the requested 13 conversion if the court concludes that the conversion will enable the trustee to better 14 carry out the intent of the settlor or testator and the purposes of the trust. 15 Sec. 13.38.320. Factors to be considered. In deciding whether to exercise 16 the power conferred by AS 13.38.300, a trustee may consider, among other things, 17 (1) the size of the trust; 18 (2) the nature and estimated duration of the trust; 19 (3) the liquidity and distribution requirements of the trust; 20 (4) the need for regular distributions and preservation and appreciation 21 of capital; 22 (5) the expected tax consequences of the conversion; 23 (6) the assets held in the trust; the extent to which they consist of 24 financial assets, interests in closely held enterprises, tangible and intangible personal 25 property, or real property; and the extent to which an asset is used by a beneficiary; 26 (7) to the extent reasonably known to the trustee, the need of the 27 beneficiaries for present and future distributions authorized or required by the 28 governing instrument; 29 (8) whether and to what extent the governing instrument gives the 30 trustee the power to invade principal or accumulate income or prohibits the trustee 31 from invading principal or accumulating income and the extent to which the trustee 01 has exercised a power from time to time to invade principal or accumulate income; 02 (9) the actual and anticipated effect of economic conditions on 03 principal and income and the effects of inflation and deflation. 04 Sec. 13.38.330. Directions after conversion. (a) After a trust is converted to 05 a unitrust, the trustee shall 06 (1) follow an investment policy seeking a total return for the 07 investments held by the trust, whether the return is to be derived from 08 (A) appreciation of capital; 09 (B) earnings and distributions from capital; or 10 (C) both (A) and (B) of this paragraph; and 11 (2) make regular distributions in accordance with the governing 12 instrument construed in accordance with the provisions of this section. 13 (b) After a trust has been converted to a unitrust, "income" in the governing 14 instrument means an annual distribution equal to four percent of the net fair market 15 value, as determined annually, of the trust's assets, whether the assets would be 16 considered income or principal under other provisions of this chapter. 17 (c) After a trust has been administered as a unitrust for three years, the four 18 percent amount referred to in (b) of this section shall be averaged over the three 19 preceding years of the trust. 20 Sec. 13.38.340. Discretion of trustee regarding conversion. The trustee 21 may in the trustee's discretion, from time to time, determine 22 (1) the effective date of a conversion to a unitrust; 23 (2) the provisions for prorating a unitrust distribution for a short year 24 in which a beneficiary's right to payments commences or ceases; 25 (3) the frequency of unitrust distributions during the year; 26 (4) the effect of other payments from or contributions to the trust on 27 the trust's valuation; 28 (5) whether to value the trust's assets annually or more frequently; 29 (6) what valuation dates to use; 30 (7) how frequently to value nonliquid assets and whether to estimate 31 their value; 01 (8) whether to omit trust property occupied or possessed by a 02 beneficiary from the calculations; and 03 (9) other matters necessary for the proper functioning of the unitrust. 04 Sec. 13.38.350. Unitrust deductions and distributions. (a) Expenses that 05 would be deducted from income if the trust were not a unitrust may not be deducted 06 from the unitrust distribution. 07 (b) Unless otherwise provided by the governing instrument, a unitrust 08 distribution shall be considered to have been paid from net income as net income 09 would be determined if the trust were not a unitrust. To the extent net income is 10 insufficient, the unitrust distribution shall be considered to have been paid from net 11 realized short-term capital gains. To the extent income and net realized short-term 12 capital gains are insufficient, the unitrust distribution shall be considered to have been 13 paid from net realized long-term capital gains. To the extent income and net realized 14 short-term and long-term capital gains are insufficient, the unitrust distribution shall 15 be paid from the principal of the trust. 16 Sec. 13.38.360. Court orders regarding unitrust. The trustee or, if the 17 trustee declines to petition the court, a beneficiary may petition the court to 18 (1) select a payout percentage different than four percent; 19 (2) provide for a distribution of net income, as would be determined if 20 the trust were not a unitrust, in excess of the unitrust distribution if the distribution is 21 necessary to preserve a tax benefit; 22 (3) average the valuation of the trust's net assets over a period other 23 than three years. 24 Sec. 13.38.370. Effects of conversion. A conversion to a unitrust does not 25 affect a provision in the governing instrument directing or authorizing the trustee to 26 distribute principal or authorizing a beneficiary to withdraw a portion or all of the 27 principal. 28 Sec. 13.38.380. Prohibited conversions; exception. (a) A trustee may not 29 convert a trust into a unitrust if 30 (1) payment of the unitrust distribution would change the amount 31 payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust 01 assets; 02 (2) the unitrust distribution would be made from an amount that is 03 permanently set aside for charitable purposes under the governing instrument and for 04 which a federal estate or gift tax deduction has been taken; 05 (3) possessing or exercising the power to convert would cause an 06 individual to be treated as the owner of all or part of the trust for federal income tax 07 purposes, and the individual would not be treated as the owner if the trustee did not 08 possess the power to convert; 09 (4) possessing or exercising the power to convert would cause all or 10 part of the trust assets to be subject to federal estate or gift tax with respect to an 11 individual, and the assets would not be subject to federal estate or gift tax with respect 12 to the individual if the trustee did not possess the power to convert; 13 (5) the conversion would result in the disallowance of a federal estate 14 tax or gift tax marital deduction that would be allowed if the trustee did not have the 15 power to convert; or 16 (6) the trustee is a beneficiary of the trust. 17 (b) Notwithstanding (a)(2) of this section, a trustee may elect to convert a trust 18 to a unitrust if both the income and principal of the trust being converted to a unitrust 19 are permanently set aside for charitable purposes and if the provisions of 20 AS 13.38.440 - 13.38.490 are followed. 21 Sec. 13.38.390. Permissible conversion where otherwise prohibited. (a) If 22 AS 13.38.380(a)(3), (4), or (6) applies to a trustee and there is more than one trustee, a 23 co-trustee to whom the provision does not apply may convert the trust, unless the 24 exercise of the power by the remaining trustee is prohibited by the governing 25 instrument. 26 (b) If AS 13.38.380(a)(3), (4), or (6) applies to all the trustees, the trustees 27 may petition the court to direct a conversion. 28 Sec. 13.38.400. Reconversion from a unitrust. A trustee may reconvert a 29 trust that has been converted into a unitrust under AS 13.38.300 by following the same 30 procedures provided in AS 13.38.300 - 13.38.410 for converting a trust into a unitrust. 31 If a unitrust is reconverted under this section, the trustee's power to adjust under 01 AS 13.38.210 applies to the trustee after the reconversion. 02 Sec. 13.38.410. Release of power to convert to unitrust. (a) A trustee may 03 release the power conferred by AS 13.38.300 to convert to a unitrust if the trustee 04 (1) is uncertain about whether possessing or exercising the power will 05 cause a result described in AS 13.38.380(a)(3), (4), or (5); or 06 (2) determines that possessing or exercising the power will or may 07 deprive the trust of a tax benefit or impose a tax burden not described in 08 AS 13.38.380. 09 (b) The release of a power under (a) of this section may be permanent or for a 10 specified period, including a period measured by the life of an individual. 11 Article 3. Charitable Trust Election. 12 Sec. 13.38.440. Charitable trust election. The trustee of a trust held 13 exclusively for charitable purposes may elect to be governed by AS 13.38.440 - 14 13.38.490 unless the governing instrument expressly provides that the election 15 provided by AS 13.38.440 - 13.38.490 is not available. 16 Sec. 13.38.450. Eligibility for charitable trust election. To make an election 17 under AS 13.38.440 - 13.38.490, the trustee shall adopt and follow an investment 18 policy seeking a total return for the investments held by the trust, whether the return is 19 to be derived from appreciation of capital or earnings and distributions with respect to 20 capital or both. The policy constituting the election must be in writing, must be 21 maintained as part of the permanent records of the trust, and must recite that it 22 constitutes an election to be governed by AS 13.38.440 - 13.38.490. 23 Sec. 13.38.460. Selection of percentage after charitable trust election. (a) 24 After a trustee has elected under AS 13.38.440 for the trust to be governed by 25 AS 13.38.440 - 13.38.490, the trustee shall, in a writing maintained as part of the 26 permanent records of the trust, select the percentage of the value of the trust that will 27 be considered income and determine that it is consistent with the long-term 28 preservation of the real value of the principal of the trust, but the percentage may not 29 be less than two percent or more than seven percent each year of the principal value of 30 the trust. The trustee may elect to change a percentage previously selected if the 31 trustee determines that the new percentage is consistent with the long-term 01 preservation of the real value of the principal of the trust, but may not change the 02 percentage more frequently than once every 10 years. 03 (b) For a charitable trust required by 26 U.S.C. 4942 (Internal Revenue Code) 04 to distribute a higher amount than the percentage selected under (a) of this section, the 05 amount required by 26 U.S.C. 4942 (Internal Revenue Code) controls over the 06 percentage selected. 07 Sec. 13.38.470. Revocation of charitable trust election. The trustee may 08 revoke an election to be governed by AS 13.38.440 - 13.38.490 if the revocation is 09 made as part of an alternative investment policy seeking the long-term preservation of 10 the real value of the principal of the trust. The revocation and alternative investment 11 policy must be in writing and maintained as part of the permanent records of the trust. 12 Sec. 13.38.480. Value determination. For the purposes of applying 13 AS 13.38.440 - 13.38.490, the value of the trust is the fair market value of the cash 14 and other assets held by the trustee with respect to the trust, whether these assets 15 would be considered income or principal under the other provisions of this chapter, 16 determined at least annually. In the discretion of the trustee, the value of the trust may 17 be averaged over a period of three or more preceding years when the trust has been 18 administered as a unitrust under this section for at least three years. 19 Sec. 13.38.490. Definitions. In AS 13.38.440 - 13.38.490, except as 20 otherwise expressly stated in AS 13.38.440 - 13.38.490, 21 (1) "income" means the percentage of the value of the trust computed 22 under AS 13.38.440 - 13.38.490; 23 (2) "principal" means all assets other than those identified as income in 24 (1) of this section that are held by the trustee with respect to the trust. 25 Article 4. Decedent's Estate or Terminating Income Interest. 26 Sec. 13.38.500. Determination and distribution of net income. After a 27 decedent dies in the case of an estate, or after an income interest in a trust ends, a 28 fiduciary 29 (1) of an estate or of a terminating income interest shall determine the 30 amount of net income and net principal receipts received from property specifically 31 given to a beneficiary under (5) of this section and the provisions applicable to trustees 01 in AS 13.38.550 - 13.38.860; the fiduciary shall distribute the net income and net 02 principal receipts to the beneficiary who is to receive the specific property; 03 (2) shall distribute to a beneficiary who receives a pecuniary amount 04 outright and shall allocate to a pecuniary amount in trust the interest, other income, or 05 other amount provided by the governing instrument from net income determined under 06 (3) of this section or from principal to the extent that net income is insufficient; 07 (3) shall determine the remaining net income of a decedent's estate or a 08 terminating income interest under the provisions applicable to trustees in 09 AS 13.38.550 - 13.38.860 and by 10 (A) including in net income all income from property used to 11 discharge liabilities; and 12 (B) paying from principal the debts, the funeral expenses, the 13 costs of disposition of remains, the family allowance under AS 13.12.404, fees 14 of personal representatives and their attorneys and accountants, and the taxes, 15 related interest, and penalties described in AS 13.38.810(a)(7) that are 16 apportioned to the estate or terminating income interest by the governing 17 instrument or applicable law; 18 (4) shall distribute the net income remaining after distributions 19 required by (2) of this section in the manner described in AS 13.38.510 to all other 20 beneficiaries; 21 (5) may not reduce principal or income receipts from property 22 described in (1) of this section because of a payment described in AS 13.38.700 or 23 13.38.710 to the extent that the governing instrument or applicable law requires the 24 fiduciary to make the payment from assets other than the property or to the extent that 25 the fiduciary recovers or expects to recover the payment from a third party; the net 26 income and principal receipts from the property are determined by 27 (A) including all of the amounts the fiduciary receives or pays 28 with respect to the property, whether those amounts accrued or became due 29 before, on, or after the date of a decedent's death or an income interest's 30 terminating event; and 31 (B) making a reasonable provision for amounts that the 01 fiduciary believes the estate or terminating income interest may become 02 obligated to pay after the property is distributed. 03 Sec. 13.38.510. Distribution to residuary and remainder beneficiaries. (a) 04 Each beneficiary described in AS 13.38.500(4) is entitled to receive a portion of the 05 net income equal to the beneficiary's fractional interest in undistributed principal 06 assets, using values as of the distribution date. If a fiduciary makes more than one 07 distribution of assets to beneficiaries to whom this section applies, each beneficiary, 08 including one who does not receive part of the distribution, is entitled, as of each 09 distribution date, to the net income the fiduciary has received after the date of death or 10 terminating event or earlier distribution date but has not distributed as of the current 11 distribution date. 12 (b) In determining a beneficiary's share of net income, the following rules 13 apply: 14 (1) the beneficiary is entitled to receive a portion of the net income 15 equal to the beneficiary's fractional interest in the undistributed principal assets 16 immediately before the distribution date, including assets that later may be sold or 17 applied to meet principal obligations; 18 (2) the beneficiary's fractional interest in the undistributed principal 19 assets shall be calculated without regard to property specifically given to a beneficiary 20 and property required to pay pecuniary amounts; 21 (3) the beneficiary's fractional interest in the undistributed principal 22 assets shall be calculated on the basis of the aggregate value of those assets as of the 23 distribution date without reducing the value by any unpaid principal obligation. 24 (c) If a fiduciary does not distribute all of the collected but undistributed net 25 income to each person as of a distribution date, the fiduciary shall maintain 26 appropriate records showing the interest of each beneficiary in that net income. 27 (d) To the extent that the fiduciary considers it appropriate, if this section 28 applies to the income from an asset, the fiduciary may apply the rules in this section to 29 net gain or loss from the disposition of a principal asset realized after the date of death 30 or terminating event or an earlier distribution date. 31 (e) For the purposes of this section, the distribution date may be the date as of 01 which the fiduciary calculates the value of the assets if that date is reasonably near the 02 date on which assets are actually distributed. 03 Article 5. Apportionment at Beginning and End of Income Interest. 04 Sec. 13.38.550. When right to income begins and ends. (a) An income 05 beneficiary is entitled to net income from the date on which the income interest 06 begins. An income interest begins 07 (1) on the date specified in the governing instrument; or 08 (2) if a date is not specified, on the date an asset becomes subject to a 09 trust or successive income interest. 10 (b) An asset becomes subject to a trust 11 (1) on the date it is transferred to the trust, in the case of an asset that is 12 transferred to a trust during the transferor's life; 13 (2) on the date of a testator's death, in the case of an asset that becomes 14 subject to a trust by reason of a will, even if there is an intervening period of 15 administration of the testator's estate; or 16 (3) on the date of an individual's death, in the case of an asset that is 17 transferred to a fiduciary by a third party because of the individual's death. 18 (c) An asset becomes subject to a successive income interest on the day after 19 the preceding income interest ends, as determined under (d) of this section, even if 20 there is an intervening period of administration to wind up the preceding income 21 interest. 22 (d) An income interest ends on 23 (1) the day before an income beneficiary dies or another terminating 24 event occurs; or 25 (2) the last day of a period during which there is not a beneficiary to 26 whom a trustee may distribute income. 27 Sec. 13.38.560. Apportionment of receipts and disbursements when 28 decedent dies or income interest begins. (a) Unless AS 13.38.500(1) applies, a 29 trustee shall allocate an income receipt or disbursement to principal if its due date 30 occurs before 31 (1) a decedent dies, in the case of an estate; or 01 (2) an income interest begins, in the case of a trust or successive 02 income interest. 03 (b) A trustee shall allocate an income receipt or disbursement to income if its 04 due date occurs on or after the date on which a decedent dies or an income interest 05 begins and its due date is periodic. An income receipt or disbursement shall be treated 06 as accruing from day to day if its due date is not periodic or it does not have a due 07 date. The portion of the receipt or disbursement accruing before the date on which a 08 decedent dies or an income interest begins shall be allocated to principal, and the 09 balance shall be allocated to income. 10 (c) An item of income or an obligation is due on the date the payor is required 11 to make a payment. If a payment date is not stated, there is not a due date for the 12 purposes of this chapter. Distributions to shareholders or other owners from an entity 13 to which AS 13.38.600 applies are considered to be due on the date fixed by the entity 14 for determining who is entitled to receive the distribution or, if a date is not fixed, on 15 the declaration date for the distribution. A due date is periodic for receipts or 16 disbursements that must be paid at regular intervals under a lease or an obligation to 17 pay interest or if an entity customarily makes distributions at regular intervals. 18 Sec. 13.38.570. Apportionment when income interest ends. (a) When a 19 mandatory income interest ends, the trustee shall pay to a mandatory income 20 beneficiary who survives that date, or the estate of a deceased mandatory income 21 beneficiary whose death causes the interest to end, the beneficiary's share of the 22 undistributed income that is not disposed of under the governing instrument unless the 23 beneficiary has an unqualified power to revoke more than five percent of the trust 24 immediately before the income interest ends. In the case of the beneficiary who has an 25 unqualified power to revoke more than five percent of the trust immediately before the 26 income interest ends, the undistributed income from the portion of the trust that may 27 be revoked shall be added to principal. 28 (b) When a trustee's obligation to pay a fixed annuity or a fixed fraction of the 29 value of the trust's assets ends, the trustee shall prorate the final payment if and to the 30 extent required by applicable law to accomplish a purpose of the trust or its settlor or 31 testator relating to income, gift, estate, or other tax requirements. 01 (c) In this section, "undistributed income" means net income received before 02 the date on which an income interest ends, but does not include an item of income or 03 expense that is due or accrued or net income that has been added or is required to be 04 added to principal under the governing instrument. 05 Article 6. Allocation of Receipts during Administration of Trust. 06 Sec. 13.38.600. Character of receipts. (a) Except as otherwise provided in 07 this section, a trustee shall allocate to income money received from an entity, 08 including reinvested cash dividends. 09 (b) A trustee shall allocate the following receipts from an entity to principal: 10 (1) property other than money excluding reinvested cash dividends; 11 (2) money received in one distribution or a series of related 12 distributions in exchange for part or all of a trust's interest in the entity; 13 (3) money received in total or partial liquidation of the entity; 14 (4) money received from an entity that is a regulated investment 15 company or a real estate investment trust if the money distributed is a short-term or 16 long-term capital gain dividend for federal income tax purposes. 17 (c) Money is received in partial liquidation 18 (1) to the extent that the entity, at or near the time of a distribution, 19 indicates that it is a distribution in partial liquidation; or 20 (2) if the total amount of money and property received in a distribution 21 or series of related distributions is greater than 20 percent of the entity's gross assets, 22 as shown by the entity's year-end financial statements immediately preceding the 23 initial receipt. 24 (d) Money is not received in partial liquidation, and it may not be taken into 25 account under (c)(2) of this section, to the extent that it does not exceed the amount of 26 income tax that a trustee or beneficiary must pay on taxable income of the entity that 27 distributes the money. 28 (e) A trustee may rely upon a statement made by an entity about the source or 29 character of a distribution if the statement is made at or near the time of distribution by 30 the entity's board of directors or other person or group of persons authorized to 31 exercise powers to pay money or transfer property comparable to those of a 01 corporation's board of directors. 02 (f) In this section, "entity" means a corporation, partnership, limited liability 03 company, regulated investment company, real estate investment trust, common trust 04 fund, or another organization in which a trustee has an interest, but does not include 05 (1) a trust or estate to which AS 13.38.610 applies; 06 (2) a business or activity to which AS 13.38.620 applies; 07 (3) a payment to which AS 13.38.680 applies; or 08 (4) an asset-backed security to which AS 13.38.740 applies. 09 Sec. 13.38.610. Distribution from trust or estate. (a) A trustee shall 10 allocate to income an amount received as a distribution of income from a trust or an 11 estate in which the trust has an interest other than a purchased interest. 12 (b) A trustee shall allocate to principal an amount received as a distribution of 13 principal from a trust or estate in which the trust has an interest other than a purchased 14 interest. 15 (c) If a trustee purchases an interest in a trust that is an investment entity, or a 16 decedent or donor transfers an interest in a trust that is an investment entity to a 17 trustee, AS 13.38.600 or 13.38.740 applies to a receipt from the trust. 18 Sec. 13.38.620. Business and other activities conducted by trustee. (a) If a 19 trustee that conducts a business or other activity determines that it is in the best 20 interest of all the beneficiaries to account separately for the business or other activity 21 instead of accounting for it as part of the trust's general accounting records, the trustee 22 may maintain separate accounting records for the transactions of the business or other 23 activity, whether or not the assets of the business or other activity are segregated from 24 other trust assets. 25 (b) A trustee who accounts separately for a business or other activity may 26 determine the extent to which 27 (1) its net cash receipts are retained for working capital, the acquisition 28 or replacement of fixed assets, and other reasonably foreseeable needs of the business 29 or activity; and 30 (2) the remaining net cash receipts are accounted for as principal or 31 income in the trust's general accounting records. 01 (c) If a trustee sells assets of the business or other activity, other than in the 02 ordinary course of the business or activity, the trustee shall account for the net amount 03 received as principal in the trust's general accounting records to the extent the trustee 04 determines that the amount received is not required any longer in the conduct of the 05 business. 06 (d) Activities for which a trustee may maintain separate accounting records 07 include 08 (1) retail, manufacturing, service, and other traditional business 09 activities; 10 (2) farming; 11 (3) raising and selling livestock and other animals; 12 (4) management of rental properties; 13 (5) extraction of minerals and other natural resources; 14 (6) timber operations; and 15 (7) activities to which AS 13.38.730 applies. 16 Sec. 13.38.630. Principal receipts. A trustee shall allocate to principal any of 17 the following: 18 (1) to the extent not allocated to income under this chapter, assets 19 received from 20 (A) a transferor during the transferor's lifetime; 21 (B) a decedent's estate; 22 (C) a trust with a terminating income interest; or 23 (D) a payor under a contract naming the trust or its trustee as 24 beneficiary; 25 (2) money or other property received from a principal asset's sale, 26 exchange, liquidation, or change in form, including realized profit subject to 27 AS 13.38.600 -13.38.740; 28 (3) amounts recovered from third parties to reimburse the trust because 29 of disbursements described in AS 13.38.810(a)(8) or for other reasons, to the extent 30 not based on the loss of income, except that a separate award made for the loss of 31 income with respect to an accounting period during which a current income 01 beneficiary had a mandatory income interest is income; 02 (4) net income received in an accounting period during which there is 03 not a beneficiary to whom a trustee may or must distribute income; 04 (5) other receipts as provided in AS 13.38.670 - 13.38.740. 05 Sec. 13.38.640. Rental property. (a) To the extent that a trustee accounts for 06 receipts from rental property under this section, the trustee shall allocate an amount 07 received as rent of real or personal property to income, including an amount received 08 for cancellation or renewal of a lease. 09 (b) An amount received as a refundable deposit, including a security deposit 10 or a deposit that is to be applied as rent for future periods, 11 (1) shall be added to principal; 12 (2) shall be held subject to the terms of the lease; and 13 (3) is not available for distribution to a beneficiary until the trustee's 14 contractual obligations have been satisfied with respect to that amount. 15 Sec. 13.38.650. Obligation to pay money. (a) An amount received as 16 interest, whether determined at a fixed, variable, or floating rate, on an obligation to 17 pay money to the trustee, including an amount received as consideration for prepaying 18 principal, shall be allocated to income without any provision for amortization of 19 premium. 20 (b) A trustee shall allocate to principal an amount received from the sale, 21 redemption, or other disposition of an obligation to pay money to the trustee more than 22 one year after it is purchased or acquired by the trustee, including an obligation if the 23 purchase price or value of the obligation when it is acquired is less than its value at 24 maturity. If the obligation matures within one year after it is purchased or acquired by 25 the trustee, an amount received in excess of its purchase price or its value when 26 acquired by the trust shall be allocated to income. 27 (c) This section does not apply to an obligation to which AS 13.38.680, 28 13.38.690, 13.38.700, 13.38.710, 13.38.720, 13.38.730, or 13.38.740 applies. 29 Sec. 13.38.660. Insurance policies and similar contracts. (a) Except as 30 otherwise provided in (b) or (c) of this section, a trustee shall allocate to principal the 31 proceeds of a life insurance policy or other contract in which the trust or its trustee is 01 named as beneficiary, including a contract that insures the trust or its trustee against 02 loss for damage to, destruction of, or loss of title to a trust asset. If the premiums on 03 the policy or contract are paid from income, the trustee shall allocate dividends on the 04 policy or contract to income. If the premiums on the policy or contract are paid from 05 principal, the trustee shall allocate dividends on the policy or contract to principal. 06 (b) Except as provided in (c) of this section, a trustee shall allocate to income 07 proceeds of a contract that insures the trustee against 08 (1) loss of occupancy or other use by an income beneficiary; 09 (2) loss of income; or 10 (3) subject to AS 13.38.620, loss of profits from a business. 11 (c) This section does not apply to a contract to which AS 13.38.680 applies. 12 Sec. 13.38.670. Insubstantial allocations not required. If a trustee 13 determines that an allocation between principal and income required by AS 13.38.680, 14 13.38.690, 13.38.700, 13.38.710, or 13.38.740 is insubstantial, the trustee may allocate 15 the entire amount to principal unless one of the circumstances described in 16 AS 13.38.210(c) applies to the allocation. This power may be exercised by a co- 17 trustee in the circumstances described in AS 13.38.210(d) and may be released for the 18 reasons and in the manner described in AS 13.38.210(e). An allocation is presumed to 19 be insubstantial if 20 (1) the amount of the allocation would increase or decrease net income 21 in an accounting period, as determined before the allocation, by less than five percent; 22 or 23 (2) the value of the asset producing the receipt for which the allocation 24 would be made is less than five percent of the total value of the trust's assets at the 25 beginning of the accounting period. 26 Sec. 13.38.680. Retirement benefits, individual retirement accounts, 27 deferred compensation, annuities, and similar payments. (a) The trustee shall 28 allocate to income the greater of the portion of a payment characterized by the payor 29 as interest or a dividend, as a remittance in place of interest or a dividend, or as 30 imputed interest for federal income tax purposes. The balance of the payment shall be 31 allocated to principal. 01 (b) If a part of a payment under a contract calling for equal installments over a 02 fixed period of time is not allocable to income under the provisions of (a) of this 03 section, the difference between the trust's acquisition value of the contract and the total 04 expected return shall be considered to be interest. The trustee shall allocate to income 05 the portion of each payment equivalent to interest on the then unpaid principal balance 06 at the rate specified in the contract or at a rate necessary to amortize the difference 07 between the expected return and the acquisition value, where that rate is readily 08 ascertainable by the trustee. 09 (c) If there is not a portion of a payment from a separate fund held exclusively 10 for the benefit of the trust that is allocable to income under (a) or (b) of this section, 11 but the internal net income of the fund determined as if the fund were a separate trust 12 subject to AS 13.38.500 -13.38.860 is readily ascertainable by the trustee, the portion 13 of the payment equal to the then undistributed net income of the fund realized since 14 the trust acquired its interest in the fund is considered to be a distribution of income 15 and shall be allocated to the trust income account. The balance of the payment 16 described in this subsection shall be allocated to principal. 17 (d) A trustee shall allocate 10 percent of the part of the payment that is 18 required to be made during the accounting period to income and the balance to 19 principal if there is not a part of the payment that is allocable to income under (a) - (c) 20 of this section and all or part of the payment is required to be made. The trustee shall 21 allocate the entire payment to principal if a part of a payment is not required to be 22 made or the payment received is the entire amount to which the trustee is entitled. In 23 this subsection, a payment is not "required to be made" to the extent that it is made 24 because the trustee exercises a right of withdrawal. 25 (e) If, to obtain a federal estate or gift tax marital deduction for a trust, the 26 trustee must allocate more of a payment to income than provided for by this section, 27 the trustee shall allocate the additional amount necessary to obtain the marital 28 deduction to income. 29 (f) This section does not apply to payments to which AS 13.38.690 applies. 30 (g) In this section, "payment" means a payment that a trustee may receive over 31 a fixed period of time or during the life of one or more individuals because of services 01 rendered or property transferred to the payor in exchange for future payments, and 02 includes 03 (1) a payment made in money or property from the payor's general 04 assets or from a separate fund created by the payor or another person; 05 (2) a payment on or from 06 (A) an installment contract or note; 07 (B) a private or commercial annuity; 08 (C) a deferred compensation agreement; 09 (D) an employee death benefit; 10 (E) an individual retirement account; or 11 (F) a pension plan, profit-sharing plan, stock plan, bonus plan, 12 or stock-ownership plan. 13 Sec. 13.38.690. Liquidating asset. (a) A trustee shall allocate 10 percent of 14 the receipts from a liquidating asset to income and the balance to principal. 15 (b) In this section, "liquidating asset" 16 (1) means 17 (A) an asset the value of which will diminish or terminate 18 because the asset is expected to produce receipts for a period of limited 19 duration; or 20 (B) a leasehold, patent, copyright, royalty right, and right to 21 receive payments during a period of more than one year under an arrangement 22 that does not provide for the payment of interest on the unpaid balance; 23 (2) does not include 24 (A) a payment subject to AS 13.38.680; 25 (B) resources subject to AS 13.38.700; 26 (C) timber subject to AS 13.38.710; 27 (D) an activity subject to AS 13.38.730; 28 (E) an asset subject to AS 13.38.740; or 29 (F) an asset for which the trustee establishes a reserve for 30 depreciation under AS 13.38.830. 31 Sec. 13.38.700. Minerals, water, and other natural resources. (a) To the 01 extent that a trustee accounts for receipts from an interest in minerals or other natural 02 resources under this section, the trustee shall allocate them as follows: 03 (1) if received as nominal delay rent or nominal annual rent on a lease, 04 a receipt shall be allocated to income; 05 (2) if received from a production payment, a receipt shall be allocated 06 to income if and to the extent that the agreement creating the production payment 07 provides a factor for interest or its equivalent; the balance shall be allocated to 08 principal; 09 (3) if an amount received as a royalty, shut-in-well payment, take-or- 10 pay payment, bonus, or delay rental is more than nominal, 66 2/3 percent shall be 11 allocated to principal, and the balance shall be allocated to income; 12 (4) if an amount is received from a working interest or any other 13 interest not provided for in (1) - (3) of this subsection, 66 2/3 percent of the net 14 amount received shall be allocated to principal, and the balance shall be allocated to 15 income. 16 (b) An amount received on account of an interest in renewable water shall be 17 allocated to income. An amount received on account of an interest in nonrenewable 18 water shall be allocated as follows: 19 (1) 66 2/3 percent of the amount shall be allocated to principal; and 20 (2) the balance shall be allocated to income. 21 (c) This chapter applies whether or not a decedent or donor was extracting 22 minerals, water, or other natural resources before the interest became subject to the 23 trust. 24 Sec. 13.38.710. Timber. (a) To the extent that a trustee accounts for receipts 25 from the sale of timber and related products under this section, the trustee shall 26 allocate the net receipts 27 (1) to income, to the extent that the amount of timber removed from 28 the land does not exceed the rate of growth of the timber during the accounting periods 29 in which a beneficiary has a mandatory income interest; 30 (2) to principal, to the extent that the amount of timber removed from 31 the land exceeds the rate of growth of the timber, or the net receipts are from the sale 01 of standing timber; 02 (3) between income and principal, by determining the amount of 03 timber removed from the land under the lease or contract and applying the rules in (1) 04 and (2) of this subsection if the net receipts are from the lease of timberland or a 05 contract to cut timber from land owned by a trust; 06 (4) to principal to the extent that advance payments, bonuses, and other 07 payments are not allocated under (1) - (3) of this subsection. 08 (b) In determining net receipts to be allocated under (a) of this section, a 09 trustee shall deduct and transfer to principal a reasonable amount for depletion. 10 (c) This chapter applies whether or not a decedent or transferor was harvesting 11 timber from the property before it became subject to the trust. 12 Sec. 13.38.720. Property not productive of income. (a) If a federal estate or 13 gift tax marital deduction is allowed for all or part of a trust whose income is required 14 to be paid to the settlor's or testator's spouse and whose assets consist substantially of 15 property that does not provide the spouse with sufficient income from or use of the 16 trust assets, and if the amounts that the trustee transfers from principal to income 17 under AS 13.38.210 and that the trustee distributes to the spouse from principal under 18 the governing instrument are insufficient to provide the spouse with the beneficial 19 enjoyment required to obtain the marital deduction, the spouse may require the trustee 20 to make property productive of income, convert property within a reasonable time, or 21 exercise the power conferred by AS 13.38.210(a). The trustee may decide which 22 action or combination of actions to take. 23 (b) In cases not governed by (a) of this section, proceeds from the sale or other 24 disposition of an asset are principal without regard to the amount of income the asset 25 produces during any accounting period. 26 Sec. 13.38.730. Derivatives and options. (a) To the extent that a trustee 27 does not account under AS 13.38.620 for transactions in derivatives, the trustee shall 28 allocate receipts from and disbursements made in connection with those transactions 29 to principal. 30 (b) If a trustee grants an option to buy property from the trust, whether or not 31 the trust owns the property when the option is granted, grants an option that permits 01 another person to sell property to the trust, or acquires an option to buy property for 02 the trust or an option to sell an asset owned by the trust, and the trustee or other owner 03 of the asset is required to deliver the asset if the option is exercised, an amount 04 received for granting the option shall be allocated to principal. An amount paid to 05 acquire the option shall be paid from principal. A gain or loss realized upon the 06 exercise of an option, including an option granted to a settlor or testator of the trust for 07 services rendered, shall be allocated to principal. 08 (c) In this section, "derivative" means a contract or financial instrument or a 09 combination of contracts and financial instruments that gives a trust the right or 10 obligation to participate in some or all changes in the price of a tangible or intangible 11 asset or group of assets, or changes in a rate, an index of prices or rates, or another 12 market indicator for an asset or a group of assets. 13 Sec. 13.38.740. Asset-backed securities. (a) If a trust receives a payment 14 from interest or other current return and from other proceeds of the collateral financial 15 assets, the trustee shall allocate the portion of the payment that the payor identifies as 16 being from interest or other current return to income, and the trustee shall allocate the 17 balance of the payment to principal. 18 (b) If a trust receives one or more payments in exchange for the trust's entire 19 interest in an asset-backed security in one accounting period, the trustee shall allocate 20 the payments to principal. If a payment is one of a series of payments that will result 21 in the liquidation of the trust's interest in the security over more than one accounting 22 period, the trustee shall allocate 10 percent of the payment to income and the balance 23 to principal. 24 (c) In this section, "asset-backed security" 25 (1) means an asset whose value is based on the right it gives the owner 26 to receive distributions from the proceeds of financial assets that provide collateral for 27 the security; 28 (2) includes an asset that gives the owner the right to receive from the 29 collateral financial assets only the interest or other current return or only the proceeds 30 other than interest or current return; 31 (3) does not include an asset to which AS 13.38.600 or 13.38.680 01 applies. 02 Article 7. Allocation of Disbursements During Administration of Trust. 03 Sec. 13.38.800. Mandatory disbursements from income. A trustee shall 04 make the following disbursements from income: 05 (1) interest, except interest on taxes described in AS 13.38.810(a)(7); 06 (2) ordinary repairs; 07 (3) real estate and other regularly recurring taxes assessed against 08 principal; 09 (4) recurring premiums on fire or other insurance covering the loss of a 10 principal asset or the loss of income from or use of the asset. 11 Sec. 13.38.810. Mandatory disbursements from principal. (a) A trustee 12 shall make the following disbursements from principal: 13 (1) extraordinary expenses incurred in connection with the 14 administration, management, or preservation of trust property and the distribution of 15 income; 16 (2) extraordinary repairs; 17 (3) compensation for legal services to the trustee; 18 (4) expenses in connection with accountings and judicial or other 19 proceedings, including proceedings to construe, modify, or reform the trust or to 20 protect the trust or its property; 21 (5) payments on the principal of a trust debt; 22 (6) premiums paid on a policy of insurance not described in 23 AS 13.38.800(4) if the trust is the owner and beneficiary; 24 (7) estate, inheritance, and other transfer taxes, including interest and 25 penalties, apportioned to the trust; 26 (8) disbursements related to environmental matters, including 27 (A) reclamation; 28 (B) assessing environmental conditions; 29 (C) remedying and removing environmental contamination; 30 (D) monitoring remedial activities and the release of 31 substances; 01 (E) preventing future releases of substances; 02 (F) collecting amounts from persons liable or potentially liable 03 for the costs of those activities; 04 (G) penalties imposed under environmental statutes or 05 regulations and other payments made to comply with those statutes or 06 regulations; 07 (H) statutory or common law claims by third parties; 08 (I) defending claims based on environmental matters. 09 (b) If a principal asset is encumbered with an obligation that requires income 10 from that asset to be paid directly to the creditor, the trustee shall transfer from 11 principal to income an amount equal to the income paid to the creditor in reduction of 12 the principal balance of the obligation. 13 Sec. 13.38.820. Discretionary allocation of disbursements. Subject to 14 AS 13.38.800 and 13.38.810, a trustee may, in the trustee's discretion, allocate to 15 income or principal or partly to each ordinary expenses incurred in connection with 16 the administration, management, or preservation of trust property and the distribution 17 of income, including the compensation of the trustee and of a person providing 18 investment advisory, custodial, or income tax return preparation services to the trustee. 19 Sec. 13.38.830. Transfers from income to principal for depreciation. (a) 20 A trustee may transfer to principal a reasonable amount of the net cash receipts from a 21 principal asset that is subject to depreciation. However, a trustee may not transfer any 22 amount for depreciation 23 (1) of that portion of real property used or available for use by a 24 beneficiary as a residence or of tangible personal property held or made available for 25 the personal use or enjoyment of a beneficiary; 26 (2) during the administration of a decedent's estate; or 27 (3) under this section if the trustee is accounting under AS 13.38.620 28 for the business or activity in which the asset is used. 29 (b) An amount transferred to principal is not required to be held as a separate 30 fund. 31 (c) In this section, "depreciation" means a reduction in value due to wear, tear, 01 decay, corrosion, or gradual obsolescence of a fixed asset having a useful life of more 02 than one year. 03 Sec. 13.38.840. Transfers from income to reimburse principal. (a) A 04 trustee may transfer an appropriate amount from income to principal in one or more 05 accounting periods to reimburse principal or to provide a reserve for future 06 disbursements if the trustee makes or expects to make a disbursement from principal 07 that is allocable to income under AS 13.38.800 or 13.38.820 and that is paid from 08 principal because it is unusually large, or is made to prepare property for rental, 09 including tenant allowances, leasehold improvements, and broker's commissions. 10 (b) If the asset whose ownership gives rise to the disbursements becomes 11 subject to a successive income interest after an income interest ends, a trustee may 12 continue to transfer amounts from income to principal as provided in (a) of this 13 section. 14 (c) This section does not apply to the extent the trustee has been or expects to 15 be reimbursed by a third party. 16 Sec. 13.38.850. Income taxes. (a) A tax required to be paid by a trustee 17 based on receipts allocated to income shall be paid from income. 18 (b) A tax required to be paid by a trustee based on receipts allocated to 19 principal shall be paid from principal, even if the tax is called an income tax by the 20 taxing authority. 21 (c) A tax required to be paid by a trustee on the trust's share of an entity's 22 taxable income shall be paid proportionately from 23 (1) income, to the extent that receipts from the entity are allocated to 24 income; and 25 (2) principal, to the extent that 26 (A) receipts from the entity are allocated to principal; and 27 (B) the trust's share of the entity's taxable income exceeds the 28 total receipts described in (1) of this subsection and (A) of this paragraph. 29 (d) For the purposes of this section, receipts allocated to principal or income 30 shall be reduced by the amount distributed to a beneficiary from principal or income 31 for which the trust receives a deduction in calculating the tax. 01 Sec. 13.38.860. Adjustments between principal and income because of 02 taxes. A trustee may make adjustments between principal and income to offset the 03 shifting of economic interests or tax benefits between income beneficiaries and 04 remainder beneficiaries that arise from 05 (1) an election or decision that the trustee makes regarding tax matters; 06 (2) an income tax or any other tax that is imposed on the trustee or a 07 beneficiary as a result of a transaction involving the trust or distribution from the trust; 08 or 09 (3) the ownership by a trust of an interest in an entity whose taxable 10 income, whether or not distributed, is includable in the taxable income of the trust or a 11 beneficiary. 12 Article 8. General Provisions. 13 Sec. 13.38.900. Uniformity of application and construction. In applying 14 and construing this chapter, consideration shall be given to the need to promote 15 uniformity of the law with respect to its subject matter among states that enact it. 16 Sec. 13.38.980. Definitions. In this chapter, unless the context clearly 17 indicates otherwise, 18 (1) "accounting period" means a calendar year, unless another 12- 19 month period is selected by a fiduciary, and includes a portion of a calendar year or 20 other 12-month period that begins when an income interest begins or ends when an 21 income interest ends; 22 (2) "beneficiary" includes, in the case of 23 (A) a decedent's estate, an heir, legatee, or devisee; and 24 (B) a trust, an income beneficiary and a remainder beneficiary; 25 (3) "fiduciary" means a personal representative or a trustee; 26 (4) "income" means money or property that a fiduciary receives as 27 current return from a principal asset, and includes a portion of receipts from a sale, 28 exchange, or liquidation of a principal asset, to the extent provided in AS 13.38.600 - 29 13.38.740; 30 (5) "income beneficiary" means a person to whom net income of a 31 trust is or may be payable; 01 (6) "income interest" means the right of an income beneficiary to 02 receive all or part of net income, whether the governing instrument requires it to be 03 distributed or authorizes it to be distributed in the trustee's discretion; 04 (7) "mandatory income interest" means the right of an income 05 beneficiary to receive net income that the governing instrument requires the fiduciary 06 to distribute; 07 (8) "net income" means the total receipts allocated to income during an 08 accounting period, minus disbursements made from income during the period, and 09 plus or minus transfers under this chapter to or from income during the period; 10 (9) "person" means an individual, a corporation, a business trust, an 11 estate, a trust, a partnership, a limited liability company, an association, a joint 12 venture, a government, a governmental subdivision, an agency or instrumentality, a 13 public corporation, or another legal or commercial entity; 14 (10) "principal" means property held in trust for distribution to a 15 remainder beneficiary when the trust terminates, or property held in trust in perpetuity; 16 (11) "remainder beneficiary" means a person entitled to receive 17 principal when an income interest ends; 18 (12) "sui juris beneficiary" includes 19 (A) a court-appointed guardian of an incapacitated beneficiary; 20 (B) an agent for an incompetent beneficiary; and 21 (C) a court-appointed guardian of a minor beneficiary's estate; 22 (13) "trust" includes a legal life estate arrangement; 23 (14) "trustee" includes an original, additional, or successor trustee, 24 whether or not appointed or confirmed by a court; 25 (15) "unitrust" means a trust from which a fixed percentage of the net 26 fair market value of the trust's assets, valued annually, is paid not less often than 27 annually to a beneficiary. 28 Sec. 13.38.990. Short title. This chapter may be cited as the Alaska Principal 29 and Income Act. 30 * Sec. 3. AS 13.38.010, 13.38.020, 13.38.030, 13.38.040, 13.38.050, 13.38.060, 13.38.070, 31 13.38.080, 13.38.090, 13.38.100, 13.38.110, 13.38.120, 13.38.130, and 13.38.140 are 01 repealed. 02 * Sec. 4. The uncodified law of the State of Alaska is amended by adding a new section to 03 read: 04 APPLICABILITY. AS 13.38.200 - 13.38.990, enacted by sec. 2 of this Act, apply, 05 except as otherwise expressly provided in the governing instrument, to a trust existing on or 06 after the effective date of this Act, and to the estate of a decedent who dies on or after the 07 effective date of this Act. 08 * Sec. 5. This Act takes effect September 1, 2003.