Uniform Principal and Income Act: trust administration: income and payments.

(1) Existing law, the Uniform Principal and Income Act, requires a trust to be administered, as specified, with due regard to the respective interests of defined income beneficiaries and remainder beneficiaries. For purposes of the act, "payment" is defined to mean 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, or a payment that a trustee may receive pursuant to an income tax advantaged contractual, custodial, or trust arrangement, as prescribed. This bill would revise that definition to, instead, specify that, for purposes of the act, "payment" also includes any payment from a separate fund, as described, regardless of the reason for the payment, and would prescribe requirements for the allocation of a payment, as determined by any portion of the payment that is characterized by the payer as interest, a dividend, or a payment made in lieu of interest or a dividend, as provided. (2) The act requires that a tax required to be paid by a trustee based on receipts allocated to income be paid from income. The act further requires the trustee, in order to obtain an estate tax marital deduction for a trust, to allocate more of a payment to income, in accordance with prescribed requirements. This bill would revise the requirements for determining the amount of a payment that is required to be allocated to income for purposes of qualifying for a marital tax deduction under federal law, as specified, and for calculating the amount of tax required to be paid by a trustee based on income, as determined by receipts allocated to income. For purposes of the marital tax deduction, the bill would require, if the separate fund payer provides documentation reflecting the internal income of the separate fund to the trustee, that the trustee allocate the internal income of each separate fund for the accounting period as if the separate fund were a trust subject to the act, except as provided. The bill would require the trustee to allocate the balance to the principal.