Allocation of principal or income.

The Uniform Principal and Income Act, among other things, generally directs a trustee how to allocate money to beneficiaries of an estate or trust as either principal or income. The act requires that money received from certain types of business entities be allocated to income, but provides that money received in total or partial liquidation of one of these entities be allocated to principal. Money is received in partial liquidation to the extent the amount is attributable to the proceeds from the sale of a capital asset. The act defines the term "capital asset" based on the definition of the term in the Internal Revenue Code. The bill would delete these provisions and provide revised directions for how a trustee is required to allocate money to beneficiaries of an estate or trust as either principal or income. The directions would include, among others, how a trustee is to determine that a distribution is a return of capital that is allocated as principal.