REPRESENTATIVES Willamowski, Seitz, Reidelbach, Salerno, Schmidt, Setzer

To amend sections 1340.031, 1340.35, and 2109.68, to

1

enact sections 1340.40 to 1340.42, 1340.46,

2

1340.47, 1340.51 to 1340.53, 1340.57 to 1340.59,

3

1340.63 to 1340.66, 1340.70 to 1340.77, 1340.81 to

4

1340.86, 1340.90, and 1340.91; to amend, for the

5

purpose of adopting a new section number as

6

indicated in the parentheses, section 1340.031

7

(1339.69); and to repeal sections 1340.01,

8

1340.02, 1340.03, 1340.04, 1340.05, 1340.06,

9

1340.07, 1340.08, 1340.09, 1340.10, 1340.11,

10

1340.12, 1340.13, 2109.66, and 2109.67 of the

11

Revised Code to revise Fiduciary Law by adopting

12

the Uniform Principal and Income Act (1997)

13

regarding the apportionment and distribution of

14

income to trust beneficiaries and regarding a

15

fiduciary's allocation of receipts and

16

disbursements to or between principal and income,

17

and by specifying the extent of a trustee's

18

liability with respect to authorized adjustments

19

between principal and income.

20

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO:

Section 1. That sections 1340.031, 1340.35, and 2109.68 be	21
amended; section 1340.031 (1339.69), for the purpose of adopting a	22
new section number as indicated in the parentheses be amended; and	23
sections 1340.40, 1340.41, 1340.42, 1340.46, 1340.47, 1340.51,	24
1340.52, 1340.53, 1340.57, 1340.58, 1340.59, 1340.63, 1340.64,	25
1340.65, 1340.66, 1340.70, 1340.71, 1340.72, 1340.73, 1340.74,	26
1340.75, 1340.76, 1340.77, 1340.81, 1340.82, 1340.83, 1340.84,	27
1340.85, 1340.86, 1340.90, and 1340.91 of the Revised Code be	28
enacted to read as follows:	29

Sec. 1340.031.        Sec. 1339.69.  (A) For purposes of this section,	30
both of the following apply:	31

(1) "Qualified beneficiary" means a beneficiary who is	32
entitled or eligible to receive a distribution of income or	33
principal whether presently or at some future time that is	34
predicated upon the happening of an event that is certain. An	35
event that is certain includes, but is not limited to, the	36
termination of an intervening life estate. If a trust is subject	37
to amendment, appointment, or revocation by the grantor, then only	38
the grantor shall be deemed to be a qualified beneficiary.	39

(2) "Legal representative" includes, but is not limited to, a	40
parent as a natural guardian of a minor child under section	41
2111.08 of the Revised Code, an attorney-at-law, a guardian	42
appointed pursuant to court order, including a guardian of the	43
person or a guardian of the estate, or a guardian ad litem.	44

(B)(1) Not more than once every six months, a qualified	45
beneficiary or, if a qualified beneficiary is under a legal	46
disability, a legal representative of the qualified beneficiary	47
may request in writing that an inter vivos trustee furnish the	48
qualified beneficiary or legal representative a report of the	49
management of the inter vivos trust as provided in this section.	50

(2) Within thirty days after receiving the written request	51
for a report of the management of the inter vivos trust, the inter	52
vivos trustee shall furnish the qualified beneficiary or legal	53
representative that made the request a report that is current to	54
within five months prior to the date of the request and that shows	55
an inventory of the trust property and the receipts credited and	56
expenditures charged to income or principal with respect to the	57
inter vivos trust for the two years prior to the preparation of	58
the report.	59

(3) If the inter vivos trustee does not comply with the	60
request for a report under this section, the qualified beneficiary	61
or legal representative that made the request may file an	62
appropriate action in a court of competent jurisdiction to compel	63
the inter vivos trustee to furnish the report.	64

(B)(C) A current report furnished by an inter vivos trustee	65
under this section or during the usual course of business has	66
binding legal effect regarding matters described or disclosed in	67
the report on the qualified beneficiary who received the report,	68
on the legal representative who received the report on behalf of	69
the qualified beneficiary who is under legal disability, and on	70
the heirs and assigns of the qualified beneficiary who received	71
the report unless, notwithstanding section 2305.22 of the Revised	72
Code, the qualified beneficiary, the legal representative of the	73
qualified beneficiary, or any of the heirs or assigns of the	74
qualified beneficiary institutes an action regarding matters	75
described or disclosed in the report against the inter vivos	76
trustee within two years from the date the report is furnished to	77
the qualified beneficiary or legal representative of the qualified	78
beneficiary.	79

(C)(D) No provision in this section eliminates any other	80
rights or causes of action that a qualified beneficiary of an	81
inter vivos trust, a legal representative of a qualified	82
beneficiary of an inter vivos trust, or any of the heirs or	83
assigns of a qualified beneficiary of an inter vivos trust may	84
have against the inter vivos trustee under any other section of	85
the Revised Code.	86

Sec. 1340.35.  Nothing in section 2109.67, sections 1340.01	87
1340.40 to 1340.131340.91, or any other section of the Revised	88
Code limits or restricts the definition of income in division (A)	89
of section 1340.32 of the Revised Code or limits or restricts a	90
governing board of an institution from requesting, or a trustee	91
from making, distributions from an institutional trust fund in	92
accordance with sections 1340.31 to 1340.37 of the Revised Code.	93

Sec. 1340.40. As used in sections 1340.40 to 1340.91 of the	94
Revised Code:	95

(A) "Accounting period" means a calendar year unless another	96
twelve-month period is selected by a fiduciary. "Accounting	97
period" includes a portion of a calendar year or other	98
twelve-month period that begins when an income interest begins or	99
ends when an income interest ends.	100

(B) "Beneficiary" includes, in the case of a decedent's	101
estate, an heir, legatee, and devisee and, in the case of a trust,	102
an income beneficiary and a remainder beneficiary.	103

(C) "Fiduciary" means a personal representative or a	104
trustee. The term includes an executor, administrator, successor	105
personal representative, special administrator, and a person	106
performing substantially the same function.	107

(D) "Income" means money or property that a fiduciary	108
receives as current return from a principal asset. "Income"	109
includes a portion of receipts from a sale, exchange, or	110
liquidation of a principal asset, to the extent provided in	111
sections 1340.57 to 1340.77 of the Revised Code.	112

(E) "Income beneficiary" means a person to whom net income	113
of a trust is or may be payable.	114

(F) "Income interest" means the right of an income	115
beneficiary to receive all or part of net income, whether the	116
terms of the trust require or authorize it to be distributed in	117
the trustee's discretion.	118

(G) "Mandatory income interest" means the right of an income	119
beneficiary to receive net income that the terms of the trust	120
require the fiduciary to distribute.	121

(H) "Net income" means the total receipts allocated to	122
income during an accounting period minus the disbursements made	123
from income during the period, plus or minus transfers under	124
sections 1340.40 to 1340.91 of the Revised Code to or from income	125
during the period.	126

(I) "Person" means an individual, corporation, business	127
trust, estate, trust, partnership, limited liability company,	128
association, joint venture, or government; governmental	129
subdivision, agency, or instrumentality; public corporation; or	130
any other legal or commercial entity.	131

(J) "Principal" means property held in trust for	132
distribution to a remainder beneficiary when the trust terminates.	133

(K) "Remainder beneficiary" means a person entitled to	134
receive principal when an income interest ends.	135

(L) "Terms of a trust" means the manifestation of the intent	136
of a settlor or decedent with respect to the trust, expressed in a	137
manner that admits of its proof in a judicial proceeding, whether	138
by written or spoken words or by conduct.	139

(M) "Trustee" includes an original, additional, or successor	140
trustee, whether or not appointed or confirmed by a court.	141

Sec. 1340.41. (A) In allocating receipts and disbursements	142
to or between principal and income, and with respect to any matter	143
within the scope of sections 1340.46 to 1340.53 of the Revised	144
Code, all of the following apply:	145

(1) A fiduciary shall administer a trust or estate in	146
accordance with the terms of the trust or the will, even if there	147
is a different provision in sections 1340.40 to 1340.91 of the	148
Revised Code.	149

(2) A fiduciary may administer a trust or estate by the	150
exercise of a discretionary power of administration given to the	151
fiduciary by the terms of the trust or the will, even if the	152
exercise of the power produces a result different from a result	153
required or permitted by any provision of sections 1340.40 to	154
1340.91 of the Revised Code.	155

(3) A fiduciary shall administer a trust or estate in	156
accordance with sections 1340.40 to 1340.91 of the Revised Code if	157
the terms of the trust or the will do not contain a different	158
provision or do not give the fiduciary a discretionary power of	159
administration.	160

(4) A fiduciary shall add a receipt, or charge a	161
disbursement, to principal to the extent that the terms of the	162
trust and any provision of sections 1340.40 to 1340.91 of the	163
Revised Code do not provide for allocating the receipt or	164
disbursement to or between principal and income.	165

(B) In exercising the power to adjust under division (A) of	166
section 1340.42 of the Revised Code or a discretionary power of	167
administration regarding a matter within the scope of sections	168
1340.40 to 1340.91 of the Revised Code, whether granted by the	169
terms of a trust, a will, or a provision of any such section, a	170
fiduciary shall administer a trust or estate impartially, based on	171
what is fair and reasonable to all of the beneficiaries, except to	172
the extent that the terms of the trust or the will clearly	173
manifest an intention that the fiduciary shall or may favor one or	174
more of the beneficiaries. A determination in accordance with	175
sections 1340.40 to 1340.91 of the Revised Code is presumed to be	176
fair and reasonable to all of the beneficiaries.	177

Sec. 1340.42. (A) A trustee may adjust between principal and	178
income to the extent the trustee considers necessary if the	179
trustee invests and manages the trust assets as a prudent	180
investor, the terms of the trust describe the amount that may or	181
must be distributed to a beneficiary by referring to the trust's	182
income, and the trustee determines, after applying division (A) of	183
section 1340.41 of the Revised Code, that the trustee is unable to	184
comply with division (B) of that section.	185

(B) In deciding whether and to what extent to exercise the	186
power conferred by division (A) of this section, a trustee shall	187
consider all factors relevant to the trust and its beneficiaries,	188
including all of the following factors to the extent they are	189
relevant:	190

(1) The nature, purpose, and expected duration of the trust;

191

(2) The intent of the settlor;

192

(3) The identity and circumstances of the beneficiaries;

193

(4) The needs for liquidity, regularity of income, and	194
preservation and appreciation of capital;	195

(5) The assets held in the trust; the extent to which they	196
consist of financial assets, interests in closely held	197
enterprises, tangible and intangible personal property, or real	198
property; the extent to which an asset is used by a beneficiary;	199
and whether an asset was purchased by the trustee or received from	200
the settlor;	201

(6) The net amount allocated to income under sections	202
1340.40, 1340.41, and 1340.46 to 1340.91 of the Revised Code; and	203
the increase or decrease in the value of the principal assets,	204
which the trustee may estimate as to assets for which market	205
values are not readily available;	206

(7) Whether and to what extent the terms of the trust give	207
the trustee the power to invade principal or accumulate income or	208
prohibit the trustee from invading principal or accumulating	209
income, and the extent to which the trustee has exercised a power	210
from time to time to invade principal or accumulate income;	211

(8) The actual and anticipated effect of economic conditions	212
on principal and income and effects of inflation and deflation;	213

(9) The anticipated tax consequences of an adjustment.

214

(C) A trustee shall not make an adjustment if any of the	215
following applies:	216

(1) The adjustment diminishes the income interest in a trust	217
that requires all of the income to be paid at least annually to a	218
spouse and for which an estate tax or gift tax marital deduction	219
would be allowed, in whole or in part, if the trustee did not have	220
the power to make the adjustment.	221

(2) The adjustment reduces the actuarial value of the income	222
interest in a trust to which a person transfers property with the	223
intent to qualify for a gift tax exclusion.	224

(3) The adjustment changes the amount payable to a	225
beneficiary as a fixed annuity or a fixed fraction of the value of	226
the trust assets.	227

(4) The adjustment is from any amount that is permanently	228
set aside for charitable purposes under a will or the terms of a	229
trust unless both income and principal are so set aside.	230

(5) If possessing or exercising the power to make the	231
adjustment causes an individual to be treated as the owner of all	232
or part of the trust for income tax purposes, and the individual	233
would not be treated as the owner if the trustee did not possess	234
the power to make the adjustment;	235

(6) If possessing or exercising the power to make the	236
adjustment causes all or part of the trust assets to be included	237
for estate tax purposes in the estate of an individual who has the	238
power to remove a trustee or appoint a trustee, or both, and the	239
assets would not be included in the estate of the individual if	240
the trustee did not possess the power to make the adjustment;	241

(7) If the trustee is a beneficiary of the trust;

242

(8) If the trustee is not a beneficiary, but the adjustment	243
would benefit the trustee directly or indirectly.	244

(D) If division (C)(5), (6), (7), or (8) of this section	245
applies to a trustee and there is more than one trustee, a	246
cotrustee to whom the provision does not apply may make the	247
adjustment unless the exercise of the power by the remaining	248
trustee or trustees is not permitted by the terms of the trust.	249

(E) A trustee may release the entire power conferred by	250
division (A) of this section or may release only the power to	251
adjust from income to principal or the power to adjust from	252
principal to income if the trustee is uncertain about whether	253
possessing or exercising the power will cause a result described	254
in division (C)(1), (2), (3), (4), (5), (6), or (8) of this	255
section or if the trustee determines that possessing or exercising	256
the power will or may deprive the trust of a tax benefit or impose	257
a tax burden not described in division (C) of this section. The	258
release may be permanent or for a specified period, including a	259
period measured by the life of an individual.	260

(F) Terms of a trust that limit the power of a trustee to	261
make an adjustment between principal and income do not affect the	262
application of this section unless it is clear from the terms of	263
the trust that the terms are intended to deny the trustee the	264
power of adjustment conferred by division (A) of this section.	265

(G) The liability of a trustee relative to the exercise of	266
adjustment authority conferred by divisions (A) to (F) of this	267
section shall be limited in the following manner:	268

(1) Unless a court determines that a trustee has acted in	269
bad faith, no trustee shall be held liable for damages for	270
choosing not to make an adjustment.	271

(2) Unless a court determines that a trustee has acted in	272
bad faith with respect to an adjustment, the sole remedy to be	273
ordered by a court shall be a prospective correction of the	274
adjustment.	275

(3) For purposes of this section, and subject to division	276
(C) of this section, from time to time a trustee may make a	277
safe-harbor adjustment to increase net trust accounting income up	278
to and including an amount equal to four per cent of the trust's	279
fair market value determined as of the first business day of the	280
current year. If a trustee determines to make this safe-harbor	281
adjustment, the propriety of this adjustment shall be conclusively	282
presumed. Nothing in division (G)(3) of this section prohibits any	283
other type of adjustment authorized under any provision of this	284
section.	285

Sec. 1340.46. After a decedent dies, in the case of an	286
estate, or after an income interest in a trust ends, all of the	287
following apply:	288

(A) The fiduciary of the estate or of the terminating income	289
interest shall determine, under the provisions of sections 1340.51	290
to 1340.86 of the Revised Code that apply to trustees and under	291
division (E) of this section, the amount of net income and net	292
principal receipts received from property specifically given to a	293
beneficiary. The fiduciary shall distribute the net income and	294
net principal receipts to the beneficiary that is to receive the	295
specific property.	296

(B) A fiduciary shall determine the remaining net income of	297
a decedent's estate or a terminating income interest under the	298
provisions of sections 1340.51 to 1340.86 of the Revised Code that	299
apply to trustees and by doing all of the following:	300

(1) Including in net income all income from property used to	301
discharge liabilities;	302

(2) Paying from income or principal, in the fiduciary's	303
discretion, fees of attorneys, accountants, and fiduciaries; court	304
costs and other expenses of administration; and interest on death	305
taxes. However, the fiduciary may pay those expenses from income	306
of property passing to a trust for which the fiduciary claims an	307
estate tax marital or charitable deduction only to the extent that	308
the payment of those expenses from income will not cause the	309
reduction or loss of the deduction.	310

(3) Paying from principal all other disbursements made or	311
incurred in connection with the settlement of a decedent's estate	312
or the winding up of a terminating income interest, including	313
debts, funeral expenses, disposition of remains, family	314
allowances, and death taxes and related penalties that are	315
apportioned to the estate or terminating income interest by the	316
will, the terms of the trust, or applicable law.	317

(C) A fiduciary shall distribute to a beneficiary that	318
receives a pecuniary amount outright the interest or any other	319
amount provided by the will, the terms of the trust, or applicable	320
law from net income determined under division (B) of this section	321
or from principal to the extent that net income is insufficient.	322
If a beneficiary is to receive a pecuniary amount outright from a	323
trust after an income interest ends and no interest or other	324
amount is provided for by the terms of the trust or applicable	325
law, the fiduciary shall distribute the interest or other amount	326
to which the beneficiary would be entitled under applicable law if	327
the pecuniary amount were required to be paid under a will.	328

(D) A fiduciary shall distribute the net income remaining	329
after distributions required by division (C) of this section, in	330
the manner described in section 1340.47 of the Revised Code, to	331
all other beneficiaries, including a beneficiary that receives a	332
pecuniary amount in trust, even if the beneficiary holds an	333
unqualified power to withdraw assets from the trust or other	334
presently exercisable, general power of appointment over the	335
trust.	336

(E) A fiduciary shall not reduce principal or income	337
receipts from property described in division (A) of this section	338
because of a payment described in section 1340.81 or 1340.82 of	339
the Revised Code to the extent that the will, the terms of the	340
trust, or applicable law requires the fiduciary to make the	341
payment from assets other than the property or to the extent that	342
the fiduciary recovers or expects to recover the payment from a	343
third party. The net income and principal receipts from the	344
property are determined by including all of the amounts the	345
fiduciary receives or pays with respect to the property, whether	346
those amounts accrued or became due before, on, or after the date	347
of a decedent's death or an income interest's terminating event,	348
and by making a reasonable provision for amounts that the	349
fiduciary believes the estate or terminating income interest may	350
become obligated to pay after the property is distributed.	351

Sec. 1340.47. (A) Each beneficiary described in division (D)	352
of section 1340.46 of the Revised Code is entitled to receive a	353
portion of the net income equal to the beneficiary's fractional	354
interest in undistributed principal assets, using values as of the	355
distribution date. If a fiduciary makes more than one	356
distribution of assets to beneficiaries to whom this section	357
applies, each beneficiary, including one that does not receive	358
part of the distribution, is entitled, as of each distribution	359
date, to the net income the fiduciary has received after the date	360
of the decedent's death or terminating event or earlier	361
distribution date but has not distributed as of the current	362
distribution date.	363

(B) In determining a beneficiary's share of net income for	364
the purpose of this section, all of the following apply:	365

(1) The beneficiary is entitled to receive a portion of the	366
net income equal to the beneficiary's fractional interest in the	367
undistributed principal assets immediately before the distribution	368
date, including assets that later may be sold to meet principal	369
obligations.	370

(2) The beneficiary's fractional interest in the	371
undistributed principal assets must be calculated without regard	372
to property specifically given to a beneficiary and property	373
required to pay pecuniary amounts not in trust.	374

(3) The beneficiary's fractional interest in the	375
undistributed principal assets must be calculated on the basis of	376
the aggregate value of those assets as of the distribution date	377
without reducing the value by any unpaid principal obligation.	378

(4) The distribution date for purposes of this section may	379
be the date as of which the fiduciary calculates the value of the	380
assets if that date is reasonably near the date on which assets	381
are actually distributed.	382

(C) If a fiduciary does not distribute all of the collected	383
but undistributed net income described in divisions (A) and (B) of	384
this section to each person as of a distribution date, the	385
fiduciary shall maintain appropriate records showing the interest	386
of each.	387

(D) To the extent that a fiduciary considers it appropriate,	388
the fiduciary may apply the provisions of divisions (A) to (C) of	389
this section to any net gain or loss, realized after the date of	390
the decedent's death or an income interest termination or earlier	391
distribution date, from the disposition of a principal asset to	392
which such provisions apply.	393

Sec. 1340.51. (A) An income beneficiary is entitled to net	394
income from the date on which the income interest begins. An	395
income interest begins on the date specified in the terms of the	396
trust or, if no date is specified, on the date an asset becomes	397
subject to a trust or successive income interest.	398

(B) An asset becomes subject to a trust on any of the	399
following dates:	400

(1) The date it is transferred to the trust, in the case of	401
an asset that is transferred to a trust during the transferor's	402
life;	403

(2) The date of a testator's death, in the case of an asset	404
that becomes subject to a trust by reason of a will, even if there	405
is an intervening period of administration of the testator's	406
estate;	407

(3) The date of an individual's death, in the case of an	408
asset that is transferred to a fiduciary by a third party because	409
of the individual's death.	410

(C) An asset becomes subject to a successive income interest	411
on the day after the preceding income interest ends, as determined	412
under division (D) of this section, even if there is an	413
intervening period of administration to wind up the preceding	414
income interest.	415

(D) An income interest ends on the day before an income	416
beneficiary dies or another terminating event occurs, or on the	417
last day of a period during which there is no beneficiary to whom	418
a trustee may distribute income.	419

Sec. 1340.52. (A) A trustee shall allocate to principal an	420
income receipt or disbursement other than one to which division	421
(A) of section 1340.46 of the Revised Code applies, if its due	422
date occurs before a decedent dies in the case of an estate or	423
before an income interest begins in the case of a trust or	424
successive income interest.	425

(B) A trustee shall allocate an income receipt or	426
disbursement to income if its due date occurs on or after the date	427
on which a decedent dies or an income interest begins and if it is	428
a periodic due date. An income receipt or disbursement shall be	429
treated as accruing from day to day if its due date is not	430
periodic or it has no due date. The portion of the receipt or	431
disbursement accruing before the date on which a decedent dies or	432
an income interest begins shall be allocated to principal, and the	433
balance shall be allocated to income.	434

(C) For the purposes of this section, an item of income or	435
an obligation is due on the date the payer is required to make a	436
payment. If a payment date is not stated, there is no due date.	437
Distributions to shareholders or other owners from an entity to	438
which section 1340.57 of the Revised Code applies are deemed to be	439
due on the date fixed by the entity for determining who is	440
entitled to receive the distribution or, if no date is fixed, on	441
the declaration date for the distribution. A due date is periodic	442
for receipts or disbursements that must be paid at regular	443
intervals under a lease or an obligation to pay interest or if an	444
entity customarily makes distributions at regular intervals.	445

Sec. 1340.53. (A) As used in this section, "undistributed	446
income" means net income received before the date on which an	447
income interest ends. "Undistributed income" excludes an item of	448
income or expense that is due or accrued or net income that has	449
been added or is required to be added to principal under the terms	450
of the trust.	451

(B) When a mandatory income interest ends, the trustee shall	452
pay to a mandatory income beneficiary that survives that date, or	453
the estate of a deceased mandatory income beneficiary whose death	454
causes the interest to end, the beneficiary's share of the	455
undistributed income that is not disposed of under the terms of	456
the trust, unless the beneficiary has an unqualified power to	457
revoke more than five per cent of the trust immediately before the	458
income interest ends. If the beneficiary has such power, the	459
undistributed income from the portion of the trust that may be	460
revoked shall be added to principal.	461

(C) When a trustee's obligation to pay a fixed annuity or a	462
fixed fraction of the value of the trust's assets ends, the	463
trustee shall prorate the final payment if and to the extent	464
required by applicable law to accomplish a purpose of the trust or	465
its settlor relating to income, gift, estate, or other tax	466
requirements.	467

Sec. 1340.57. (A) As used in this section, "entity" means a	468
corporation, partnership, limited liability company, regulated	469
investment company, real estate investment trust, common trust	470
fund, or any other organization in which a trustee has an interest	471
other than a trust or estate to which section 1340.58 of the	472
Revised Code applies, a business or activity to which section	473
1340.59 of the Revised Code applies, or an asset-backed security	474
to which section 1340.77 of the Revised Code applies.	475

(B) Except as otherwise provided in this section, a trustee	476
shall allocate to income money received from an entity.	477

(C) A trustee shall allocate all of the following receipts	478
from an entity to principal:	479

(1) Property other than money;

480

(2) Money received in one distribution or a series of related	481
distributions in exchange for part or all of a trust's interest in	482
the entity;	483

(3) Money received in total or partial liquidation of the	484
entity;	485

(4) Money received from an entity that is a regulated	486
investment company or a real estate investment trust if the money	487
distributed is a capital gain dividend for federal income tax	488
purposes.	489

(D) Money is received in partial liquidation in either of the	490
following circumstances:	491

(1) To the extent that the entity, at or near the time of a	492
distribution, indicates that it is a distribution in partial	493
liquidation;	494

(2) If the total amount of money and property received in a	495
distribution or series of related distributions is greater than	496
twenty per cent of the entity's gross assets, as shown by the	497
entity's year-end financial statements immediately preceding the	498
initial receipt.	499

(E) Money is not received in partial liquidation, nor shall	500
it be taken into account under division (D)(2) of this section, to	501
the extent that it does not exceed the amount of income tax that a	502
trustee or beneficiary must pay on taxable income of the entity	503
that distributes the money.	504

(F) A trustee may rely upon a statement made by an entity	505
about the source or character of a distribution if the statement	506
is made at or near the time of distribution by the entity's board	507
of directors or other person or group of persons authorized to	508
exercise powers to pay money or transfer property comparable to	509
those of a corporation's board of directors.	510

Sec. 1340.58. A trustee shall allocate to income an amount	511
received as a distribution of income from a trust or an estate in	512
which the trust has an interest other than a purchased interest,	513
and shall allocate to principal an amount received as a	514
distribution of principal from such a trust or estate. If a	515
trustee purchases an interest in a trust that is an investment	516
entity, or a decedent or donor transfers an interest in such a	517
trust to a trustee, section 1340.57 or 1340.77 of the Revised Code	518
applies to a receipt from the trust.	519

Sec. 1340.59. (A) If a trust that conducts a business or	520
other activity determines that it is in the best interest of all	521
the beneficiaries to account separately for the business or	522
activity instead of accounting for it as part of the trust's	523
general accounting records, the trustee may maintain separate	524
accounting records for its transactions, whether or not its assets	525
are segregated from other trust assets.	526

(B) A trustee that accounts separately for a business or	527
other activity may determine the extent to which its net cash	528
receipts must be retained for working capital, the acquisition or	529
replacement of fixed assets, and other reasonably foreseeable	530
needs of the business or activity, and the extent to which the	531
remaining net cash receipts are accounted for as principal or	532
income in the trust's general accounting records. If a trustee	533
sells assets of the business or other activity, other than in the	534
ordinary course of the business or activity, the trustee shall	535
account for the net amount received as principal in the trust's	536
general accounting records to the extent the trustee determines	537
that the amount received is no longer required in the conduct of	538
the business.	539

(C) Activities for which a trustee may maintain separate	540
accounting records under this section include all of the	541
following:	542

(1) Retail, manufacturing, service, and other traditional	543
business activities;	544

(2) Farming;

545

(3) Raising and selling livestock and other animals;

546

(4) Management of rental properties;

547

(5) Extraction of minerals and other natural resources;

548

(6) Timber operations;

549

(7) Activities to which section 1340.76 of the Revised Code	550
applies.	551

Sec. 1340.63. A trustee shall allocate to principal all of	552
the following:	553

(A) To the extent not allocated to income under sections	554
1340.40 to 1340.91 of the Revised Code, assets received from a	555
transferor during the transferor's lifetime, a decedent's estate,	556
a trust with a terminating income interest, or a payer under a	557
contract naming the trust or its trustee as beneficiary;	558

(B) Money or other property received from the sale, exchange,	559
liquidation, or change in form of a principal asset, including	560
realized profit, subject to sections 1340.57 to 1340.77 of the	561
Revised Code;	562

(C) Amounts recovered from third parties to reimburse the	563
trust because of disbursements described in division (A)(7) of	564
section 1340.82 of the Revised Code or for other reasons to the	565
extent not based on the loss of income;	566

(D) Proceeds of property taken by eminent domain, but a	567
separate award made for the loss of income with respect to an	568
accounting period during which a current income beneficiary had a	569
mandatory income interest is income;	570

(E) Net income received in an accounting period during which	571
there is no beneficiary to whom a trustee may or must distribute	572
income;	573

(F) Other receipts as provided in sections 1340.70 to 1340.77	574
of the Revised Code.	575

Sec. 1340.64. To the extent that a trustee accounts for	576
receipts from rental property pursuant to this section, the	577
trustee shall allocate to income an amount received as rent of	578
real or personal property, including an amount received for	579
cancellation or renewal of a lease. An amount received as a	580
refundable deposit, including a security deposit or a deposit that	581
is to be applied as rent for future periods, shall be added to	582
principal and held subject to the terms of the lease and shall not	583
be available for distribution to a beneficiary until the trustee's	584
contractual obligations have been satisfied with respect to that	585
amount.	586

Sec. 1340.65. (A) An amount received as interest, whether	587
determined at a fixed, variable, or floating rate, on an	588
obligation to pay money to the trustee, including an amount	589
received as consideration for prepaying principal, shall be	590
allocated to income without any provision for amortization of	591
premium.	592

(B) A trustee shall allocate to principal an amount received	593
from the sale, redemption, or other disposition of an obligation	594
to pay money to the trustee more than one year after the date it	595
is purchased or acquired by the trustee, including an obligation	596
whose purchase price or value when it is acquired is less than its	597
value at maturity. If the obligation matures within one year	598
after the date it is purchased or acquired by the trustee, an	599
amount received in excess of its purchase price or its value when	600
acquired by the trust shall be allocated to income.	601

(C) This section does not apply to an obligation to which	602
section 1340.71, 1340.72, 1340.73, 1340.74, 1340.76, or 1340.77 of	603
the Revised Code applies.	604

Sec. 1340.66. (A) Except as otherwise provided in division	605
(B) of this section, a trustee shall allocate to principal the	606
proceeds of a life insurance policy or other contract in which the	607
trust or its trustee is named as beneficiary, including a contract	608
that insures the trust or its trustee against loss for damage to,	609
destruction of, or loss of title to a trust asset. The trustee	610
shall allocate dividends on an insurance policy to income if the	611
premiums on the policy are paid from income, and to principal if	612
the premiums are paid from principal.	613

(B) A trustee shall allocate to income proceeds of a	614
contract that insures the trustee against loss of occupancy or	615
other use by an income beneficiary, loss of income, or, subject to	616
section 1340.59 of the Revised Code, loss of profits from a	617
business.	618

(C) This section does not apply to a contract to which	619
section 1340.71 of the Revised Code applies.	620

Sec. 1340.70. If a trustee determines that an allocation	622
between principal and income required by section 1340.71, 1340.72,	623
1340.73, 1340.74, or 1340.77 of the Revised Code is insubstantial,	624
the trustee may allocate the entire amount to principal unless one	625
of the circumstances described in division (C) of section 1340.42	626
of the Revised Code applies to the allocation. This power may be	627
exercised by a cotrustee in the circumstances described in	628
division (D) of that section and may be released for the reasons	629
and in the manner described in division (E) of the section. An	630
allocation is presumed to be insubstantial if either of the	631
following applies:	632

(A) The amount of the allocation would increase or decrease	633
net income in an accounting period, as determined before the	634
allocation, by less than ten per cent.	635

(B) The value of the asset producing the receipt for which	636
the allocation would be made is less than ten per cent of the	637
total value of the trust's assets at the beginning of the	638
accounting period.	639

Sec. 1340.71. (A) As used in this section, "payment" means a	640
payment that a trustee may receive over a fixed number of years or	641
during the life of one or more individuals because of services	642
rendered or property transferred to the payer in exchange for	643
future payments. "Payment" includes a payment made in money or	644
property from the payer's general assets or from a separate fund	645
created by the payer, including a private or commercial annuity,	646
an individual retirement account, or a pension, profit-sharing,	647
stock-bonus, or stock-ownership plan.	648

(B) To the extent that a payment is characterized as	649
interest or a dividend or a payment made in lieu of interest or a	650
dividend, a trustee shall allocate it to income. The trustee	651
shall allocate to principal the balance of the payment and any	652
other payment received in the same accounting period that is not	653
characterized as interest, a dividend, or an equivalent payment.	654

(C) If no part of a payment is characterized as interest, a	655
dividend, or an equivalent payment, and all or part of the payment	656
is required to be made, a trustee shall allocate to income ten per	657
cent of the part that is required to be made during the accounting	658
period and the balance to principal. If no part of a payment is	659
required to be made or the payment received is the entire amount	660
to which the trustee is entitled, the trustee shall allocate the	661
entire payment to principal. For purposes of this division, a	662
payment is not "required to be made" to the extent that it is made	663
because the trustee exercises a right of withdrawal.	664

(D) If, to obtain an estate tax marital deduction for a	665
trust, a trustee must allocate more of a payment to income than is	666
provided for by this section, the trustee shall allocate to income	667
the additional amount necessary to obtain the marital deduction.	668

(E) This section does not apply to payments to which section	669
1340.72 of the Revised Code applies.	670

Sec. 1340.72. (A) As used in this section, "liquidating	671
asset" means an asset whose value will diminish or terminate	672
because the asset is expected to produce receipts for a period of	673
limited duration. "Liquidating asset" includes a leasehold,	674
patent, copyright, royalty right, and right to receive payments	675
during a period of more than one year under an arrangement that	676
does not provide for the payment of interest on the unpaid	677
balance. "Liquidating asset" excludes a payment subject to	678
section 1340.71 of the Revised Code, resources subject to section	679
1340.73 of the Revised Code, timber subject to section 1340.74 of	680
the Revised Code, an activity subject to section 1340.76 of the	681
Revised Code, an asset subject to section 1340.77 of the Revised	682
Code, or any asset for which the trustee establishes a reserve for	683
depreciation under section 1340.83 of the Revised Code.	684

(B) A trustee shall allocate to income ten per cent of the	685
receipts from a liquidating asset and the balance to principal.	686

Sec. 1340.73.  (A) To the extent that a trustee accounts for	687
receipts from an interest in minerals or other natural resources	688
pursuant to this section, the trustee shall allocate the receipts	689
in accordance with all of the following:	690

(1) If received as nominal delay rental or nominal annual	691
rent on a lease, a receipt shall be allocated to income.	692

(2) If received from a production payment, a receipt shall be	693
allocated to income if and to the extent that the agreement	694
creating the production payment provides a factor for interest or	695
its equivalent. The balance shall be allocated to principal.	696

(3) If an amount received as a royalty, shut-in-well payment,	697
take-or-pay payment, bonus, or delay rental is more than nominal,	698
ninety per cent shall be allocated to principal and the balance to	699
income.	700

(4) If an amount is received from a working interest or any	701
other interest not provided for in division (A)(1), (2), or (3) of	702
this section, ninety per cent of the net amount received shall be	703
allocated to principal and the balance to income.	704

(B) An amount received on account of an interest in water	705
that is renewable shall be allocated to income. If the water is	706
not renewable, ninety per cent of the amount shall be allocated to	707
principal and the balance to income.	708

(C) This section applies whether or not a decedent or donor	709
was extracting minerals, water, or other natural resources before	710
the interest became subject to the trust.	711

(D) If a trust owns an interest in minerals, water, or other	712
natural resources on the effective date of this section, the	713
trustee may allocate receipts from the interest as provided in	714
this section or in the manner used by the trustee before that	715
date. If the trust acquires an interest in minerals, water, or	716
other natural resources after the effective date of this section,	717
the trustee shall allocate receipts from the interest as provided	718
in this section.	719

Sec. 1340.74.  (A) To the extent that a trustee accounts for	720
receipts from the sale of timber and related products pursuant to	721
this section, the trustee shall allocate the net receipts in	722
accordance with all of the following:	723

(1) To income, to the extent that the amount of timber	724
removed from the land does not exceed the rate of growth of the	725
timber during the accounting periods in which a beneficiary has a	726
mandatory income interest;	727

(2) To principal, to the extent that the amount of timber	728
removed from the land exceeds the rate of growth of the timber or	729
the net receipts are from the sale of standing timber;	730

(3) To or between income and principal, if the net receipts	731
are from the lease of timberland or from a contract to cut timber	732
from land owned by a trust, by determining the amount of timber	733
removed from the land under the lease or contract and applying	734
divisions (A)(1) and (2) of this section;	735

(4) To principal, to the extent that advance payments,	736
bonuses, and other payments are not allocated pursuant to division	737
(A)(1), (2), or (3) of this section.	738

(B) In determining net receipts to be allocated pursuant to	739
division (A) of this section, a trustee shall deduct and transfer	740
to principal a reasonable amount for depletion.	741

(C) This section applies whether or not a decedent or	742
transferor was harvesting timber from the property before it	743
became subject to the trust.	744

(D) If a trust owns an interest in timberland on the	745
effective date of this section, the trustee may allocate net	746
receipts from the sale of timber and related products as provided	747
in this section or in the manner used by the trustee before that	748
date. If the trust acquires an interest in timberland after the	749
effective date of this section, the trustee shall allocate net	750
receipts from the sale of timber and related products as provided	751
in this section.	752

Sec. 1340.75.  (A) If a marital deduction is allowed for all	753
or part of a trust whose assets consist substantially of property	754
that does not provide the spouse with sufficient income from or	755
use of the trust assets, and if the amounts that the trustee	756
transfers from principal to income under section 1340.42 of the	757
Revised Code and distributes to the spouse from principal pursuant	758
to the terms of the trust are insufficient to provide the spouse	759
with the beneficial enjoyment required to obtain the marital	760
deduction, the spouse may require the trustee to make property	761
productive of income, convert property within a reasonable time,	762
or exercise the power conferred by division (A) of that section.	763
The trustee may decide which action or combination of actions to	764
take.	765

(B) In cases not governed by division (A) of this section,	766
proceeds from the sale or other disposition of an asset shall be	767
principal without regard to the amount of income the asset	768
produces during any accounting period.	769

Sec. 1340.76.  (A) As used in this section, "derivative"	770
means a contract or financial instrument or a combination of	771
contracts and financial instruments that gives a trust the right	772
or obligation to participate in some or all changes in the price	773
of a tangible or intangible asset or group of assets, or changes	774
in a rate, an index of prices or rates, or other market indicator	775
for an asset or a group of assets.	776

(B) To the extent that a trustee does not account under	777
section 1340.59 of the Revised Code for transactions in	778
derivatives, the trustee shall allocate to principal receipts from	779
and disbursements made in connection with those transactions.	780

(C) If a trustee grants an option to buy property from the	781
trust, whether or not the trust owns the property when the option	782
is granted, grants an option that permits another person to sell	783
property to the trust, or acquires an option to buy property for	784
the trust or an option to sell an asset owned by the trust, and	785
the trustee or other owner of the asset is required to deliver the	786
asset if the option is exercised, an amount received for granting	787
the option shall be allocated to principal. An amount paid to	788
acquire the option shall be paid from principal. A gain or loss	789
realized upon the exercise of an option, including an option	790
granted to a settlor of the trust for services rendered, shall be	791
allocated to principal.	792

Sec. 1340.77.  (A) As used in this section, "asset-backed	793
security" means an asset whose value is based upon the right it	794
gives the owner to receive distributions from the proceeds of	795
financial assets that provide collateral for the security.	796
"Asset-backed security" includes an asset that gives the owner the	797
right to receive from the collateral financial assets only the	798
interest or other current return or only the proceeds other than	799
interest or current return. "Asset-backed security" excludes an	800
asset to which section 1340.57 or 1340.71 of the Revised Code	801
applies.	802

(B) If a trust receives a payment from interest or other	803
current return and from other proceeds of the collateral financial	804
assets, the trustee shall allocate to income the portion of the	805
payment that the payer identifies as being from interest or other	806
current return and shall allocate the balance of the payment to	807
principal.	808

(C) If a trust receives one or more payments in exchange for	809
the trust's entire interest in an asset-backed security in one	810
accounting period, the trustee shall allocate the payments to	811
principal. If a payment is one of a series of payments that will	812
result in the liquidation of the trust's interest in the security	813
over more than one accounting period, the trustee shall allocate	814
ten per cent of the payment to income and the balance to	815
principal.	816

Sec. 1340.81.  A trustee shall make all of the following	817
disbursements from income to the extent that they are not	818
disbursements to which division (B)(2) or (3) of section 1340.46	819
of the Revised Code applies:	820

(A) One-half of the regular compensation of the trustee and	821
of any person providing investment advisory or custodial services	822
to the trustee;	823

(B) One-half of all expenses for accountings, judicial	824
proceedings, or other matters that involve both the income and	825
remainder interests;	826

(C) All of the other ordinary expenses incurred in connection	827
with the administration, management, or preservation of trust	828
property and the distribution of income, including interest,	829
ordinary repairs, regularly recurring taxes assessed against	830
principal, and expenses of a proceeding or other matter that	831
concerns primarily the income interest;	832

(D) Recurring premiums on insurance covering the loss of a	833
principal asset or the loss of income from or use of the asset.	834

Sec. 1340.82.  (A) A trustee shall make all of the following	835
disbursements from principal:	836

(1) The remaining one-half of the disbursements described in	837
divisions (A) and (B) of section 1340.81 of the Revised Code;	838

(2) All of the trustee's compensation calculated on principal	839
as a fee for acceptance, distribution, or termination, and	840
disbursements made to prepare property for sale;	841

(3) Payments on the principal of a trust debt;

842

(4) Expenses of a proceeding that concerns primarily	843
principal, including a proceeding to construe the trust or to	844
protect the trust or its property;	845

(5) Premiums paid on a policy of insurance not described in	846
division (D) of section 1340.81 of the Revised Code of which the	847
trust is the owner and beneficiary;	848

(6) Estate, inheritance, and other transfer taxes, including	849
penalties, apportioned to the trust;	850

(7) Disbursements related to environmental matters, including	851
reclamation, assessing environmental conditions, remedying and	852
removing environmental contamination, monitoring remedial	853
activities and the release of substances, preventing future	854
releases of substances, collecting amounts from persons liable or	855
potentially liable for the costs of those activities, penalties	856
imposed under environmental laws or regulations and other payments	857
made to comply with those laws or regulations, statutory or common	858
law claims by third parties, and defending claims based on	859
environmental matters.	860

(B) If a principal asset is encumbered with an obligation	861
that requires income from that asset to be paid directly to the	862
creditor, the trustee shall transfer from principal to income an	863
amount equal to the income paid to the creditor in reduction of	864
the principal balance of the obligation.	865

Sec. 1340.83.  (A) As used in this section, "depreciation"	866
means a reduction in value due to wear, tear, decay, corrosion, or	867
gradual obsolescence of a fixed asset having a useful life of more	868
than one year.	869

(B) A trustee may transfer to principal a reasonable amount	870
of the net cash receipts from a principal asset that is subject to	871
depreciation, but shall not transfer any amount for depreciation	872
under any of the following circumstances:	873

(1) Any amount for depreciation of that portion of real	874
property used or available for use by a beneficiary as a residence	875
or of tangible personal property held or made available for the	876
personal use or enjoyment of a beneficiary;	877

(2) Any amount for depreciation during the administration of	878
a decedent's estate;	879

(3) Any amount for depreciation under this section if the	880
trustee is accounting under section 1340.59 of the Revised Code	881
for the business or activity in which the asset is used.	882

(C) An amount transferred to principal need not be held as a	883
separate fund.	884

Sec. 1340.84.  (A) If a trustee makes or expects to make a	885
principal disbursement described in this section, the trustee may	886
transfer an appropriate amount from income to principal in one or	887
more accounting periods to reimburse principal or to provide a	888
reserve for future principal disbursements.	889

(B) Principal disbursements to which division (A) of this	890
section applies include all of the following, but only to the	891
extent that the trustee has not been and does not expect to be	892
reimbursed by a third party:	893

(1) An amount chargeable to income but paid from principal	894
because it is unusually large, including extraordinary repairs;	895

(2) A capital improvement to a principal asset, whether in	896
the form of changes to an existing asset or the construction of a	897
new asset, including special assessments;	898

(3) Disbursements made to prepare property for rental,	899
including tenant allowances, leasehold improvements, and broker's	900
commissions;	901

(4) Periodic payments on an obligation secured by a principal	902
asset to the extent that the amount transferred from income to	903
principal for depreciation is less than the periodic payments;	904

(5) Disbursements described in division (A)(7) of section	905
1340.82 of the Revised Code.	906

(C) If the asset whose ownership gives rise to the	907
disbursements becomes subject to a successive income interest	908
after an income interest ends, a trustee may continue to transfer	909
amounts from income to principal as provided in division (A) of	910
this section.	911

Sec. 1340.85.  (A) A tax required to be paid by a trustee	912
based on receipts allocated to income shall be paid from income.	913

(B) A tax required to be paid by a trustee based on receipts	914
allocated to principal shall be paid from principal, even if the	915
tax is called an income tax by the taxing authority.	916

(C) A tax required to be paid by a trustee on the trust's	917
share of an entity's taxable income shall be paid proportionately	918
as follows:	919

(1) From income, to the extent that receipts from the entity	920
are allocated to income;	921

(2) From principal, as follows:

922

(a) To the extent that receipts from the entity are allocated	923
to principal; and	924

(b) To the extent that the trust's share of the entity's	925
taxable income exceeds the total receipts described in divisions	926
(C)(1) and (2)(a) of this section.	927

(D) For purposes of this section, receipts allocated to	928
principal or income shall be reduced by the amount distributed to	929
a beneficiary from principal or income for which the trust	930
receives a deduction in calculating the tax.	931

Sec. 1340.86.  (A) A fiduciary may make adjustments between	932
principal and income to offset the shifting of economic interests	933
or tax benefits between income beneficiaries and remainder	934
beneficiaries that arise from any of the following:	935

(1) Elections and decisions, other than those described in	936
division (B) of this section, that the fiduciary makes from time	937
to time regarding tax matters;	938

(2) An income tax or any other tax that is imposed upon the	939
fiduciary or a beneficiary as a result of a transaction involving	940
or a distribution from the estate or trust;	941

(3) The ownership by an estate or trust of an interest in an	942
entity whose taxable income, whether or not distributed, is	943
includable in the taxable income of the estate, trust, or	944
beneficiary.	945

(B) If the amount of an estate tax marital deduction or	946
charitable contribution deduction is reduced because a fiduciary	947
deducts an amount paid from principal for income tax purposes	948
instead of deducting it for estate tax purposes, and as a result	949
estate taxes paid from principal are increased and income taxes	950
paid by an estate, trust, or beneficiary are decreased, each	951
estate, trust, or beneficiary that benefits from the decrease in	952
income tax shall reimburse the principal from which the increase	953
in estate tax is paid. The total reimbursement shall equal the	954
increase in the estate tax to the extent that the principal used	955
to pay the increase would have qualified for a marital deduction	956
or charitable contribution deduction but for the payment. The	957
proportionate share of the reimbursement for each estate, trust,	958
or beneficiary whose income taxes are reduced shall be the same as	959
its proportionate share of the total decrease in income tax. An	960
estate or trust shall reimburse principal from income.	961

Sec. 1340.90.  (A) Sections 1340.40 to 1340.91 of the Revised	962
Code may be cited as the "uniform principal and income act	963
(1997)."	964

(B) In applying and construing the "uniform principal and	965
income act (1997)", consideration shall be given to the need to	966
promote uniformity of the law with respect to its subject matter	967
among states that enact the "uniform principal and income act	968
(1997)".	969

Sec. 1340.91.  Sections 1340.40 to 1340.90 of the Revised	970
Code apply to every trust or decedent's estate existing on the	971
effective date of this section except as otherwise expressly	972
provided in the will or terms of the trust or in sections 1340.40	973
to 1340.90 of the Revised Code.	974

Sec. 2109.68. In all cases not covered by section 2109.66 or	975
2109.67 of the Revised Code, allocationAllocation of receipts and	976
expenditures by an executor, administrator, or testamentary	977
trustee shall be as prescribed in sections 1340.011340.40 to	978
1340.131340.91 of the Revised Code.	979

Section 2. That existing sections 1340.031, 1340.35, and	980
2109.68 and sections 1340.01, 1340.02, 1340.03, 1340.04, 1340.05,	981
1340.06, 1340.07, 1340.08, 1340.09, 1340.10, 1340.11, 1340.12,	982
1340.13, 2109.66, and 2109.67 of the Revised Code are hereby	983
repealed.	984

Section 3. Division (A) of section 1340.75 of the Revised	985
Code relating to the duty of a trustee to make property productive	986
of income, with respect to a trust for which a marital deduction	987
is allowed, is intended to codify existing fiduciary and trust law	988
principles.	989

Section 4. Sections 1, 2, and 3 of this act shall take effect	990
on January 1, 2003.	991