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H. B. No. 522As IntroducedAs Introduced
124th General Assembly | Regular Session | 2001-2002 |
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REPRESENTATIVES Willamowski, Seitz
A BILL
To amend sections 1340.35, 2109.67, and 2109.68, to
enact sections 1340.40 to 1340.42, 1340.46,
1340.47, 1340.51 to 1340.53, 1340.57 to 1340.59,
1340.63 to 1340.66, 1340.70 to 1340.77, 1340.81 to
1340.86, 1340.90, and 1340.91 and to repeal
sections 1340.01, 1340.02, 1340.03, 1340.031,
1340.04, 1340.05, 1340.06, 1340.07, 1340.08,
1340.09, 1340.10, 1340.11, 1340.12, and 1340.13 of
the Revised Code to revise Fiduciary Law by
adopting the Uniform Principal and Income Act
(1997) regarding the apportionment and distribution
of income to trust beneficiaries and regarding a
fiduciary's allocation of receipts and
disbursements to or between principal and income,
and by specifying the extent of a trustee's
liability with respect to authorized adjustments
between principal and income.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO:
Section 1. That sections 1340.35, 2109.67, and 2109.68 be
amended and sections 1340.40, 1340.41, 1340.42, 1340.46, 1340.47,
1340.51, 1340.52, 1340.53, 1340.57, 1340.58, 1340.59, 1340.63,
1340.64, 1340.65, 1340.66, 1340.70, 1340.71, 1340.72, 1340.73,
1340.74, 1340.75, 1340.76, 1340.77, 1340.81, 1340.82, 1340.83,
1340.84, 1340.85, 1340.86, 1340.90, and 1340.91 of the Revised
Code be enacted to read as follows:
Sec. 1340.35. Nothing in section 2109.67, sections
1340.01
1340.40 to
1340.13
1340.91, or
any other section of the Revised
Code
limits or restricts the definition of income in division
(A)
of section 1340.32 of the Revised Code
or limits or restricts a
governing board of an institution from requesting, or
a trustee
from making, distributions from an institutional trust fund in
accordance with sections 1340.31 to 1340.37 of the Revised Code.
Sec. 1340.40. As used in sections 1340.40 to 1340.91 of the
Revised Code: (A) "Accounting period" means a calendar year unless another
twelve-month period is selected by a fiduciary. "Accounting
period" includes a portion of a calendar year or other
twelve-month period that begins when an income interest begins or
ends when an income interest ends. (B) "Beneficiary" includes, in the case of a decedent's
estate, an heir, legatee, and devisee and, in the case of a trust,
an income beneficiary and a remainder beneficiary. (C) "Fiduciary" means a personal representative or a
trustee. The term includes an executor, administrator, successor
personal representative, special administrator, and a person
performing substantially the same function. (D) "Income" means money or property that a fiduciary
receives as current return from a principal asset. "Income"
includes a portion of receipts from a sale, exchange, or
liquidation of a principal asset, to the extent provided in
sections 1340.57 to 1340.77 of the Revised Code. (E) "Income beneficiary" means a person to whom net income
of a trust is or may be payable. (F) "Income interest" means the right of an income
beneficiary to receive all or part of net income, whether the
terms of the trust require or authorize it to be distributed in
the trustee's discretion. (G) "Mandatory income interest" means the right of an income
beneficiary to receive net income that the terms of the trust
require the fiduciary to distribute. (H) "Net income" means the total receipts allocated to
income during an accounting period minus the disbursements made
from income during the period, plus or minus transfers under
sections 1340.40 to 1340.91 of the Revised Code to or from income
during the period. (I) "Person" means an individual, corporation, business
trust, estate, trust, partnership, limited liability company,
association, joint venture, or government; governmental
subdivision, agency, or instrumentality; public corporation; or
any other legal or commercial entity. (J) "Principal" means property held in trust for
distribution to a remainder beneficiary when the trust terminates. (K) "Remainder beneficiary" means a person entitled to
receive principal when an income interest ends. (L) "Terms of a trust" means the manifestation of the intent
of a settlor or decedent with respect to the trust, expressed in a
manner that admits of its proof in a judicial proceeding, whether
by written or spoken words or by conduct. (M) "Trustee" includes an original, additional, or successor
trustee, whether or not appointed or confirmed by a court.
Sec. 1340.41. (A) In allocating receipts and disbursements
to or between principal and income, and with respect to any matter
within the scope of sections 1340.46 to 1340.53 of the Revised
Code, all of the following apply: (1) A fiduciary shall administer a trust or estate in
accordance with the terms of the trust or the will, even if there
is a different provision in sections 1340.40 to 1340.91 of the
Revised Code. (2) A fiduciary may administer a trust or estate by the
exercise of a discretionary power of administration given to the
fiduciary by the terms of the trust or the will, even if the
exercise of the power produces a result different from a result
required or permitted by any provision of sections 1340.40 to
1340.91 of the Revised Code. (3) A fiduciary shall administer a trust or estate in
accordance with sections 1340.40 to 1340.91 of the Revised Code if
the terms of the trust or the will do not contain a different
provision or do not give the fiduciary a discretionary power of
administration. (4) A fiduciary shall add a receipt, or charge a
disbursement, to principal to the extent that the terms of the
trust and any provision of sections 1340.40 to 1340.91 of the
Revised Code do not provide for allocating the receipt or
disbursement to or between principal and income. (B) In exercising the power to adjust under division (A) of
section 1340.42 of the Revised Code or a discretionary power of
administration regarding a matter within the scope of sections
1340.40 to 1340.91 of the Revised Code, whether granted by the
terms of a trust, a will, or a provision of any such section, a
fiduciary shall
administer a trust or estate impartially, based on
what is fair
and reasonable to all of the beneficiaries, except to
the extent
that the terms of the trust or the will clearly
manifest an
intention that the fiduciary shall or may favor one or
more of the
beneficiaries. A determination in accordance with
sections 1340.40
to 1340.91 of the Revised Code is presumed to be
fair and
reasonable to all of the beneficiaries.
Sec. 1340.42. (A) A trustee may adjust between principal and
income to the extent the trustee considers necessary if the
trustee invests and manages the trust assets as a prudent
investor, the terms of the trust describe the amount that may or
must be distributed to a beneficiary by referring to the trust's
income, and the trustee determines, after applying division (A) of
section 1340.41 of the Revised Code, that the trustee is unable to
comply with division (B) of that section. (B) In deciding whether and to what extent to exercise the
power conferred by division (A) of this section, a trustee shall
consider all factors relevant to the trust and its beneficiaries,
including all of the following factors to the extent they are
relevant: (1) The nature, purpose, and expected duration of the trust; (2) The intent of the settlor; (3) The identity and circumstances of the beneficiaries; (4) The needs for liquidity, regularity of income, and
preservation and appreciation of capital; (5) The assets held in the trust; the extent to which they
consist of financial assets, interests in closely held
enterprises, tangible and intangible personal property, or real
property; the extent to which an asset is used by a beneficiary;
and whether an asset was purchased by the
trustee or received from
the settlor; (6) The net amount allocated to income under sections
1340.40, 1340.41, and sections 1340.46 to 1340.91 of the Revised
Code; and the increase or decrease in the value of the principal
assets, which the trustee may estimate as to assets for which
market values are not readily available; (7) Whether and to what extent the terms of the trust give
the trustee the power to invade principal or accumulate income or
prohibit the trustee from invading principal or accumulating
income, and the extent to which the trustee has exercised a power
from time to time to invade principal or accumulate income; (8) The actual and anticipated effect of economic conditions
on principal and income and effects of inflation and deflation; (9) The anticipated tax consequences of an adjustment. (C) A trustee shall not make an adjustment if any of the
following applies: (1) The adjustment diminishes the income interest in a trust
that requires all of the income to be paid at least annually to a
surviving spouse and for which an estate tax or gift tax marital
deduction would be allowed, in whole or in part, if the trustee
did not have the power to make the adjustment. (2) The adjustment reduces the actuarial value of the income
interest in a trust to which a person transfers property with the
intent to qualify for a gift tax exclusion. (3) The adjustment changes the amount payable to a
beneficiary as a fixed annuity or a fixed fraction of the value of
the trust assets. (4) The adjustment is from any amount that is permanently
set aside for charitable purposes under a will or the terms of a
trust unless both income and principal are so set aside. (5) If possessing or exercising the power to make the
adjustment causes an individual to be treated as the owner of all
or part of the trust for income tax purposes, and the individual
would not be treated as the owner if the trustee did not possess
the power to make the adjustment; (6) If possessing or exercising the power to make the
adjustment causes all or part of the trust assets to be included
for estate tax purposes in the estate of an individual who has the
power to remove a trustee or appoint a trustee, or both, and the
assets would not be included in the estate of the individual if
the trustee did not possess the power to make the adjustment; (7) If the trustee is a beneficiary of the trust; (8) If the trustee is not a beneficiary, but the adjustment
would benefit the trustee directly or indirectly. (D) If division (C)(5), (6), (7), or (8) of this section
applies to a trustee and there is more than one trustee, a
cotrustee to whom the provision does not apply may make the
adjustment unless the exercise of the power by the remaining
trustee or trustees is not permitted by the terms of the trust. (E) A trustee may release the entire power conferred by
division (A) of this section or may release only the power to
adjust from income to principal or the power to adjust from
principal to income if the trustee is uncertain about whether
possessing or exercising the power will cause a result described
in division (C)(1), (2), (3), (4), (5), (6), or (8) of this
section or if the
trustee determines that possessing or exercising
the power
will or may deprive the trust of a tax benefit or impose
a tax
burden not described in division (C) of this section. The
release
may be permanent or for a specified period, including a
period
measured by the life of an individual. (F) Terms of a trust that limit the power of a trustee to
make an adjustment between principal and income do not affect the
application of this section unless it is clear from the terms of
the trust that the terms are intended to deny the trustee the
power of adjustment conferred by division (A) of this section. (G) The liability of a trustee relative to the exercise of
adjustment authority conferred by divisions (A) to (F) of this
section shall be limited in the following manner: (1) Unless a court determines that a trustee has acted in
bad faith, no trustee shall be held liable for damages for
choosing not to make an adjustment. (2) Unless a court determines that a trustee has acted in
bad faith with respect to an adjustment, the sole remedy to be
ordered by a court shall be a prospective correction of the
adjustment. (3) For purposes of this section, and subject to division
(C) of this section, a trustee may make a safe-harbor adjustment
to
increase net trust accounting income up to and including an
annual
unitrust payment of four per cent of the trust's fair
market value
determined as of the beginning of each year. If a
trustee
determines to make this safe-harbor adjustment, the
propriety of
this adjustment shall be conclusively presumed.
Nothing in
division (G)(3) of this section prohibits any other
type of
adjustment authorized under any provision of this section.
Sec. 1340.46. After a decedent dies, in the case of an
estate, or after an income interest in a trust ends, all of the
following apply: (A) The fiduciary of the estate or of the terminating income
interest shall determine, under the provisions of sections 1340.51
to 1340.86 of the Revised Code that apply to trustees and under
division (E) of this section, the amount of net income and net
principal receipts received from property specifically given to a
beneficiary. The fiduciary shall distribute the net income and
net principal receipts to the beneficiary that is to receive the
specific property. (B) A fiduciary shall determine the remaining net income of
a decedent's estate or a terminating income interest under the
provisions of sections 1340.51 to 1340.86 of the Revised Code that
apply to trustees and by doing all of the following: (1) Including in net income all income from property used to
discharge liabilities; (2) Paying from income or principal, in the fiduciary's
discretion, fees of attorneys, accountants, and fiduciaries; court
costs and other expenses of administration; and interest on death
taxes. However, the fiduciary may pay those expenses from income
of property passing to a trust for which the fiduciary claims an
estate tax marital or charitable deduction only to the extent that
the payment of those expenses from income will not cause the
reduction or loss of the deduction. (3) Paying from principal all other disbursements made or
incurred in connection with the settlement of a decedent's estate
or the winding up of a terminating income interest, including
debts, funeral expenses, disposition of remains, family
allowances, and death taxes and related penalties that are
apportioned to the estate or terminating income interest by the
will, the terms of the trust, or applicable law. (C) A fiduciary shall distribute to a beneficiary that
receives a pecuniary amount outright the interest or any other
amount provided by the will, the terms of the trust, or applicable
law from net income determined under division (B) of this section
or from principal to the extent that net income is insufficient.
If a beneficiary is to receive a pecuniary amount outright from a
trust after an income interest ends and no interest or other
amount is provided for by the terms of the trust or applicable
law, the fiduciary shall distribute the interest or other amount
to which the beneficiary would be entitled under applicable law if
the pecuniary amount were required to be paid under a will. (D) A fiduciary shall distribute the net income remaining
after distributions required by division (C) of this section,
in
the manner described in section 1340.47 of the Revised Code, to
all other beneficiaries, including a beneficiary that receives a
pecuniary amount in trust, even if the beneficiary holds an
unqualified power to withdraw assets from the trust or other
presently exercisable, general power of appointment over the
trust. (E) A fiduciary shall not reduce principal or income
receipts from property described in division (A) of this section
because of a payment described in section 1340.81 or 1340.82 of
the Revised Code to the extent that the will, the terms of the
trust, or applicable law requires the fiduciary to make the
payment from assets other than the property or to the extent that
the fiduciary recovers or expects to recover the payment from a
third party. The net income and principal receipts from the
property are determined by including all of the amounts the
fiduciary receives or pays with respect to the property, whether
those amounts accrued or became due before, on, or after the date
of a decedent's death or an income interest's terminating event,
and by making a reasonable provision for amounts that the
fiduciary believes the estate or terminating income interest may
become obligated to pay after the property is distributed.
Sec. 1340.47. (A) Each beneficiary described in division (D)
of section 1340.46 of the Revised Code is entitled to receive a
portion of the net income equal to the beneficiary's fractional
interest in undistributed principal assets, using values as of the
distribution date. If a fiduciary makes more than one
distribution of assets to beneficiaries to whom this section
applies, each beneficiary, including one that does not receive
part of the distribution, is entitled, as of each distribution
date, to the net income the fiduciary has received after the date
of the decedent's death or terminating event or earlier
distribution date but has not distributed as of the current
distribution date. (B) In determining a beneficiary's share of net income for
the purpose of this section, all of the following apply: (1) The beneficiary is entitled to receive a portion of the
net income equal to the beneficiary's fractional interest in the
undistributed principal assets immediately before the distribution
date, including assets that later may be sold to meet principal
obligations. (2) The beneficiary's fractional interest in the
undistributed principal assets must be calculated without regard
to property specifically given to a beneficiary and property
required to pay pecuniary amounts not in trust. (3) The beneficiary's fractional interest in the
undistributed principal assets must be calculated on the basis of
the aggregate value of those assets as of the distribution date
without reducing the value by any unpaid principal obligation. (4) The distribution date for purposes of this section may
be the date as of which the fiduciary calculates the value of the
assets if that date is reasonably near the date on which assets
are actually distributed. (C) If a fiduciary does not distribute all of the collected
but undistributed net income described in divisions (A) and (B) of
this section to each person as of a distribution date, the
fiduciary shall maintain appropriate records showing the interest
of each. (D) To the extent that a trustee considers it appropriate,
the trustee may apply the provisions of divisions (A) to (C) of
this section to any net gain or loss, realized after the date of
the decedent's death or an income interest termination or earlier
distribution date, from the disposition of a principal asset to
which such provisions apply.
Sec. 1340.51. (A) An income beneficiary is entitled to net
income from the date on which the income interest begins. An
income interest begins on the date specified in the terms of the
trust or, if no date is specified, on the date an asset becomes
subject to a trust or successive income interest. (B) An asset becomes subject to a trust on any of the
following dates: (1) The date it is transferred to the trust, in the case of
an asset that is transferred to a trust during the transferor's
life; (2) The date of a testator's death, in the case of an asset
that becomes subject to a trust by reason of a will, even if there
is an intervening period of administration of the testator's
estate; (3) The date of an individual's death, in the case of an
asset that is transferred to a fiduciary by a third party because
of the individual's death. (C) An asset becomes subject to a successive income interest
on the day after the preceding income interest ends, as determined
under division (D) of this section, even if there is an
intervening period of administration to wind up the preceding
income interest. (D) An income interest ends on the day before an income
beneficiary dies or another terminating event occurs, or on the
last day of a period during which there is no beneficiary to whom
a trustee may distribute income.
Sec. 1340.52. (A) A trustee shall allocate to principal an
income receipt or disbursement other than one to which division
(A) of section 1340.46 of the Revised Code applies, if its due
date occurs before a decedent dies in the case of an estate or
before an income interest begins in the case of a trust or
successive income interest. (B) A trustee shall allocate an income receipt or
disbursement to income if its due date occurs on or after the date
on which a decedent dies or an income interest begins and if it is
a periodic due date. An income receipt or disbursement shall be
treated as accruing from day to day if its due date is not
periodic or it has no due date. The portion of the receipt or
disbursement accruing before the date on which a decedent dies or
an income interest begins shall be allocated to principal, and the
balance shall be allocated to income. (C) For the purposes of this section, an item of income or
an obligation is due on the date the payer is required to make a
payment. If a payment date is not stated, there is no due date.
Distributions to shareholders or other owners from an entity to
which section 1340.57 of the Revised Code applies are deemed to be
due on the date fixed by the entity for determining who is
entitled to receive the distribution or, if no date is fixed, on
the declaration date for the distribution. A due date is periodic
for receipts or disbursements that must be paid at regular
intervals under a lease or an obligation to pay interest or if an
entity customarily makes distributions at regular intervals.
Sec. 1340.53. (A) As used in this section, "undistributed
income" means net income received before the date on which an
income interest ends. "Undistributed income" excludes an item of
income or expense that is due or accrued or net income that has
been added or is required to be added to principal under the terms
of the trust. (B) When a mandatory income interest ends, the trustee shall
pay to a mandatory income beneficiary that survives that date, or
the estate of a deceased mandatory income beneficiary whose death
causes the interest to end, the beneficiary's share of the
undistributed income that is not disposed of under the terms of
the trust, unless the beneficiary has an unqualified power to
revoke more than five per cent of the trust immediately before the
income interest ends. If the beneficiary has such power, the
undistributed income from the portion of the trust that may be
revoked shall be added to principal. (C) When a trustee's obligation to pay a fixed annuity or a
fixed fraction of the value of the trust's assets ends, the
trustee shall prorate the final payment if and to the extent
required by applicable law to accomplish a purpose of the trust or
its settlor relating to income, gift, estate, or other tax
requirements.
Sec. 1340.57. (A) As used in this section, "entity" means a
corporation, partnership, limited liability company, regulated
investment company, real estate investment trust, common trust
fund, or any other organization in which a trustee has an interest
other than a trust or estate to which section 1340.58 of the
Revised Code applies, a business or activity to which section
1340.59 of the Revised Code applies, or an asset-backed security
to which section 1340.77 of the Revised Code applies. (B) Except as otherwise provided in this section, a trustee
shall allocate to income money received from an entity. (C) A trustee shall allocate all of the following receipts
from an entity to principal: (1) Property other than money; (2) Money received in one distribution or a series of related
distributions in exchange for part or all of a trust's interest
in
the entity; (3) Money received in total or partial liquidation of the
entity; (4) Money received from an entity that is a regulated
investment company or a real estate investment trust if the money
distributed is a capital gain dividend for federal income tax
purposes. (D) Money is received in partial liquidation in either of the
following circumstances: (1) To the extent that the entity, at or near the time of a
distribution, indicates that it is a distribution in partial
liquidation; (2) If the total amount of money and property received in a
distribution or series of related distributions is greater than
twenty per cent of the entity's gross assets, as shown by the
entity's year-end financial statements immediately preceding the
initial receipt. (E) Money is not received in partial liquidation, nor shall
it be taken into account under division (D)(2) of this section, to
the extent that it does not exceed the amount of income tax that a
trustee or beneficiary must pay on taxable income of the entity
that distributes the money. (F) A trustee may rely upon a statement made by an entity
about the source or character of a distribution if the statement
is made at or near the time of distribution by the entity's board
of directors or other person or group of persons authorized to
exercise powers to pay money or transfer property comparable to
those of a corporation's board of directors.
Sec. 1340.58. A trustee shall allocate to income an amount
received as a distribution of income from a trust or an estate in
which the trust has an interest other than a purchased interest,
and shall allocate to principal an amount received as a
distribution of principal from such a trust or estate. If a
trustee purchases an interest in a trust that is an investment
entity, or a decedent or donor transfers an interest in such a
trust to a trustee, section 1340.57 or 1340.77 of the Revised Code
applies to a receipt from the trust.
Sec. 1340.59. (A) If a trust that conducts a business or
other activity determines that it is in the best interest of all
the beneficiaries to account separately for the business or
activity instead of accounting for it as part of the trust's
general accounting records, the trustee may maintain separate
accounting records for its transactions, whether or not its assets
are segregated from other trust assets. (B) A trustee that accounts separately for a business or
other activity may determine the extent to which its net cash
receipts must be retained for working capital, the acquisition or
replacement of fixed assets, and other reasonably foreseeable
needs of the business or activity, and the extent to which the
remaining net cash receipts are accounted for as principal or
income in the trust's general accounting records. If a trustee
sells assets of the business or other activity, other than in the
ordinary course of the business or activity, the trustee shall
account
for the net amount received as principal in the trust's
general
accounting records to the extent the trustee determines
that the
amount received is no longer required in the conduct of
the
business. (C) Activities for which a trustee may maintain separate
accounting records under this section include all of the
following: (1) Retail, manufacturing, service, and other traditional
business activities; (3) Raising and selling livestock and other animals; (4) Management of rental properties; (5) Extraction of minerals and other natural resources; (7) Activities to which section 1340.76 of the Revised Code
applies.
Sec. 1340.63. A trustee shall allocate to principal all of
the following: (A) To the extent not allocated to income under sections
1340.40 to 1340.91 of the Revised Code, assets received from a
transferor during the transferor's lifetime, a decedent's estate,
a trust with a terminating income interest, or a payer under a
contract naming the trust or its trustee as beneficiary; (B) Money or other property received from the sale, exchange,
liquidation, or change in form of a principal asset, including
realized profit, subject to sections 1340.57 to 1340.77 of the
Revised Code; (C) Amounts recovered from third parties to reimburse the
trust because of disbursements described in division (A)(7) of
section 1340.82 of the Revised Code or for other reasons to the
extent not based on the loss of income; (D) Proceeds of property taken by eminent domain, but a
separate award made for the loss of income with respect to an
accounting period during which a current income beneficiary had a
mandatory income interest is income; (E) Net income received in an accounting period during which
there is no beneficiary to whom a trustee may or must distribute
income; (F) Other receipts as provided in sections 1340.70 to 1340.77
of the Revised Code.
Sec. 1340.64. To the extent that a trustee accounts for
receipts from rental property pursuant to this section, the
trustee shall allocate to income an amount received as rent of
real or personal property, including an amount received for
cancellation or renewal of a lease. An amount received as a
refundable deposit, including a security deposit or a deposit that
is to be applied as rent for future periods, shall be added to
principal and held subject to the terms of the lease and shall not
be available for distribution to a beneficiary until the trustee's
contractual obligations have been satisfied with respect to that
amount.
Sec. 1340.65. (A) An amount received as interest, whether
determined at a fixed, variable, or floating rate, on an
obligation to pay money to the trustee, including an amount
received as consideration for prepaying principal, shall be
allocated to income without any provision for amortization of
premium.
(B) A trustee shall allocate to principal an amount received
from the sale, redemption, or other disposition of an obligation
to pay money to the trustee more than one year after the date it
is purchased or acquired by the trustee, including an obligation
whose purchase price or value when it is acquired is less than its
value at maturity. If the obligation matures within one year
after the date it is purchased or acquired by the trustee, an
amount received in excess of its purchase price or its value when
acquired by the trust shall be allocated to income. (C) This section does not apply to an obligation to which
section 1340.71, 1340.72, 1340.73, 1340.74, 1340.76, or 1340.77 of
the Revised Code applies.
Sec. 1350.66. (A) Except as otherwise provided in division
(B) of this section, a trustee shall allocate to principal the
proceeds of a life insurance policy or other contract in which the
trust or its trustee is named as beneficiary, including a contract
that insures the trust or its trustee against loss for damage to,
destruction of, or loss of title to a trust asset. The trustee
shall allocate dividends on an insurance policy to income if the
premiums on the policy are paid from income, and to principal if
the premiums are paid from principal.
(B) A trustee shall allocate to income proceeds of a
contract that insures the trustee against loss of occupancy or
other use by an income beneficiary, loss of income, or, subject to
section 1340.59 of the Revised Code, loss of profits from a
business.
(C) This section does not apply to a contract to which
section 1340.71 of the Revised Code applies.
Sec. 1340.70. If a trustee determines that an allocation
between principal and income required by section 1340.71, 1340.72,
1340.73, 1340.74, or 1340.77 of the Revised Code is insubstantial,
the trustee may allocate the entire amount to principal unless one
of the circumstances described in division (C) of section 1340.42
of the Revised Code applies to the allocation. This power may be
exercised by a cotrustee in the circumstances described in
division (D) of that section and may be released for the reasons
and in the manner described in division (E) of the section. An
allocation is presumed to be insubstantial if either of the
following applies: (A) The amount of the allocation would increase or decrease
net income in an accounting period, as determined before the
allocation, by less than ten per cent. (B) The value of the asset producing the receipt for which
the allocation would be made is less than ten per cent of the
total value of the trust's assets at the beginning of the
accounting period.
Sec. 1340.71. (A) As used in this section, "payment" means a
payment that a trustee may receive over a fixed number of years or
during the life of one or more individuals because of services
rendered or property transferred to the payer in exchange for
future payments. "Payment" includes a payment made in money or
property from the payer's general assets or from a separate fund
created by the payer, including a private or commercial annuity,
an individual retirement account, or a pension, profit-sharing,
stock-bonus, or stock-ownership plan. (B) To the extent that a payment is characterized as
interest or a dividend or a payment made in lieu of interest or a
dividend, a trustee shall allocate it to income. The trustee
shall allocate to principal the balance of the payment and any
other payment received in the same accounting period that is not
characterized as interest, a dividend, or an equivalent payment. (C) If no part of a payment is characterized as interest, a
dividend, or an equivalent payment, and all or part of the payment
is required to be made, a trustee shall allocate to income ten per
cent of the part that is required to be made during the accounting
period and the balance to principal. If no part of a payment is
required to be made or the payment received is the entire amount
to which the trustee is entitled, the trustee shall allocate the
entire payment to principal. For purposes of this division, a
payment is not "required to be made" to the extent that it is made
because the trustee exercises a right of withdrawal. (D) If, to obtain an estate tax marital deduction for a
trust, a trustee must allocate more of a payment to income than is
provided for by this section, the trustee shall allocate to income
the additional amount necessary to obtain the marital deduction. (E) This section does not apply to payments to which section
1340.72 of the Revised Code applies.
Sec. 1340.72. (A) As used in this section, "liquidating
asset" means an asset whose value will diminish or terminate
because the asset is expected to produce receipts for a period of
limited duration. "Liquidating asset" includes a leasehold,
patent, copyright, royalty right, and right to receive payments
during a period of more than one year under an arrangement that
does not provide for the payment of interest on the unpaid
balance. "Liquidating asset" excludes a payment subject to
section 1340.71 of the Revised Code, resources subject to section
1340.73 of the Revised Code, timber subject to section 1340.74 of
the Revised Code, an activity subject to section 1340.76 of the
Revised Code, an asset subject to section 1340.77 of the Revised
Code, or any asset for which the trustee establishes a reserve for
depreciation under section 1340.83 of the Revised Code. (B) A trustee shall allocate to income ten per cent of the
receipts from a liquidating asset and the balance to principal.
Sec. 1340.73. (A) To the extent that a trustee accounts for
receipts from an interest in minerals or other natural resources
pursuant to this section, the trustee shall allocate the receipts
in accordance with all of the following: (1) If received as nominal delay rental or nominal annual
rent on a lease, a receipt shall be allocated to income. (2) If received from a production payment, a receipt shall be
allocated to income if and to the extent that the agreement
creating the production payment provides a factor for interest or
its equivalent. The balance shall be allocated to principal. (3) If an amount received as a royalty, shut-in-well payment,
take-or-pay payment, bonus, or delay rental is more than nominal,
ninety per cent shall be allocated to principal and the balance to
income. (4) If an amount is received from a working interest or any
other interest not provided for in division (A)(1), (2), or (3) of
this section, ninety per cent of the net amount received shall be
allocated to principal and the balance to income. (B) An amount received on account of an interest in water
that is renewable shall be allocated to income. If the water is
not renewable, ninety per cent of the amount shall be allocated to
principal and the balance to income. (C) This section applies whether or not a decedent or donor
was extracting minerals, water, or other natural resources before
the interest became subject to the trust. (D) If a trust owns an interest in minerals, water, or other
natural resources on the effective date of this section, the
trustee may allocate receipts from the interest as provided in
this section or in the manner used by the trustee before that
date. If the trust acquires an interest in minerals, water, or
other natural resources after the effective date of this section,
the trustee shall allocate receipts from the interest as provided
in this section.
Sec. 1340.74. (A) To the extent that a trustee accounts for
receipts from the sale of timber and related products pursuant to
this section, the trustee shall allocate the net receipts in
accordance with all of the following: (1) To income, to the extent that the amount of timber
removed from the land does not exceed the rate of growth of the
timber during the accounting periods in which a beneficiary has a
mandatory income interest; (2) To principal, to the extent that the amount of timber
removed from the land exceeds the rate of growth of the
timber or
the net receipts are from the sale of standing timber; (3) To or between income and principal, if the net receipts
are from the lease of timberland or from a contract to cut timber
from land owned by a trust, by determining the amount of timber
removed from the land under the lease or contract and applying
divisions (A)(1) and (2) of this section; (4) To principal, to the extent that advance payments,
bonuses, and other payments are not allocated pursuant to division
(A)(1), (2), or (3) of this section. (B) In determining net receipts to be allocated pursuant to
division (A) of this section, a trustee shall deduct and transfer
to principal a reasonable amount for depletion. (C) This section applies whether or not a decedent or
transferor was harvesting timber from the property before it
become subject to the trust. (D) If a trust owns an interest in timberland on the
effective date of this section, the trustee may allocate net
receipts from the sale of timber and related products as provided
in this section or in the manner used by the trustee before that
date. If the trust acquires an interest in timberland after the
effective date of this section, the trustee shall allocate net
receipts from the sale of timber and related products as provided
in this section.
Sec. 1340.75. (A) If a marital deduction is allowed for all
or part of a trust whose assets consist substantially of property
that does not provide the surviving spouse with sufficient income
from or use of the trust assets, and if the amounts that the
trustee transfers from principal to income under section 1340.42
of the Revised Code and distributes to the spouse from principal
pursuant to the terms of the trust are insufficient to provide the
spouse with the beneficial enjoyment required to obtain the
marital deduction, the spouse may require the trustee to make
property productive of income, convert property within a
reasonable
time, or exercise the power conferred by division (A)
of that
section. The trustee may decide which action or
combination of
actions to take. (B) In cases not governed by division (A) of this section,
proceeds from the sale or other disposition of an asset shall be
principal without regard to the amount of income the asset
produces during any accounting period.
Sec. 1340.76. (A) As used in this section, "derivative"
means a contract or financial instrument or a combination of
contracts and financial instruments that gives a trust the right
or obligation to participate in some or all changes in the price
of a tangible or intangible asset or group of assets, or changes
in a rate, an index of prices or rates, or other market indicator
for an asset or a group of assets. (B) To the extent that a trustee does not account under
section 1340.59 of the Revised Code for transactions in
derivatives, the trustee shall allocate to principal receipts from
and disbursements made in connection with those transactions. (C) If a trustee grants an option to buy property from the
trust, whether or not the trust owns the property when the option
is granted, grants an option that permits another person to sell
property to the trust, or acquires an option to buy property for
the trust or an option to sell an asset owned by the trust, and
the trustee or other owner of the asset is required to deliver the
asset if the option is exercised, an amount received for granting
the
option shall be allocated to principal. An amount paid to
acquire
the option shall be paid from principal. A gain or loss
realized
upon the exercise of an option, including an option
granted to a
settlor of the trust for services rendered, shall be
allocated to
principal.
Sec. 1340.77. (A) As used in this section, "asset-backed
security" means an asset whose value is based upon the right it
gives the owner to receive distributions from the proceeds of
financial assets that provide collateral for the security.
"Asset-backed security" includes an asset that gives the owner the
right to receive from the collateral financial assets only the
interest or other current return or only the proceeds other than
interest or current return. "Asset-backed security" excludes an
asset to which section 1340.57 or 1340.71 of the Revised Code
applies. (B) If a trust receives a payment from interest or other
current return and from other proceeds of the collateral financial
assets, the trustee shall allocate to income the portion of the
payment that the payer identifies as being from interest or other
current return and shall allocate the balance of the payment to
principal. (C) If a trust receives one or more payments in exchange for
the trust's entire interest in an asset-backed security in one
accounting period, the trustee shall allocate the payments to
principal. If a payment is one of a series of payments that will
result in the liquidation of the trust's interest in the security
over more than one accounting period, the trustee shall allocate
ten per cent of the payment to income and the balance to
principal.
Sec. 1340.81. A trustee shall make all of the following
disbursements from income to the extent that they are not
disbursements to which division (B)(2) or (3) of section 1340.46
of the Revised Code applies: (A) One-half of the regular compensation of the trustee and
of any person providing investment advisory or custodial services
to the trustee; (B) One-half of all expenses for accountings, judicial
proceedings, or other matters that involve both the income and
remainder interests; (C) All of the other ordinary expenses incurred in connection
with the administration, management, or preservation of trust
property and the distribution of income, including interest,
ordinary repairs, regularly recurring taxes assessed against
principal, and expenses of a proceeding or other matter that
concerns primarily the income interest; (D) Recurring premiums on insurance covering the loss of a
principal asset or the loss of income from or use of the asset.
Sec. 1340.82. (A) A trustee shall make all of the following
disbursements from principal: (1) The remaining one-half of the disbursements described in
divisions (A) and (B) of section 1340.81 of the Revised Code; (2) All of the trustee's compensation calculated on principal
as a fee for acceptance, distribution, or termination, and
disbursements made to prepare property for sale; (3) Payments on the principal of a trust debt; (4) Expenses of a proceeding that concerns primarily
principal, including a proceeding to construe the trust or to
protect the trust or its property; (5) Premiums paid on a policy of insurance not described in
division (D) of section 1340.81 of the Revised Code of which the
trust is the owner and beneficiary; (6) Estate, inheritance, and other transfer taxes, including
penalties, apportioned to the trust; (7) Disbursements related to environmental matters, including
reclamation, assessing environmental conditions, remedying and
removing environmental contamination, monitoring remedial
activities and the release of substances, preventing future
releases of substances, collecting amounts from persons liable or
potentially liable for the costs of those activities, penalties
imposed under environmental laws or regulations and other payments
made to comply with those laws or regulations, statutory or common
law claims by third parties, and defending claims based on
environmental matters. (B) If a principal asset is encumbered with an obligation
that requires income from that asset to be paid directly to the
creditor, the trustee shall transfer from principal to income an
amount equal to the income paid to the creditor in reduction of
the principal balance of the obligation.
Sec. 1340.83. (A) As used in this section, "depreciation"
means a reduction in value due to wear, tear, decay, corrosion, or
gradual obsolescence of a fixed asset having a useful life of more
than one year. (B) A trustee may transfer to principal a reasonable amount
of the net cash receipts from a principal asset that is subject to
depreciation, but shall not transfer any amount for depreciation
under any of the following circumstances: (1) Any amount for depreciation of that portion of real
property used or available for use by a beneficiary as a residence
or of tangible personal property held or made available for the
personal use or enjoyment of a beneficiary; (2) Any amount for depreciation during the administration of
a decedent's estate; (3) Any amount for depreciation under this section if the
trustee is accounting under section 1340.59 of the Revised Code
for the
business or activity in which the asset is used. (C) An amount transferred to principal need not be held as a
separate fund.
Sec. 1340.84. (A) If a trustee makes or expects to make a
principal disbursement described in this section, the trustee may
transfer an appropriate amount from income to principal in one or
more accounting periods to reimburse principal or to provide a
reserve for future principal disbursements. (B) Principal disbursements to which division (A) of this
section applies include all of the following, but only to the
extent that the trustee has not been and does not expect to be
reimbursed by a third party: (1) An amount chargeable to income but paid from principal
because it is unusually large, including extraordinary repairs; (2) A capital improvement to a principal asset, whether in
the form of changes to an existing asset or the construction of a
new asset, including special assessments; (3) Disbursements made to prepare property for rental,
including tenant allowances, leasehold improvements, and broker's
commissions; (4) Periodic payments on an obligation secured by a principal
asset to the extent that the amount transferred from income to
principal for depreciation is less than the periodic payments; (5) Disbursements described in division (A)(7) of section
1340.82 of the Revised Code. (C) If the asset whose ownership gives rise to the
disbursements becomes subject to a successive income interest
after an income interest ends, a trustee may continue to transfer
amounts from income to principal as provided in division (A) of
this section.
Sec. 1340.85. (A) A tax required to be paid by a trustee
based on receipts allocated to income shall be paid from income. (B) A tax required to be paid by a trustee based on receipts
allocated to principal shall be paid from principal, even if the
tax is called an income tax by the taxing authority. (C) A tax required to be paid by a trustee on the trust's
share of an entity's taxable income shall be paid proportionately
as follows: (1) From income, to the extent that receipts from the entity
are allocated to income; (2) From principal, as follows: (a) To the extent that receipts from the entity are allocated
to principal; and (b) To the extent that the trust's share of the entity's
taxable income exceeds the total receipts described in divisions
(C)(1) and (2)(a) of this section. (D) For purposes of this section, receipts allocated to
principal or income shall be reduced by the amount distributed to
a beneficiary from principal or income for which the trust
receives a deduction in calculating the tax.
Sec. 1340.86. (A) A fiduciary may make adjustments between
principal and income to offset the shifting of economic interests
or tax benefits between income beneficiaries and remainder
beneficiaries that arise from any of the following: (1) Elections and decisions, other than those described in
division (B) of this section, that the fiduciary makes from time
to time regarding tax matters; (2) An income tax or any other tax that is imposed upon the
fiduciary or a beneficiary as a result of a transaction involving
or a distribution from the estate or trust; (3) The ownership by an estate or trust of an interest in an
entity whose taxable income, whether or not distributed, is
includable in the taxable income of the estate, trust, or
beneficiary. (B) If the amount of an estate tax marital deduction or
charitable contribution deduction is reduced because a fiduciary
deducts an amount paid from principal for income tax purposes
instead of deducting it for estate tax purposes, and as a result
estate taxes paid from principal are increased and income taxes
paid by an estate, trust, or beneficiary are decreased, each
estate, trust, or beneficiary that benefits from the decrease in
income tax shall reimburse the principal from which the increase
in estate tax is paid. The total reimbursement shall equal the
increase in the estate tax to the extent that the principal used
to pay the increase would have qualified for a marital deduction
or charitable contribution deduction but for the payment. The
proportionate share of the reimbursement for each estate, trust,
or beneficiary whose income taxes are reduced shall be the same as
its proportionate share of the total decrease in income tax. An
estate or trust shall reimburse principal from income.
Sec. 1340.90. (A) Sections 1340.40 to 1340.91 of the Revised
Code may be cited as the "uniform principal and income act
(1997)." (B) In applying and construing the "uniform principal and
income act (1997)", consideration shall be given to the need to
promote uniformity of the law with respect to its subject matter
among states that enact the "uniform principal and income act
(1997)".
Sec. 1340.91. Sections 1340.40 to 1340.90 of the Revised
Code apply to every trust or decedent's estate existing on the
effective date of this section except as otherwise expressly
provided in the will or terms of the trust or in sections 1340.40
to 1340.90 of the Revised Code.
Sec. 2109.67. (A) Unless the will otherwise provides and
subject to division (B) of this section, all expenses incurred in
connection with the settlement of a decedent's estate, including
debts, funeral expenses, estate taxes, penalties concerning
taxes,
allowances to a surviving spouse, minor children, or both,
including, but not limited to, the allowance for support under
section 2106.13 of the Revised Code, fees of attorneys and
personal representatives, and court costs shall be charged
against
the principal of the estate. (B) Unless the will otherwise provides, income from the
assets of a decedent's estate after the death of the testator and
before distribution, including income from property used to
discharge liabilities, shall be determined in accordance with the
rules applicable to a trustee under Chapter 1340. of the Revised
Code and distributed as follows: (1) To specific legatees and devisees, the income from the
property bequeathed or devised to them respectively, less
property
taxes, ordinary repairs, interest, and other expenses of
management and operation of the property, and an appropriate
portion of taxes imposed on income, excluding taxes on capital
gains, income in respect of a decedent, and other items allocable
to principal, which accrue during the period of administration; (2)(a) To all other legatees, except as provided in division
(B)(2)(b) of this section, the balance of the income, less
the
balance of property taxes, ordinary repairs, interest, and other
expenses of management and operation of all property from which
the estate is entitled to income, and taxes imposed on income,
excluding taxes on capital gains, income in respect of a
decedent,
and other items allocable to principal, which accrue
during the
period of administration, in proportion to their
respective
interests in the undistributed assets of the estate,
computed at
times of distribution on the basis of inventory
value; (b) A legatee, other than the testator's surviving
spouse,
of a pecuniary legacy not in trust shall not be paid
interest on
the legacy, and the legacy shall not be entitled to
receive any
part of the income received by the estate during the
period of
administration as income on the legacy. A legacy to
the
testator's surviving spouse of a pecuniary amount shall carry
with
it a proportionate part of the income of the estate from the
testator's death to the date of satisfaction, determined in
accordance with division (B)(2)(a) of this section. (C) If a will or trust instrument gives the fiduciary
discretion
in crediting a receipt or charging an expenditure to
income or principal or
partly to each, no inference of
imprudence
or partiality arises from the fact that the fiduciary
has made an
allocation contrary to this section, section 2109.66,
or sections
1340.01
1340.40 to
1340.13
1340.91 of the
Revised Code. (D) A fiduciary may credit a receipt or charge an
expenditure to
income or principal with respect to a decedent's
estate, a trust under a will,
or property passing to a
trust under
a will, that is eligible for a federal or Ohio estate
tax marital
deduction or estate tax charitable deduction only to the extent
that the credit of the
receipt or charge of the expenditure will
not cause the reduction or loss
of the deduction. (E) As used in this section, "federal estate tax charitable
deduction," "federal estate tax marital deduction," "Ohio estate
tax charitable deduction," and "Ohio estate tax marital deduction"
have the same meanings as in section 1340.02
of the Revised Code.:
(1)
"Federal estate tax charitable deduction" means the
estate tax charitable deduction allowed by subtitle
B,
Chapter 11
of the
"Internal
Revenue
Code of 1986," 26
U.S.C.A.
2055, as
amended. (2)
"Federal estate tax marital deduction" means the estate
tax marital deduction allowed by subtitle
B,
Chapter 11 of the
"Internal
Revenue
Code of 1986," 26
U.S.C.A.
2056, as amended. (3)
"Ohio estate tax
charitable deduction" means the estate
tax charitable deduction
allowed by division (A) of
section
5731.17 of the Revised
Code. (4)
"Ohio estate tax
marital deduction" means the estate tax
marital deduction
allowed by division (A) of
section 5731.15 of
the Revised
Code.
Sec. 2109.68. In all cases not covered by section 2109.66 or
2109.67 of the
Revised Code, allocation of receipts and
expenditures by an executor,
administrator, or testamentary
trustee shall be as prescribed in sections
1340.01
1340.40 to
1340.13
1340.91 of the Revised Code.
Section 2. That existing sections 1340.35, 2109.67, and
2109.68 and sections 1340.01, 1340.02, 1340.03, 1340.031, 1340.04,
1340.05, 1340.06, 1340.07, 1340.08, 1340.09, 1340.10, 1340.11,
1340.12, and 1340.13 of the Revised Code are hereby repealed.
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