|SB 0370||Revises Principal and Income Act and the rule against perpetuities|
|LR Number:||1180S.02P||Fiscal Note:||1180-02|
|Last Action:||05/18/01 - 001 H Calendar S Bills for Third Reading w/HCA 1||Journal page:|
|Effective Date:||August 28, 2001|
SB 370 - This act revises the Principal and Income Act enacted in 1983 and the rule against perpetuities. The act makes current market investment principles, including diversification, applicable to trust estates, unless the trust document provides otherwise. Current accounting principles, such as adjustment to shares of beneficiaries, will apply to trusts, and the act defines many terms, consistent with changes to the Internal Revenue Code as well as the Prudent Investor Act enacted in 1996.
The act contains standards and procedure to determine which parts of a trust constitute principal and which constitute income derived from that principal. A trustee may select investments using the standards of a prudent investor, without having to realize a particular portion of the portfolio's total return in the form of traditional trust accounting income such as interest, dividend and rents. A trustee may make adjustments between principal and income under certain conditions and after consideration of specified factors.
A trust that provides for a single income beneficiary and outright distribution of the remainder ends when the income interest ends; the trustee's powers continue to complete the administration of the trust's termination. Whenever there are two or more beneficiaries, a trustee has a duty of impartiality.
The act applies the same rules regarding apportionment of trust property to inter vivos and testamentary trusts, and to assets that become subject to an inter vivos trust by a testamentary bequest. The act also reduces the statute of limitations, from 5 years to 2 years, for claims of breach of trust resulting from a trustee's allocation of income and principal.
The act provides that the rule against perpetuities and the
rule against accumulations shall not apply to a trust, if the
trust agreement grants the trustee the power to sell the trust
property or accumulate income during the time the trust continues
that would otherwise violate the rule.
HCA 1 - CERTAIN QUALIFIED BENEFICIARY REPORTS MAY BE SENT TO LAST KNOWN ADDRESS IF NO CONFLICT OF INTEREST EXISTS