TITLE LVI
PROBATE COURTS AND DECEDENTS' ESTATES
Chapter 564-C
UNIFORM PRINCIPAL AND INCOME ACT
ARTICLE 1
DEFINITIONS AND FIDUCIARY DUTIES
Section 564-C:1-101
564-C:1-101 Short Title. –
This chapter may be cited as the Uniform Principal and Income Act.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:1-102
564-C:1-102 Definitions. –
In this chapter:
(1) "Accounting period" means a calendar year unless another 12-month period is selected by a fiduciary. The term includes a portion of a calendar year or other 12-month period that begins when an income interest begins or ends when an income interest ends.
(2) "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.
(3) "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.
(4) "Income" means money or property that a fiduciary receives as current return from a principal asset. The term includes a portion of receipts from a sale, exchange, or liquidation of a principal asset, to the extent provided in article 4.
(5) "Income beneficiary" means a person to whom net income of a trust is or may be payable.
(6) "Income interest" means the right of an income beneficiary to receive all or part of net income, whether the terms of the trust require it to be distributed or authorize it to be distributed in the trustee's discretion.
(7) "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.
(8) "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 this chapter to or from income during the period. During any period in which the trust is being administered as a unitrust, either pursuant to the powers conferred by RSA 564-C:1-106 or pursuant to the terms of the will or the trust, "net income" means the unitrust amount, if the unitrust amount is no less than 2 percent and no more than 8 percent of the fair market value of the trust assets whether determined annually or averaged on a multiple year basis.
(9) "Person" means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, government, governmental subdivision, agency, or instrumentality, public corporation, or any other legal or commercial entity.
(10) "Principal" means property held in trust for distribution to a remainder beneficiary when the trust terminates.
(11) "Remainder beneficiary" means a person entitled to receive principal when an income interest ends.
(12) "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.
(13) "Trustee" includes an original, additional, or successor trustee, whether or not appointed or confirmed by a court.
(14) "Internal Revenue Code" means the Internal Revenue Code of 1986, as then amended and in effect.
Source. 2006, 320:68, eff. Aug. 19, 2006. 2008, 374:30, eff. Sept. 9, 2008.
Section 564-C:1-103
564-C:1-103 Fiduciary Duties; General Principles. –
(a) In allocating receipts and disbursements to or between principal and income, and with respect to any matter within the scope of articles 2 and 3, a fiduciary:
(1) 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 this chapter;
(2) 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 this chapter and no inference that the fiduciary has improperly exercised the discretion arises from the fact that the fiduciary has made an allocation contrary to the provisions of this chapter;
(3) shall administer a trust or estate in accordance with this chapter 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; and
(4) shall add a receipt or charge a disbursement to principal to the extent that the terms of the trust and this chapter do not provide a rule for allocating the receipt or disbursement to or between principal and income.
(b) In exercising the power to adjust under RSA 564-C:1-104(a), the power to convert into a unitrust or reconvert or change the unitrust payout percentage pursuant to RSA 564-C:1-106 or a discretionary power of administration regarding a matter within the scope of this chapter, whether granted by the terms of a trust, a will, this chapter or other applicable law, 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 express an intention that the fiduciary shall or may favor one or more of the beneficiaries. The exercise of discretion by a fiduciary in accordance with this chapter is presumed to be fair and reasonable to all of the beneficiaries.
Source. 2006, 320:68, eff. Aug. 19, 2006. 2008, 374:31, Sept. 9, 2008.
Section 564-C:1-104
564-C:1-104 Trustee's Power to Adjust. –
(a) A trustee may adjust between principal and income to the extent the trustee considers necessary if the trustee invests and manages 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 the rules in RSA 564-C:1-103(a), that the trustee is unable to comply with RSA 564-C:1-103(b).
(b) In deciding whether and to what extent to exercise the power conferred by subsection (a), a trustee may consider factors to the extent they are relevant to the trust and its beneficiaries, including, but not limited to, the following factors:
(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 the other sections of this chapter 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; and
(10) the investment return under current economic conditions from other portfolios meeting similar fiduciary requirements.
(c) A trustee may not make an adjustment between principal and income:
(1) that diminishes the income interest in a trust that requires all of the income to be paid at least annually to a 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) that 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) that changes the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets;
(4) 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 an 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 an adjustment;
(6) if possessing or exercising the power to make an 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 an adjustment;
(7) if the trustee is a beneficiary of the trust; or
(8) if the trust is being administered as a unitrust pursuant to the trustee's exercise of the power to convert to a unitrust provided in RSA 564-C:1-106 or pursuant to the terms of the will or the terms of the trust.
(d) If subsection (c)(5), (6), or (7) applies to a trustee and there is more than one trustee, the other cotrustee (if there is only one) or a majority of the other cotrustees (if there is more than one) 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 subsection (a) 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 subsection (c)(1) through (6) 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 subsection (c). 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 subsection (a).
(g) Nothing in this section or chapter is intended to create or imply a duty to make an adjustment, and a fiduciary is not liable for not considering whether to make an adjustment or for choosing not to make an adjustment.
(h) A trustee may give notice of a proposed action regarding a matter governed by this section as provided in this subsection. For purposes of this subsection, a proposed action includes a course of action and a determination not to take action. For purposes of this subsection, the representation rules of article 3 of RSA 564-B shall apply.
(1) The trustee shall mail notice of the proposed action to all qualified beneficiaries (as defined in RSA 564-B:1-103(12)) of the trust who have attained 21 years of age and to those persons who have the rights of a qualified beneficiary with respect to the trust under RSA 564-B:1-110. Notice may be given to any other beneficiary. Notice of the proposed action need not be given to any person who consents in writing to the proposed action. The consent may be executed at any time before or after the proposed action is taken.
(2) The notice of proposed action must state that it is given pursuant to this paragraph and must contain the following:
(A) the name and mailing address of the trustee;
(B) the name and telephone number of a person who may be contacted for additional information;
(C) a description of the action proposed to be taken and an explanation of the reasons for the action;
(D) the time within which objections to the proposed action can be made, which must be at least 30 days from the mailing of the notice of proposed action;
(E) the date on or after which the proposed action may be taken or is effective;
(F) a statement that the beneficiary or person who has the rights of the beneficiary may petition for a judicial determination of the proposed action; and
(G) a form on which consent or objection to the proposed action may be indicated.
(3) A beneficiary or a person who has the rights of a qualified beneficiary may object to the proposed action by mailing a written objection to the trustee at the address stated in the notice of proposed action within the time period specified in the notice of proposed action.
(4) If a trustee does not receive a written objection to the proposed action from the beneficiary or the person who has the rights of a qualified beneficiary within the applicable period, the trustee is not liable for the action to a beneficiary if:
(A) notice is mailed to such beneficiary (or a person who may represent and bind the beneficiary under the provisions of article 3 of RSA 564-B) or such person at the address determined by the trustee after reasonable diligence;
(B) such beneficiary (or a person who may represent and bind the beneficiary under the provisions of article 3 of RSA 564-B) or such person receives actual notice; or
(C) such beneficiary (or a person who may represent and bind the beneficiary under the provisions of article 3 of RSA 564-B) or such person consents in writing to the proposed action either before or after the action is taken.
(5) If the trustee receives a written objection within the applicable time period, either the trustee, a beneficiary or a person who has the rights of a qualified beneficiary may petition the court to have the proposed action performed as proposed, performed with modifications, or denied. In the proceeding, a beneficiary objecting to the proposed action or a person who has the rights of a qualified beneficiary objecting to the proposed action has the burden of proof as to whether the trustee's proposed action should not be performed. A beneficiary who has not objected or a person who has the rights of a qualified beneficiary who has not objected is not estopped from opposing the proposed action in the proceeding. If the trustee decides not to implement the proposed action, the trustee shall notify the qualified beneficiaries of the trust who have attained 21 years of age and those persons who have the rights of a qualified beneficiary of the decision not to take the action and the reasons for the decision, and the trustee's decision not to implement the proposed action does not itself give rise to liability to any current or future beneficiary. A beneficiary or a person who has the rights of a qualified beneficiary may petition the court to have the action performed and has the burden of proof as to whether it should be performed.
(6) Nothing in this subsection limits the right of a trustee or beneficiary to petition the court pursuant to RSA 564-C:1-105 for instructions as to any action, failure to act, or determination not to act regarding a matter governed by this section in the absence of notice as provided in this subsection. In any such proceeding, any beneficiary filing such a petition or objecting to a petition of the trustee has the burden of proof as to any action taken, any failure to act, or determination not to act, by the trustee.
(i) Following the exercise of the power conferred by subsection (a) to adjust from principal to income, the trustee shall consider in the following order:
(1) the amount so adjusted as paid from ordinary income for federal income tax purposes to the extent not allocable to net accounting income;
(2) the amount so adjusted, after calculating the trust's capital gain net income described in section 1222(9) of the Internal Revenue Code, as paid from net short-term capital gain described in section 1222(5) of the Internal Revenue Code, and then from net long-term capital gain described in section 1222(7) of the Internal Revenue Code; and
(3) any remaining amount so adjusted as coming from the principal of the trust.
Source. 2006, 320:68, eff. Aug. 19, 2006. 2008, 374:19, 20, 32, eff. Sept. 9, 2008.
Section 564-C:1-105
564-C:1-105 Judicial Control of Discretionary Power. –
(a) The court may not order a fiduciary to change a decision to exercise or not to exercise a discretionary power conferred by this chapter unless it determines that the decision was an abuse of the fiduciary's discretion. A fiduciary's decision is not an abuse of discretion merely because the court would have exercised the power in a different manner or would not have exercised the power.
(b) The decisions to which subsection (a) applies include:
(1) a decision under RSA 564-C:1-104(a) as to whether and to what extent an amount should be transferred from principal to income or from income to principal.
(2) A decision regarding the factors that are relevant to the trust and its beneficiaries, the extent to which the factors are relevant, and the weight, if any, to be given to those factors, in deciding whether and to what extent to exercise the discretionary power conferred by RSA 564-C: 1-104(a).
(c) If the court determines that a fiduciary has abused the fiduciary's discretion, the court may place the income and remainder beneficiaries in the positions they would have occupied if the discretion had not been abused as equity requires, according to the following guidelines:
(1) to the extent that the abuse of discretion has resulted in no distribution to a beneficiary or in a distribution that is too small, the court may order the fiduciary to distribute from the trust to the beneficiary an amount that the court determines will restore the beneficiary, in whole or in part, to the beneficiary's appropriate position.
(2) to the extent that the abuse of discretion has resulted in a distribution to a beneficiary which is too large, the court may place the beneficiaries, the trust, or both, in whole or in part, in their appropriate positions by ordering the fiduciary to withhold an amount from one or more future distributions to the beneficiary who received the distribution that was too large or ordering that beneficiary to return some or all of the distribution to the trust.
(3) to the extent that the court is unable, after applying subsection (c)(1) and (2), to place the beneficiaries, the trust, or both, in the positions they would have occupied if the discretion had not been abused, the court may order the fiduciary to pay an appropriate amount from its own funds to one or more of the beneficiaries or the trust or both.
(d) A fiduciary may petition the court having jurisdiction over a trust or estate for a determination by the court whether a proposed exercise or nonexercise of a discretionary power conferred by this chapter will result in an abuse of discretion. If the petition describes the proposed exercise or nonexercise of the power and contains sufficient information to inform the beneficiaries of the reasons for the proposal, the facts upon which the fiduciary relies, and an explanation of how the income and remainder beneficiaries will be affected by the proposed exercise or nonexercise of the power, a beneficiary who challenges the proposed exercise or nonexercise has the burden of establishing that it will result in an abuse of discretion.
(e) A fiduciary shall be reimbursed for any and all costs, including without limitation all attorneys' fees and costs of defense, and all liabilities that the fiduciary may incur in connection with any claim or action relating in any way to the fiduciary's exercise of its discretion under this chapter, except to the extent that the beneficiary establishes that the fiduciary did not exercise its discretion in good faith and with honest judgment. All attorneys' fees and costs shall be advanced to the fiduciary as incurred and shall only be collected from the fiduciary after it has been determined that the fiduciary did not exercise its discretion in good faith and with honest judgment.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:1-106
564-C:1-106 Trustee's Power to Convert to Unitrust. –
(a) Unless expressly prohibited by the terms of the trust, a trustee may convert a trust into a unitrust as described in this section if all of the following apply:
(1) The trustee determines that the conversion will enable the trustee to better carry out the intent of the settlor, as defined in RSA 564-B:1-103(15), and the purposes of the trust.
(2) The trustee gives written notice of the trustee's intention to convert the trust into a unitrust and of how the unitrust will operate, including what initial decisions the trustee will make under this section, to all the qualified beneficiaries, as defined in RSA 564-B:1-103(12) and including the director of charitable trusts if, with respect to the trust, the director has the right of a "qualified beneficiary" under RSA 564-B:1-110(c).
(3) No qualified beneficiary objects to the conversion to a unitrust in a writing delivered to the trustee within 60 days of the mailing of the notice under subparagraph (a)(2).
(b)(1) The trustee may petition the court to approve the conversion to a unitrust if a qualified beneficiary timely objects to the conversion of the unitrust.
(2) A qualified beneficiary may request a trustee to convert to a unitrust. If the trustee does not convert, the beneficiary may petition the court to order the conversion.
(3) The court shall approve the conversion or direct the requested conversion if the court concludes that the conversion will enable the trustee to better carry out the intent of the settlor and the purposes of the trust.
(c) In deciding whether to exercise the power conferred by paragraph (a), a trustee may consider, among other things, all of the following:
(1) the size of the trust;
(2) the nature and estimated duration of the trust;
(3) the liquidity and distribution requirements of the trust;
(4) the needs for regular distributions and preservation and appreciation of capital;
(5) the expected tax consequences of the conversion;
(6) 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; and the extent to which an asset is used by a beneficiary;
(7) to the extent reasonably known to the trustee, the needs of the beneficiaries for present and future distributions authorized or required by the terms of the trust;
(8) whether and to what extent the terms of the trust gives the trustee the power to invade principal or accumulate income or prohibits 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; and
(9) the actual and anticipated effect of economic conditions on principal and income and effects of inflation and deflation.
(d) After a trust is converted to a unitrust, all of the following apply:
(1) The trustee shall follow an investment policy seeking a total return for the investments held by the trust, whether the return is to be derived:
(A) from appreciation of capital;
(B) from earnings and distributions from capital; or
(C) from both.
(2) The trustee shall make regular distributions in accordance with the governing instrument construed in accordance with the provisions of this section.
(3) Under the terms of the trust, the term "income" shall mean an annual distribution (the unitrust distribution) equal to not less than 3 percent nor more than 5 percent (the payout percentage) of the net fair market value of the trust's assets as determined at the end of the calendar year, whether such assets would be considered income or principal under other provisions of this chapter, averaged over the lesser of:
(A) The 3 preceding years; or
(B) The period during which the trust has been in existence.
(e) The trustee may in the trustee's discretion from time to time determine all of the following:
(1) The effective date of a conversion to a unitrust.
(2) The provisions for prorating a unitrust distribution for a short year in which a beneficiary's right to payments commences or ceases.
(3) The frequency of unitrust distributions during the year.
(4) The effect of other payments from or contributions to the trust on the trust's valuation.
(5) How frequently to value nonliquid assets and whether to estimate their value.
(6) Whether to omit from the calculations trust property occupied or possessed by a beneficiary.
(7) Any other matters necessary for the proper functioning of the unitrust.
(f)(1) Expenses which would be deducted from income if the trust were not a unitrust may not be deducted from the unitrust distribution.
(2) Unless otherwise provided by the governing instrument, the unitrust distribution shall be paid from net income, as such term would be determined if the trust were not a unitrust. To the extent net income is insufficient, the unitrust distribution shall be paid from net realized short-term capital gains. To the extent income and net realized short-term capital gains are insufficient, the unitrust distribution shall be paid from net realized long-term capital gains. To the extent income and net realized short-term and long-term capital gains are insufficient, the unitrust distribution shall be paid from the principal of the trust.
(g) The trustee or, if the trustee declines to do so, a beneficiary may petition the court to:
(1) select a payout percentage different than 3 to 5 percent;
(2) provide for a distribution of net income, as would be determined if the trust were not a unitrust, in excess of the unitrust distribution if such distribution is necessary to preserve a tax benefit;
(3) average the valuation of the trust's net assets over a period other than 3 years; or
(4) Reconvert from a unitrust.
(h) A conversion to a unitrust does not affect a term of the trust directing or authorizing the trustee to distribute principal or authorizing a beneficiary to withdraw a portion or all of the principal.
(i) A trustee may not convert a trust into a unitrust in any of the following circumstances:
(1) If payment of the unitrust distribution would change the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets.
(2) If the unitrust distribution would be made from any amount which is permanently set aside for charitable purposes under the terms of the trust and for which a federal estate or gift tax deduction has been taken, unless both income and principal are so set aside.
(3) If:
(A) Possessing or exercising the power to convert would cause an individual to be treated as the owner of all or part of the trust for federal income tax purposes; and
(B) The individual would not be treated as the owner if the trustee did not possess the power to convert.
(4) If:
(A) possessing or exercising the power to convert would cause all or part of the trust assets to be subject to federal estate or gift tax with respect to an individual; and
(B) the assets would not be subject to federal estate or gift tax with respect to the individual if the trustee did not possess the power to convert.
(5) If the conversion would result in the disallowance of a federal estate tax or gift tax marital deduction which would be allowed if the trustee did not have the power to convert.
(6) If the trustee is a beneficiary of the trust.
(j)(1) If subparagraph (i)(3), (i)(4), or (i)(6) applies to a trustee and there is more than one trustee, a cotrustee to whom the provision does not apply may convert the trust, unless the exercise of the power by the remaining trustee or trustees is prohibited by the terms of the trust.
(2) If subparagraph (i)(3), (i)(4), or (i)(6) applies to all the trustees, the trustees may petition the court to direct a conversion.
(k) A trustee may permanently release the power conferred by paragraph (a) or may release the power conferred by paragraph (a) for a specified period including a period measured by the life of an individual to convert to a unitrust if any of the following apply:
(1) The trustee is uncertain about whether possessing or exercising the power will cause a result described in subparagraph (i)(3), (i)(4), or (i)(5).
(2) 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 paragraph (i).
(l) For the purposes of this section, a person may represent and bind another person in accordance with Article 3 of RSA 564-B.
(m) Any trustee or disinterested person who in good faith takes or fails to take any action under this section shall not be liable to any person affected by such action or inaction, regardless of whether such person received written notice as provided in this section and regardless of whether such person was under a legal disability at the time of the delivery of such notice. Such person's exclusive remedy shall be to obtain an order of the court directing the trustee to convert an income trust to a unitrust, to reconvert from a unitrust to an income trust, or to change the percentage used to calculate the unitrust amount.
(n) This section shall be construed as pertaining to the administration of a trust and shall be available to any trust that is administered in New Hampshire or that is governed by the laws of this section unless:
(1) the terms of the trust reflect an intention that the current beneficiary or beneficiaries are to receive an amount other than a reasonable current return from the trust;
(2) the trust is a trust having a guaranteed annuity interest or fixed percentage interest as described in section 170(f)(2)(B) of the Internal Revenue Code, a pooled income fund (within the meaning of section 642(c)(5) of the Internal Revenue Code), a charitable remainder trust (within the meaning of section 664(d) of the Internal Revenue Code), a qualified subchapter S trust (within the meaning of section 1361(c) of the Internal Revenue Code), a personal residence trust (within the meaning of section 2702(a)(3)(A) of the Internal Revenue Code), or a trust in which one or more settlors retained a qualified interest (within the meaning of section 2702(b) of the Internal Revenue Code);
(3) one or more persons to whom the trustee could distribute income have a power of withdrawal over the trust that is not subject to an ascertainable standard or that can be exercised to discharge a duty of support he or she possesses; or
(4) the terms of the trust expressly prohibit the use of this section by specific reference to the chapter or expressly states the settlor's intent that net income not be calculated as a unitrust amount.
Source. 2008, 374:26, eff. Sept. 9, 2008. 2011, 243:15, 16, eff. Sept. 11, 2011.
ARTICLE 2
DECEDENT'S ESTATE OR TERMINATING INCOME INTEREST
Section 564-C:2-201
564-C:2-201 Determination and Distribution of Net Income. –
After a decedent dies, in the case of an estate, or after an income interest in a trust ends, the following rules apply:
(1) A fiduciary of an estate or of a terminating income interest shall determine the amount of net income and net principal receipts received from property specifically given to a beneficiary under the rules in articles 3 through 5 which apply to trustees and the rules in subsection (5). The fiduciary shall distribute the net income and net principal receipts to the beneficiary who is to receive the specific property.
(2) A fiduciary shall determine the remaining net income of a decedent's estate or a terminating income interest under the rules in articles 3 through 5 which apply to trustees and by:
(A) including in net income all income from property used to discharge liabilities;
(B) 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, but 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; and
(C) 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.
(3) A fiduciary shall distribute to a beneficiary who receives a pecuniary amount outright the interest or any other amount provided by the will or the terms of the trust from net income determined under subsection (2) or from principal to the extent that net income is insufficient. If a beneficiary is to receive a pecuniary amount outright and no interest or other amount is provided for by the will or by the terms of the trust and if the pecuniary amount is not distributed to the beneficiary within one year of the date of death of the testator or the date the income interest ends, then the fiduciary shall distribute to the beneficiary interest at the rate prescribed in RSA 336:1, II on any amount that remains undistributed after such one-year anniversary until such pecuniary amount is distributed in full.
(4) A fiduciary shall distribute the net income remaining after distributions required by subsection (3) in the manner described in RSA 564-C:2-202 to all other beneficiaries, including a beneficiary who 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.
(5) A fiduciary may not reduce principal or income receipts from property described in subsection (1) because of a payment described in RSA 564-C:5-501 or RSA 564-C:5-502 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.
Source. 2006, 320:68, eff. Aug. 19, 2006. 2008, 374:21, eff. Sept. 9, 2008.
Section 564-C:2-202
564-C:2-202 Distribution to Residuary and Remainder Beneficiaries. –
(a) Each beneficiary described in RSA 564-C:2-201(4) 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 who 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 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, the following rules 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 to each beneficiary as of a distribution date, the fiduciary shall maintain appropriate records showing the interest of each beneficiary in that net income.
(d) A fiduciary may apply the rules in this section, to the extent that the fiduciary considers it appropriate, to net gain or loss realized after the date of death or terminating event or earlier distribution date from the disposition of a principal asset if this section applies to the income from the asset.
Source. 2006, 320:68, eff. Aug. 19, 2006.
ARTICLE 3
APPORTIONMENT AT BEGINNING AND END OF INCOME INTEREST
Section 564-C:3-301
564-C:3-301 When Right to Income Begins and Ends. –
(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:
(1) on 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) on 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; or
(3) on 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 subsection (d), 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.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:3-302
564-C:3-302 Apportionment of Receipts and Disbursements When Decedent Dies or Income Interest Begins. –
(a) A trustee shall allocate an income receipt or disbursement other than one to which RSA 564-C:2-201(1) applies to principal 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 it is a periodic due date. An income receipt or disbursement must 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 must be allocated to principal and the balance must be allocated to income.
(c) 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 for the purposes of this chapter. Distributions to shareholders or other owners from an entity to which RSA 564-C:4-401 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.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:3-303
564-C:3-303 Apportionment When Income Interest Ends. –
(a) In this section, "undistributed income" means net income received before the date on which an income interest ends. The term does not include 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) Except as provided in subsection (c), when a mandatory income interest ends, the trustee shall pay to a mandatory income beneficiary who 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.
(c) If immediately before the income interest ends the beneficiary described in subsection (b) has an unqualified power to revoke more than 5 percent of the trust, the undistributed income from the portion of the trust that may be revoked must be added to principal.
(d) 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.
Source. 2006, 320:68, eff. Aug. 19, 2006.
ARTICLE 4
ALLOCATION OF RECEIPTS DURING ADMINISTRATION OF TRUST
Part 1
Receipts from Entities
Section 564-C:4-401
564-C:4-401 Character of Receipts. –
(a) 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 RSA 564-C:4-402 applies, a business or activity to which RSA 564-C:4-403 applies, or an asset-backed security to which RSA 564-C:4-415 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 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; and
(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) For purposes of subsection (c)(3):
(1) money is received in partial liquidation:
(A) to the extent that the entity, at or near the time of a distribution, indicates that it is a distribution in partial liquidation; or
(B) if the total amount of money and property received in a distribution or series of related distributions is greater than 20 percent of the entity's gross assets, as shown by the entity's year end financial statements immediately preceding the initial receipt.
(2) money is not received in partial liquidation, nor may it be taken into account under subsection (d)(1)(B), 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.
(e) A trustee may rely upon a statement made by an entity about the source or character of a distribution if the statement is made 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.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:4-402
564-C:4-402 Distribution from Trust or Estate. –
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, RSA 564 C:4-401 or RSA 564-C:4-415 applies to a receipt from the trust.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:4-403
564-C:4-403 Business and Other Activities Conducted by Trustee. –
(a) If a trustee who 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 who 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 include:
(1) retail, manufacturing, service, and other traditional business activities;
(2) farming;
(3) raising and selling livestock and other animals;
(4) management of rental properties;
(5) extraction of minerals and other natural resources;
(6) timber operations; and
(7) activities to which RSA 564-C:4-414 applies.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Part 2
Receipts Not Normally Apportioned
Section 564-C:4-404
564-C:4-404 Principal Receipts. –
A trustee shall allocate to principal:
(1) To the extent not allocated to income under this chapter, 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;
(2) Subject to any contrary rules set forth in articles 4 or 5 of this chapter, money or other property received from the sale, exchange, liquidation, or change in form of a principal asset, including realized profit, subject to this article;
(3) Amounts recovered from third parties to reimburse the trust because of disbursements described in RSA 564-C:5-502(a)(7) or for other reasons to the extent not based on the loss of income;
(4) 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;
(5) Net income received in an accounting period during which there is no beneficiary to whom a trustee may or must distribute income; and
(6) Other receipts as provided in part 3.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:4-405
564-C:4-405 Rental Property. –
To the extent that a trustee accounts for receipts from rental property pursuant to this section and not as provided in RSA 564-C:4-403, 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, must be added to principal and held subject to the terms of the lease and is not available for distribution to a beneficiary until the trustee's contractual obligations have been satisfied with respect to that amount.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:4-406
564-C:4-406 Obligation to Pay Money. –
(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, must be allocated to income without any provision for amortization of premium.
(b) An amount received from the sale, redemption, or other disposition of an obligation to pay money to the trustee more than one year after 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, must be allocated to principal. If the obligation matures within one year after 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 must be allocated to income.
(c) This section does not apply to an obligation to which RSA 564-C:4-409, 410, 411, 412, 414, or 415 applies.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:4-407
564-C:4-407 Insurance Policies and Similar Contracts. –
(a) Except as otherwise provided in subsection (b), 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 RSA 564-C:4-403, loss of profits from a business.
(c) This section does not apply to a contract to which RSA 564-C:4-409 applies.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:4-407A
564-C:4-407A Charitable Remainder Unitrusts. –
(a) In the case of a charitable remainder unitrust within the meaning of section 664(d)(2) of the Internal Revenue Code, in which the trust instrument contains an income exception described in section 664(d)(3) of the Internal Revenue Code, the trustee shall allocate receipts from each of the following assets in accordance with subsection (b), notwithstanding any other provision of this chapter:
(1) an entity within the meaning of RSA 564-C:4-401(a);
(2) an obligation to pay money to the trustee, including an obligation whose purchase price or value when it is acquired is less than its value at maturity;
(3) a life insurance policy, unless the insured has died;
(4) a private or commercial annuity, unless the payments within the meaning of RSA 564-C:4-409(a), have commenced;
(5) a derivative within the meaning of RSA 564-C:4-414(a), except to the extent that the trustee accounts under RSA 564-C:4-403 for a transaction in that derivative; or
(6) an asset-backed security within the meaning of RSA 564-C:4-415(a).
(b) A trustee shall allocate to income the amount in excess of the asset's purchase price or the asset's value when it was acquired. A trustee shall allocate to principal the balance of the money or other property received.
(c) This section shall apply to any charitable remainder unitrust created before, on, or after the effective date of this section.
Source. 2014, 195:34, eff. July 1, 2014.
Part 3
Receipts Normally Apportioned
Section 564-C:4-408
564-C:4-408 Insubstantial Allocations Not Required. –
(a) If a trustee determines that an allocation between principal and income required by RSA 564-C:4-409, 410, 411, 412, or 415 is insubstantial, the trustee may allocate the entire amount to principal unless one of the circumstances described in RSA 564-C:1-104(c) applies to the allocation. This power may be exercised by a cotrustee in the circumstances described in RSA 564-C:1-104(d) and may be released for the reasons and in the manner described in RSA 564-C:1-104(e).
(b) An allocation is presumed to be insubstantial if:
(1) the amount of the allocation would increase or decrease net income in an accounting period, as determined before the allocation, by less than 10 percent; or
(2) the value of the asset producing the receipt for which the allocation would be made is less than 10 percent of the total value of the trust's assets at the beginning of the accounting period.
(c) Nothing in this section imposes a duty on the trustee to make an allocation under this section, and the trustee is not liable for failing to make an allocation under this section regardless of whether or not the trustee has made allocations under this section in the past.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:4-409
564-C:4-409 Deferred Compensation, Annuities, and Similar Payments. –
(a) 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. The term 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, and 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 10 percent 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 subsection, 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 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 RSA 564-C:4-410 applies.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:4-410
564-C:4-410 Liquidating Asset. –
(a) 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. The term includes a leasehold, patent, copyright, royalty right, and right to receive payments under an arrangement that does not provide for the payment of interest on the unpaid balance. The term does not include a payment subject to RSA 564-C:4-409, resources subject to RSA 564-C:4-411, timber subject to RSA 564-C:4-412, an activity subject to RSA 564-C:4-414, an asset subject to RSA 564-C:4-415, or any asset for which the trustee establishes a reserve for depreciation under RSA 564-C:5-503.
(b) A trustee shall allocate to income 10 percent of the receipts from a liquidating asset and the balance to principal.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:4-411
564-C:4-411 Minerals, Water, and Other Natural Resources. –
(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 them as follows:
(1) if received as a nominal bonus, nominal delay rental or nominal annual rent on a lease, a receipt must be allocated to income.
(2) if received from a production payment, a receipt must 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 must 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, 90 percent must 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 subsection (1), (2), or (3), 90 percent of the net amount received must be allocated to principal and the balance to income.
(b) An amount received on account of an interest in water that is renewable must be allocated to income. If the water is not renewable, 90 percent of the amount must be allocated to principal and the balance to income.
(c) This chapter 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 chapter, the trustee may allocate receipts from the interest as provided in this chapter or in the manner used by the trustee before the effective date of this chapter. If the trust acquires an interest in minerals, water, or other natural resources after the effective date of this chapter, the trustee shall allocate receipts from the interest as provided in this chapter.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:4-412
564-C:4-412 Timber. –
(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:
(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 the rules in subsections (a)(1) and (2); or
(4) to principal to the extent that advance payments, bonuses, and other payments are not allocated pursuant to subsections (a)(1), (2), or (3).
(b) In determining net receipts to be allocated pursuant to subsection (a), a trustee shall deduct and transfer to principal a reasonable amount for depletion.
(c) This chapter applies whether or not a decedent or transferor was harvesting timber from the property before it became subject to the trust.
(d) If a trust owns an interest in timber land on the effective date of this chapter, the trustee may allocate net receipts from the sale of timber and related products as provided in this chapter or in the manner used by the trustee before the effective date of this chapter. If the trust acquires an interest in timber land after the effective date of this chapter, the trustee shall allocate net receipts from the sale of timber and related products as provided in this chapter.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:4-413
564-C:4-413 Property Not Productive of Income. –
(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 spouse with sufficient income from or use of the trust assets, and if the amounts that the trustee transfers from principal to income under RSA 564-C:1-104 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 within a reasonable time from being notified by the spouse to make property productive of income, convert property within a reasonable time or exercise the power conferred by RSA 564-C:1-104(a). The trustee may decide which action or combination of actions set forth above to take without regard to the specific action or actions requested by the spouse, if any.
(b) In cases not governed by subsection (a), proceeds from the sale or other disposition of an asset are principal without regard to the amount of income the asset produces during any accounting period.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:4-414
564-C:4-414 Derivatives and Options. –
(a) In this section, "derivative" means a contract or financial instrument or a combination of contracts and financial instruments which 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 RSA 564-C:4-403 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 must be allocated to principal. An amount paid to acquire the option must 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, must be allocated to principal.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:4-415
564-C:4-415 Asset-Backed Securities. –
(a) 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. The term 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. The term does not include an asset to which RSA 564-C:4-401 or RSA 564 C: 4-409 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 which 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 10 percent of the payment to income and the balance to principal.
Source. 2006, 320:68, eff. Aug. 19, 2006.
ARTICLE 5
ALLOCATION OF DISBURSEMENTS DURING ADMINISTRATION OF TRUST
Section 564-C:5-501
564-C:5-501 Disbursements from Income. –
A trustee shall make the following disbursements from income to the extent that they are not disbursements to which RSA 564-C:2-201(2)(B) or (C) applies:
(a) Except as otherwise ordered by a court, so much of the compensation of the trustee and of any person providing investment advisory or custodial services to the trustee, and so much of the expenses for accounting, judicial proceedings, or other matters that involve the income and remainder interests as shall be determined by the trustee.
(b) 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; and
(c) Recurring premiums on insurance covering the loss of a principal asset or the loss of income from or use of the asset.
Source. 2006, 320:68, eff. Aug. 19, 2006. 2008, 374:22, eff. Sept. 9, 2008.
Section 564-C:5-502
564-C:5-502 Disbursements from Principal. –
(a) A trustee shall make the following disbursements from principal:
(1) Such of the disbursements described in paragraph (a) of RSA 564-C:5-501 as are not charged to income;
(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 RSA 564-C:5-501(4) of which the trust is the owner and beneficiary;
(6) estate, inheritance, and other transfer taxes, including penalties, apportioned to the trust; and
(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.
Source. 2006, 320:68, eff. Aug. 19, 2006. 2008, 374:23, eff. Sept. 9, 2008.
Section 564-C:5-503
564-C:5-503 Transfers from Income to Principal for Depreciation. –
(a) 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 may not transfer any amount for depreciation:
(1) 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) during the administration of a decedent's estate; or
(3) under this section if the trustee is accounting under RSA 564-C:4-403 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.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:5-504
564-C:5-504 Transfers from Income to Reimburse Principal. –
(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 subsection (a) applies include 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; and
(5) disbursements described in RSA 564-C:5-502(a)(7).
(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 subsection (a).
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:5-505
564-C:5-505 Income Taxes. –
(a) A tax required to be paid by a trustee based on receipts allocated to income must be paid from income.
(b) A tax required to be paid by a trustee based on receipts allocated to principal must 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 must be paid proportionately:
(1) from income to the extent that receipts from the entity are allocated to income; and
(2) from principal to the extent that:
(A) receipts from the entity are allocated to principal; and
(B) the trust's share of the entity's taxable income exceeds the total receipts described in subsections (c)(1) and (2)(A).
(d) For purposes of this section, receipts allocated to principal or income must be reduced by the amount distributed to a beneficiary from principal or income for which the trust receives a deduction in calculating the tax.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:5-506
564-C:5-506 Adjustments Between Principal and Income Because of Taxes. –
(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 which arise from:
(1) elections and decisions, other than those described in subsection (b), 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; or
(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 a 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 must 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 must be the same as its proportionate share of the total decrease in income tax. An estate or trust shall reimburse principal from income.
Source. 2006, 320:68, eff. Aug. 19, 2006.
ARTICLE 6
MISCELLANEOUS PROVISIONS
Section 564-C:6-601
564-C:6-601 Severability Clause. –
If any provision of this chapter or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of this chapter which can be given effect without the invalid provision or application, and to this end the provisions of this chapter are severable.
Source. 2006, 320:68, eff. Aug. 19, 2006.
Section 564-C:6-602
564-C:6-602 Application of Chapter to Trusts and Estates. –
(a) The effective date of this chapter shall be January 1, 2007.
(b) Except as otherwise provided in this chapter, on the effective date of this chapter, the chapter shall apply:
(1) to every inter vivos trust created on or after the effective date of this chapter except as otherwise expressly provided in the terms of the trust or in this chapter;
(2) to any inter vivos trust created before the effective date of this chapter upon the election of the trustee to apply this chapter made in writing and delivered to the beneficiaries then entitled to receive income and principal from the trust;
(3) to any estate or testamentary trust of a decedent who dies on or after the effective date of this chapter; and
(4) to any other estate or testamentary trust upon the approval by a court of competent jurisdiction, upon either (A) a petition filed by an interested person or (B) the court on its own motion.
(c) Nothing in this section imposes a duty on the trustee or any other fiduciary to make an election under this section, and the trustee or any other fiduciary is not liable for failing to make an election under this section.
(d) Nothing in this chapter shall be construed to affect or change the form of accounting required under the rules of the probate court.
Source. 2006, 320:68, eff. Aug. 19, 2006. 2008, 374:24, eff. Sept. 9, 2008.