Senate Bill No. 419
(By Senators White, Anderson, Bowman, Deem and Scott)
[Originating in the Committee on Interstate Cooperation;
reported February 5, 1998.]
A BILL to repeal article six, chapter thirty-six of the code of
West Virginia, one thousand nine hundred thirty-one, as
amended; and to further amend said code by adding thereto a
new chapter, designated chapter forty-four-b, all relating to
revising the uniform principal and income act.
Be it enacted by the Legislature of West Virginia:
That article six, chapter thirty-six of the code of West
Virginia, one thousand nine hundred thirty-one, as amended, be
repealed; and that said code be further amended by adding thereto
a new chapter, designated chapter forty-four-b, all to read as
CHAPTER 44B. UNIFORM PRINCIPAL AND INCOME ACT.
ARTICLE 1. DEFINITIONS AND FIDUCIARY DUTIES.
§44B-1-101. Short title.
This chapter may be cited as the "Uniform Principal and Income Act".
(a) "Accounting period" means a calendar year unless another
twelve-month period is selected by a fiduciary. The term includes
a portion of a calendar year or other twelve-month period that
begins when an income interest begins or ends when an income
(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. The term includes a
portion of receipts from a sale, exchange or liquidation of a
principal asset, to the extent provided in article four of this
(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 it to be distributed 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 this
chapter to or from income during the period.
(i) "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
(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.
§44B-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 two and three of this chapter, 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
(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 section 104(a) 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 or this chapter, 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 this chapter is presumed to be fair and reasonable
to all of the beneficiaries.
§44B-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 subsection (a), section one
hundred three of this article, that the trustee is unable to comply
with subsection (b) of said section.
(b) In deciding whether and to what extent to exercise the
power conferred by subsection (a) of this section, a trustee shall
consider all factors relevant to the trust and its beneficiaries,
including 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 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; and
(9) The anticipated tax consequences of an adjustment.
(c) A trustee may not make an adjustment:
(1) That 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) 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 trustee is not a beneficiary, but the adjustment
would benefit the trustee directly or indirectly.
(d) If subdivision (5), (6), (7) or (8), subsection (c) 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
subsection (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
subdivision (l) through (6), subsection (c) of this section or
subdivision (8) of said subsection (c)(8) 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) 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 subsection (a) of this section.
ARTICLE 2. DECEDENT'S ESTATE OR TERMINATING INCOME INTEREST.
§44B-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 three through five which apply to
trustees and the rules in subdivision (5) of this section. The
fiduciary shall distribute the net income and net principal
receipts to the beneficiary who is to receive the specific
(2) A fiduciary shall determine the remaining net income of
a decedent's estate or a terminating income interest under the
rules in articles three through five which apply to trustees and
(A) Including in net income all income from property used to
(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, the terms of the trust or applicable law from
net income determined under subdivision (2) 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.
(4) A fiduciary shall distribute the net income remaining
after distributions required by subdivision (3) of this section in
the manner described in section two hundred two of this article 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 subdivision (1) of this section because
of a payment described in section five hundred one or five hundred two,, article five of this chapter 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.
§44B-2-202. Distribution to residuary and remainder beneficiaries.
(a) Each beneficiary described in subdivision (4), section two
hundred one of this article 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
(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
(c) If a fiduciary does not distribute all of the collected
but undistributed net income to each person as of a distribution
date, the fiduciary shall maintain appropriate records showing the
interest of each beneficiary in that net income.
(d) A trustee may apply the rules in this section, to the extent that the trustee 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.
ARTICLE 3. APPORTIONMENT AT BEGINNING AND END OF INCOME INTEREST.
§44B-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
(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
(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) of this section, even if there is an
intervening period of administration to wind up the preceding
(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.
§44B-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 subdivision (1), section two hundred one,
article two of this chapter 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
(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 section four hundred one, article four of this chapter
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.
§44B-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) 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 unless the beneficiary has an unqualified power to revoke
more than five percent of the trust immediately before the income interest ends. In the latter case, the undistributed income from
the portion of the trust that may be revoked must be added to
(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.
ARTICLE 4. ALLOCATION OF RECEIPTS DURING ADMINISTRATION OF TRUST
PART 1. RECEIPTS FROM ENTITIES.
§44B-4-401. Character or 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 section four hundred two of this article
applies, a business or activity to which section four hundred three
of this article applies, or an asset-backed security to which
section four hundred fifteen of this article 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
(3) Money received in total or partial liquidation of the
(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
(d) Money is received in partial liquidation:
(1) To the extent that the entity, at or near the time of a
distribution, indicates that it is a distribution in partial
(2) 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
(e) Money is not received in partial liquidation, nor may it
be taken into account under subdivision (2), subsection (d) 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.
§44B-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, section four
hundred one or four hundred fifteen of this article applies to a
receipt from the trust.
§44B-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
(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 section 414 applies.
PART 2. RECEIPTS NOT NORMALLY APPORTIONED.
§44B-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
(2) 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 subdivision (7),
subsection (a), section five hundred two, article five of this
chapter or for other reasons to the extent not based on the loss of
(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
(6) Other receipts as provided in part 3 of this article.
§44B-4-405. Rental property.
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, 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.
§44B-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) 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 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 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 section four hundred nine, four hundred ten, four hundred eleven,
four hundred twelve, four hundred fourteen or four hundred fifteen
of this article applies.
§44B-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
(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 four
hundred three of this article, loss of profits from a business.
(c) This section does not apply to a contract to which section
four hundred nine of this article applies.
PART 3. RECEIPTS NORMALLY APPORTIONED.
§44B-4-408. Insubstantial allocations not required.
If a trustee determines that an allocation between principal
and income required by section four hundred nine, four hundred ten,
four hundred eleven, four hundred twelve or four hundred fifteen, of this article is insubstantial, the trustee may allocate the
entire amount to principal unless one of the circumstances
described in subsection (c), section one hundred four of this
article applies to the allocation. This power may be exercised by
a cotrustee in the circumstances described in subsection (d) of
said section and may be released for the reasons and in the manner
described in subdivision (e) of said section. 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 ten percent; or
(2) The value of the asset producing the receipt for which the
allocation would be made is less than ten percent of the total
value of the trust's assets at the beginning of the accounting
§44B-4-409. Deferred compensation, annuities and similar
(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 ten
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
(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 section four hundred ten of this article applies.
§44B-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 during a period of more than one year 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
section four hundred nine of this article, resources subject to
section four hundred eleven of this article, timber subject to
section four hundred twelve of this article, an activity subject to
section four hundred fourteen of this article, an asset subject to
section four hundred fifteen of this article or any asset for which
the trustee establishes a reserve for depreciation under section
five hundred three, article five of this chapter.
(b) A trustee shall allocate to income ten percent of the
receipts from a liquidating asset and the balance to principal.
§44B-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 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, ninety 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 subdivision (1), (2) or (3) of
this subsection, ninety 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, ninety 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.
(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
subdivisions (1) and (2) of this subsection; or
(4) To principal to the extent that advance payments, bonuses
and other payments are not allocated pursuant to subdivision (1),
(2) or (3)of this subsection.
(b) In determining net receipts to be allocated pursuant to
subsection (a) of this section, 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 timberland 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 timberland
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.
§44B-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 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 one hundred four of this
article 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 subsection (a) of said section. The trustee may decide which action or combination of actions to take.
(b) In cases not governed by subsection (a) of this section,
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.
§44B-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 accounts for transactions in
derivatives pursuant to this section, the trustee shall allocate to
principal receipts from and disbursements made in connection with
(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.
§44B-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 section four hundred one or four hundred nine of
this article 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
(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 percent of the payment to income and the balance to principal.
ARTICLE 5. ALLOCATION OF DISBURSEMENTS DURING ADMINISTRATION OF
§44B-5-501. Disbursements from income.
A trustee shall make the following disbursements from income
to the extent that they are not disbursements to which paragraph
(B) or (C), subdivision (2), section two hundred one, article two
of this chapter applies:
(1) One half of the regular compensation of the trustee and of
any person providing investment advisory or custodial services to
(2) One half of all expenses for accountings, judicial
proceedings or other matters that involve both the income and
(3) 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
(4) Recurring premiums on insurance covering the loss of a principal asset or the loss of income from or use of the asset.
§44B-5-502. Disbursements from principal.
(a) A trustee shall make the following disbursements from
(1) The remaining onehalf of the disbursements described in
subdivisions (1) and (2), section five hundred one of this article;
(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
subdivision (4), section five hundred one of this article 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
(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.
§44B-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
(2) During the administration of a decedent's estate; or
(3) Under this section if the trustee is accounting under
section four hundred three, article four of this chapter for the
business or activity in which the asset is used.
(c) An amount transferred to principal need not be held as a
§44B-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) of this
section applies include the following, but only to the extent that
the trustee has not been and does not expect to be reimbursed by a
(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
(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 subdivision (7), subsection (a), section five hundred two of this article.
(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) of this
§44B-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 subdivision (1) and paragraph (A),
subdivision (2) of this subsection.
(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.
§44B-5-506. Adjustments between principal and income because of
(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
(1) Elections and decisions, other than those described in
subsection (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; 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
(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.
ARTICLE 6. MISCELLANEOUS PROVISIONS.
§44B-6-601. Uniformity of application and construction.
In applying and construing this chapter, consideration must be
given to the need to promote uniformity of the law with respect to
its subject matter among states that enact it.
§44B-6-602. 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.
§44B-6-603. Effective date.
This chapter takes effect on the first day of July, one
thousand nine hundred ninety-eight.
§44B-6-604. Application of chapter to existing trusts and estates.
This chapter applies to every trust or decedent's estate
existing on the effective date of this chapter except as otherwise
expressly provided in the will or terms of the trust or in this
(NOTE: The purpose of this bill is to revise the Uniform
Principal and Income Act which was enacted in West Virginia in
1953. This bill is recommended for passage in all of the states
this year by the National Conference of Commissioners on Uniform
This chapter is new; therefore, strike-throughs and
underscoring have been omitted.)