Stricken language would be deleted from and underlined language would be added to present law.
Act 1088 of the Regular Session
1 State of Arkansas As Engrossed: H4/7/21
2 93rd General Assembly A Bill
3 Regular Session, 2021 HOUSE BILL 1693
4
5 By: Representative Maddox
6
7 For An Act To Be Entitled
8 AN ACT TO ENACT THE UNIFORM FIDUCIARY INCOME AND
9 PRINCIPAL ACT; TO REPEAL THE UNIFORM PRINCIPAL AND
10 INCOME ACT; AND FOR OTHER PURPOSES.
11
12
13 Subtitle
14 TO ENACT THE UNIFORM FIDUCIARY INCOME AND
15 PRINCIPAL ACT; AND TO REPEAL THE UNIFORM
16 PRINCIPAL AND INCOME ACT.
17
18
19 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS:
20
21 SECTION 1. Arkansas Code Title 28, Chapter 70, is repealed.
22 Subchapter 1
23 Definitions and Fiduciary Duties
24
25 28-70-101. Short title.
26 This chapter may be cited as the Uniform Principal and Income Act.
27
28 28-70-102. Definitions.
29 In this chapter:
30 (1) Accounting period means a calendar year unless another 12-
31 month period is selected by a fiduciary. The term includes a portion of a
32 calendar year or other 12-month period that begins when an income interest
33 begins or ends when an income interest ends.
34 (2) Beneficiary includes, in the case of a decedent's estate,
35 an heir, legatee, and devisee and, in the case of a trust, an income
36 beneficiary and a remainder beneficiary.
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1 (3) Fiduciary means a personal representative or a trustee.
2 The term includes an executor, administrator, successor personal
3 representative, special administrator, and a person performing substantially
4 the same function.
5 (4) Income means money or property that a fiduciary receives
6 as current return from a principal asset. The term includes a portion of
7 receipts from a sale, exchange, or liquidation of a principal asset, to the
8 extent provided in 28-70-401 et seq.
9 (5) Income beneficiary means a person to whom net income of a
10 trust is or may be payable.
11 (6) Income interest means the right of an income beneficiary
12 to receive all or part of net income, whether the terms of the trust require
13 it to be distributed or authorize it to be distributed in the trustee's
14 discretion.
15 (7) Mandatory income interest means the right of an income
16 beneficiary to receive net income that the terms of the trust require the
17 fiduciary to distribute.
18 (8) Net income means the total receipts allocated to income
19 during an accounting period minus the disbursements made from income during
20 the period, plus or minus transfers under this chapter to or from income
21 during the period.
22 (9) Person means an individual, corporation, business trust,
23 estate, trust, partnership, limited liability company, association, joint
24 venture, government; governmental subdivision, agency, or instrumentality;
25 public corporation; or any other legal or commercial entity.
26 (10) Principal means property held in trust for distribution
27 to a remainder beneficiary when the trust terminates.
28 (11) Remainder beneficiary means a person entitled to receive
29 principal when an income interest ends.
30 (12) Terms of a trust means the manifestation of the intent of
31 a settlor or decedent with respect to the trust, expressed in a manner that
32 admits of its proof in a judicial proceeding, whether by written or spoken
33 words or by conduct.
34 (13) Trustee includes an original, additional, or successor
35 trustee, whether or not appointed or confirmed by a court.
36
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1 28-70-103. Fiduciary duties General principles.
2 (a) In allocating receipts and disbursements to or between principal
3 and income, and with respect to any matter within the scope of 28-70-201 et
4 seq. and 28-70-301 et seq., a fiduciary:
5 (1) shall administer a trust or estate in accordance with the
6 terms of the trust or the will, even if there is a different provision in
7 this chapter;
8 (2) may administer a trust or estate by the exercise of a
9 discretionary power of administration given to the fiduciary by the terms of
10 the trust or the will, even if the exercise of the power produces a result
11 different from a result required or permitted by this chapter;
12 (3) shall administer a trust or estate in accordance with this
13 chapter if the terms of the trust or the will do not contain a different
14 provision or do not give the fiduciary a discretionary power of
15 administration; and
16 (4) shall add a receipt or charge a disbursement to principal to
17 the extent that the terms of the trust and this chapter do not provide a rule
18 for allocating the receipt or disbursement to or between principal and
19 income.
20 (b) In exercising the power to adjust under 28-70-104(a) or a
21 discretionary power of administration regarding a matter within the scope of
22 this chapter, whether granted by the terms of a trust, a will, or this
23 chapter, a fiduciary shall administer a trust or estate impartially, based on
24 what is fair and reasonable to all of the beneficiaries, except to the extent
25 that the terms of the trust or the will clearly manifest an intention that
26 the fiduciary shall or may favor one or more of the beneficiaries. A
27 determination in accordance with this chapter is presumed to be fair and
28 reasonable to all of the beneficiaries.
29
30 28-70-104. Trustee's power to adjust.
31 (a) A trustee may adjust between principal and income to the extent
32 the trustee considers necessary if the trustee invests and manages trust
33 assets as a prudent investor, the terms of the trust describe the amount that
34 may or must be distributed to a beneficiary by referring to the trust's
35 income, and the trustee determines, after applying the rules in 28-70-
36 103(a), that the trustee is unable to comply with 28-70-103(b).
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1 (b) In deciding whether and to what extent to exercise the power
2 conferred by subsection (a), a trustee shall consider all factors relevant to
3 the trust and its beneficiaries, including the following factors to the
4 extent they are relevant:
5 (1) the nature, purpose, and expected duration of the trust;
6 (2) the intent of the settlor;
7 (3) the identity and circumstances of the beneficiaries;
8 (4) the needs for liquidity, regularity of income, and
9 preservation and appreciation of capital;
10 (5) the assets held in the trust; the extent to which they
11 consist of financial assets, interests in closely held enterprises, tangible
12 and intangible personal property, or real property; the extent to which an
13 asset is used by a beneficiary; and whether an asset was purchased by the
14 trustee or received from the settlor;
15 (6) the net amount allocated to income under the other sections
16 of this chapter and the increase or decrease in the value of the principal
17 assets, which the trustee may estimate as to assets for which market values
18 are not readily available;
19 (7) whether and to what extent the terms of the trust give the
20 trustee the power to invade principal or accumulate income or prohibit the
21 trustee from invading principal or accumulating income, and the extent to
22 which the trustee has exercised a power from time to time to invade principal
23 or accumulate income;
24 (8) the actual and anticipated effect of economic conditions on
25 principal and income and effects of inflation and deflation; and
26 (9) the anticipated tax consequences of an adjustment.
27 (c) A trustee may not make an adjustment:
28 (1) that diminishes the income interest in a trust that requires
29 all of the income to be paid at least annually to a surviving spouse and for
30 which an estate tax or gift tax marital deduction would be allowed, in whole
31 or in part, if the trustee did not have the power to make the adjustment;
32 (2) that reduces the actuarial value of the income interest in a
33 trust to which a person transfers property with the intent to qualify for a
34 gift tax exclusion;
35 (3) that changes the amount payable to a beneficiary as a fixed
36 annuity or a fixed fraction of the value of the trust assets;
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1 (4) from any amount that is permanently set aside for charitable
2 purposes under a will or the terms of a trust unless both income and
3 principal are so set aside;
4 (5) if possessing or exercising the power to make an adjustment
5 causes an individual to be treated as the owner of all or part of the trust
6 for income tax purposes, and the individual would not be treated as the owner
7 if the trustee did not possess the power to make an adjustment;
8 (6) if possessing or exercising the power to make an adjustment
9 causes all or part of the trust assets to be included for estate tax purposes
10 in the estate of an individual who has the power to remove a trustee or
11 appoint a trustee, or both, and the assets would not be included in the
12 estate of the individual if the trustee did not possess the power to make an
13 adjustment;
14 (7) if the trustee is a beneficiary of the trust; or
15 (8) if the trustee is not a beneficiary, but the adjustment
16 would benefit the trustee directly or indirectly.
17 (d) If subsection (c)(5), (6), (7), or (8) applies to a trustee and
18 there is more than one trustee, a cotrustee to whom the provision does not
19 apply may make the adjustment unless the exercise of the power by the
20 remaining trustee or trustees is not permitted by the terms of the trust.
21 (e) A trustee may release the entire power conferred by subsection (a)
22 or may release only the power to adjust from income to principal or the power
23 to adjust from principal to income if the trustee is uncertain about whether
24 possessing or exercising the power will cause a result described in
25 subsection (c)(1) through (6) or (c)(8) or if the trustee determines that
26 possessing or exercising the power will or may deprive the trust of a tax
27 benefit or impose a tax burden not described in subsection (c). The release
28 may be permanent or for a specified period, including a period measured by
29 the life of an individual.
30 (f) Terms of a trust that limit the power of a trustee to make an
31 adjustment between principal and income do not affect the application of this
32 section unless it is clear from the terms of the trust that the terms are
33 intended to deny the trustee the power of adjustment conferred by subsection
34 (a).
35
36 Subchapter 2
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1 Decedent's Estate or Terminating Income Interest
2
3 28-70-201. Determination and distribution of net income.
4 After a decedent dies, in the case of an estate, or after an income
5 interest in a trust ends, the following rules apply:
6 (1) A fiduciary of an estate or of a terminating income interest
7 shall determine the amount of net income and net principal receipts received
8 from property specifically given to a beneficiary under the rules in 28-70-
9 301 et seq., 28-70-401 et seq., and 28-70-501 et seq. which apply to
10 trustees and the rules in paragraph (5). The fiduciary shall distribute the
11 net income and net principal receipts to the beneficiary who is to receive
12 the specific property.
13 (2) A fiduciary shall determine the remaining net income of a
14 decedent's estate or a terminating income interest under the rules in 28-
15 70-301 et seq., 28-70-401 et seq., and 28-70-501 et seq. which apply to
16 trustees and by:
17 (A) including in net income all income from property used
18 to discharge liabilities;
19 (B) paying from income or principal, in the fiduciary's
20 discretion, fees of attorneys, accountants, and fiduciaries; court costs and
21 other expenses of administration; and interest on death taxes, but the
22 fiduciary may pay those expenses from income of property passing to a trust
23 for which the fiduciary claims an estate tax marital or charitable deduction
24 only to the extent that the payment of those expenses from income will not
25 cause the reduction or loss of the deduction; and
26 (C) paying from principal all other disbursements made or
27 incurred in connection with the settlement of a decedent's estate or the
28 winding up of a terminating income interest, including debts, funeral
29 expenses, disposition of remains, family allowances, and death taxes and
30 related penalties that are apportioned to the estate or terminating income
31 interest by the will, the terms of the trust, or applicable law.
32 (3) A fiduciary shall distribute to a beneficiary who receives a
33 pecuniary amount outright the interest or any other amount provided by the
34 will, the terms of the trust, or applicable law from net income determined
35 under paragraph (2) or from principal to the extent that net income is
36 insufficient. If a beneficiary is to receive a pecuniary amount outright from
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1 a trust after an income interest ends and no interest or other amount is
2 provided for by the terms of the trust or applicable law, the fiduciary shall
3 distribute the interest or other amount to which the beneficiary would be
4 entitled under applicable law if the pecuniary amount were required to be
5 paid under a will.
6 (4) A fiduciary shall distribute the net income remaining after
7 distributions required by paragraph (3) in the manner described in 28-70-
8 202 to all other beneficiaries, including a beneficiary who receives a
9 pecuniary amount in trust, even if the beneficiary holds an unqualified power
10 to withdraw assets from the trust or other presently exercisable general
11 power of appointment over the trust.
12 (5) A fiduciary may not reduce principal or income receipts from
13 property described in paragraph (1) because of a payment described in 28-
14 70-501 or 28-70-502 to the extent that the will, the terms of the trust, or
15 applicable law requires the fiduciary to make the payment from assets other
16 than the property or to the extent that the fiduciary recovers or expects to
17 recover the payment from a third party. The net income and principal receipts
18 from the property are determined by including all of the amounts the
19 fiduciary receives or pays with respect to the property, whether those
20 amounts accrued or became due before, on, or after the date of a decedent's
21 death or an income interest's terminating event, and by making a reasonable
22 provision for amounts that the fiduciary believes the estate or terminating
23 income interest may become obligated to pay after the property is
24 distributed.
25
26 28-70-202. Distribution to residuary and remainder beneficiaries.
27 (a) Each beneficiary described in 28-70-201(4) is entitled to
28 receive a portion of the net income equal to the beneficiary's fractional
29 interest in undistributed principal assets, using values as of the
30 distribution date. If a fiduciary makes more than one distribution of assets
31 to beneficiaries to whom this section applies, each beneficiary, including
32 one who does not receive part of the distribution, is entitled, as of each
33 distribution date, to the net income the fiduciary has received after the
34 date of death or terminating event or earlier distribution date but has not
35 distributed as of the current distribution date.
36 (b) In determining a beneficiary's share of net income, the following
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1 rules apply:
2 (1) The beneficiary is entitled to receive a portion of the n