During any period in which the trust is being administered as a unitrust, either pursuant to the powers conferred by Sections 16336.4 to 16336.6, inclusive, or pursuant to the terms of the governing instrument, "net income" means the unitrust amount, if the unitrust amount is no less than 3 percent and no more than 5 percent of the fair market value of the trust assets, whether determined annually or averaged on a multiple year basis. (a) In allocating receipts and disbursements to or between principal and income, and with respect to any other matter within the scope of this chapter, a fiduciary: (1) Shall administer a trust or decedent's estate in accordance with the trust or the will, even if there is a different provision in this chapter.
(2) May administer a trust or decedent's estate by the exercise of a discretionary power of administration given to the fiduciary by 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 a provision of this chapter.
(3) Shall administer a trust or decedent's estate in accordance with this chapter if the trust or the will does not contain a different provision or does not give the fiduciary a discretionary power of administration.
Questions about the California Uniform Principal and Income Act can be directed to Cal CPA member William Downs.
See below for corresponding links to the national UPIA Article 1. This chapter may be cited as the Uniform Principal and Income Act. The definitions in this article govern the construction of this chapter. "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. "Fiduciary" means a personal representative or a trustee. "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 5.1 (commencing with Section 16350), 5.2 (commencing with Section 16355), or 5.3 (commencing with Section 16360). "Income beneficiary" means a person to whom net income of a trust is or may be payable. "Income interest" means the right of an income beneficiary to receive all or part of net income, whether the trust requires it to be distributed or authorizes it to be distributed in the trustee's discretion. "Mandatory income interest" means the right of an income beneficiary to receive net income that the trust requires the fiduciary to distribute. "Net income" means the total receipts allocated to income during an accounting period minus the disbursements made from income during the accounting period, plus or minus transfers under this chapter to or from income during the accounting period.
(b) A trustee may not make an adjustment between principal and income in any of the following circumstances: (1) Where it would diminish the income interest in a trust (A) that requires all of the income to be paid at least annually to a spouse and (B) for which, if the trustee did not have the power to make the adjustment, an estate tax or gift tax marital deduction would be allowed, in whole or in part.
(2) Where it would reduce 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) Where it would change the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets.(5) In exercising a discretionary power of administration regarding a matter within the scope of this chapter, whether granted by a trust, a will, or this chapter, including the trustee's power to adjust under subdivision (a) of Section 16336, and the trustee's power to convert into a unitrust or reconvert or change the unitrust payout percentage pursuant to Sections 16336.4 to 16336.6, inclusive, the fiduciary shall administer the trust or decedent's estate impartially, except to the extent that the trust or the will expresses an intention that the fiduciary shall or may favor one or more of the beneficiaries.The exercise of discretion in accordance with this chapter is presumed to be fair and reasonable to all beneficiaries. (a) Subject to subdivision (b), a trustee may make an adjustment between principal and income to the extent the trustee considers necessary if all of the following conditions are satisfied: (1) The trustee invests and manages trust assets under the prudent investor rule.(2) The trust describes the amount that shall or may be distributed to a beneficiary by referring to the trust's income.(3) The trustee determines, after applying the rules in subdivision (a) of Section 16335, and considering any power the trustee may have under the trust to invade principal or accumulate income, that the trustee is unable to comply with subdivision (b) of Section 16335.