Allocation of Receipts/Income

Question 1

Receipts: Income

Answer 1

• Money received from corporation or partnership, or real estate investment, unless money is characterized as capital gain under tax law.
• (All property other than money received from the above is principal)
• Timber to the extent it is being replaced. Any more goes to principal.
• Delay rental for minerals, water, and other natural resources

Question 2

Receipts: Principal

Answer 2

Proceeds from life insurance policy or other contract in which trust is a named beneficiary (unless insures against loss of profits from business)

Question 3

Receipts: Equitably (trustee chooses equitably)

Answer 3

Mineral, water, and other resources royalties (except delay rental or production payments)

Question 4

Receipts: Liquidating assets (patents, copyrights, book royalties, etc.)

Answer 4

10% income, 90% principal

Question 5

Receipts: Pension Plans and IRAs

Answer 5

Distributions made in any year are allocated to income until payments equal four percent of the plan’s or IRA’s value at the beginning of the accounting period; if more, principal

Question 6

Expenses: Recurring Yearly Expenses

Answer 6

(e.g. property tax, casualty insurance premium, ordinary repairs, mortgage interest payments):

charged against income

Question 7

Capital Expenditures

Answer 7

(e.g. capital improvements, expenses relating to environmental matters, estate taxes, mortgage principal payments):

charged against principal

Question 8

Trustee’s commissions, accountings, and judicial proceedings

Answer 8

Half and half (income and principal)

Question 9

Adjustment Power

Answer 9

(see other slide)

Question 10

Duty to Administer Trust Impartially

Answer 10

trustee has duty to administer trust impartially to the extent that one or more of the beneficiaries is to be favored over the others.