Income and principal: upia

Question 1

When does UPIA apply

Answer 1

1. Uniform Principal and Income Act (UPIA)

i. applies to all trusts and estates unless governing instrument provides otherwise

Question 2

Income and expense allocated to life tenant vs. remainderman

Answer 2

1. the life tenant gets (is allocated) the following income
   i. cash dividends
   ii. interest income
   iii. net business income
2. the life tenant pays for (is allocated) these expenditures:
   i. interest and principal on loan indebtedness
   ii. taxes
   ii. major and minor repairs or improvements
3. the remainderman gets (is allocated) the following income
   i. stock dividends
   ii. stock splits
   iii. net proceeds on the sale of a trust asset
   i

Question 3

Adjustment power of trustee

Answer 3

1. above allocation can be disregarded if a different allocation is necessary for fair administration of the trust
   i. ex. if the only income from the trust is from the sale of trust asset, trustee may allocate some of the income to the life tenant
2. factors to consider
   i. purpose of trust, settlor’s intent, beneficiary’s identity and circumstances
   ii. need for liquidity, income, and capital preservation
   iii. nature of trust assets, amount allocated to income, and change in asset values
   iv. extent trust allows trustee to invade principal or accumulate income
   v. anticipated economic conditions
   vi. tax consequences
3. no adjustment if trustee is a beneficiary of the trust
4. no adjustment if there would be an adverse tax consequence (ex. disqualify for charitable deduction)