Principal and Income Allocations

Question 1

What is the general rule regarding allocation of income and principal of trust?

Answer 1

Life beneficiaries are entitle to trust income and remainder men entitled to trust principal.

Question 2

What is the rule regarding allocating principal/income?

Under the UPAIA what right does the trustee have?

Answer 2

Allocation must be balanced so as to treat present and future trust beneficiaries fairly unless otherwise authorized.

UPAIA
-> trustee can re-categorize and reallocate as necessary to fulfill trust purpose

Question 3

Are stock distributions treated as principal or income distributions?

Answer 3

Stock distributions are treated as the distribution of principal whether classified as a dividend or a split.

Question 4

Are receipts treated as principal or income distributions?

Answer 4

Generally amount received in exchange for trust property is allocated to principal WHILE amount received for use of trust property is income.

Question 5

How are expenses allocated between beneficiaries entitle to trust income and remainder men entitled to trust principal?

What are the expenses?

Answer 5

One-half of the trustee’s compensation and one-half of accounting and other costs is charged to income (trust beneficiary).

The remaining one-half of those expenses is charged to the principal (trust remainder men)

Expenses are
-> trustee’s compensation
-> accounting and other costs