Principal & Income Allocations Flashcards
 What is the general rule related to allocations?
Life beneficiaries are entitled to the trust income, and remaindermen are entitled to the trust principle.
When is a beneficiary of a trust principal entitled to the principal?
When all proceeding estates have terminated. There is no immediate right to possession and enjoyment of any trust property.
What is the traditional approach to trust principle?
Any money generated in connection with a conveyance of trust property is principal.
What is the traditional approach to trust income?
Any money generated by trust property is income.
What is the modern approach to allocation?
The uniform principle and income act (UPAIA) focuses on total return to the trust portfolio, regardless of classifications of income or principle. The trustee is permitted to recharacterize items and reallocate investment returns as he deems necessary to fill the trust purposes, as long as allocations are reasonable and keeping with the trust instrument.
What factors can trustee consider when determining how to exercise an allocation?
The intent of the satellore, the nature and purpose of the trust, identities and circumstances of beneficiaries, needs for regularity of income, increase and decrease in value principle assets, tax consequences, and the effect of economic conditions.
What is the unproductive property rule?
If a trust asset produced little or no income upon the assets sale, then an income beneficiary is entitled to some portion of the sale proceeds under the theory that such portion represented to late income their on.
How are stock distributions treated?
Distribution of stock, whether classified as a dividend or as a split, is treated as a distribution of principal. This rule is also true under the revised uniform principal and income act (RUPIA). The trustee has a limited power to allocate the stock dividend between income and principal when the distributing corporation made no distributions to shareholders except in the form of dividends paid in stock.
How are amounts received treated?
An amount received an exchange for trust property is allocated to principal. An amount received for the use of trust property is allocated to income.
How are contract proceeds treated?
Proceeds from life insurance policies or other contracts in which the trust or trustee is named as a beneficiary are allocated to principal, unless the contract insures that the trustee against loss, in which case the proceeds are allocated income.
When are deferred compensation plan proceeds considered income?
If they are characterized as income by the payor. If characterized as principal, then it is principal.
How are liquidated assets treated?
Proceeds: 10% is allocated as income, 90% is allocated as principal.
How are mineral rights allocated?
Oil, gas, mineral, and water right payment are also allocated as 10% to income a 90% to principal.
What expenses are charged income?
1/2 of the regular compensation to the trustee, 1/2 of the accounting costs or court costs, ordinary expenses in their entirety, and insurance premiums that cover the loss of a trust asset. Ordinary expenses include interest, ordinary repairs, and regular taxes assessed against the principal.
What expenses are charged to principal?
The remaining 1/2 of the regular compensation to the trustee, the remaining 1/2 of accounting costs for court costs, all payments on the principle of any trust debt, all expenses of any proceeding that concerns an interest in the principal, estate taxes, and all payments related to environmental matters.
