Section 13.38.210. Trustee's power to adjust.

   (a) Subject to (c) and (f) of this section, a trustee may adjust between principal and income by allocating an amount of income to principal or an amount of principal to income to the extent the trustee considers appropriate if
        (1) the governing instrument describes what may or shall be distributed to a beneficiary by referring to the trust's income;
        (2) the trustee determines, after applying the rules in AS 13.38.200(a), that the trustee is unable to comply with AS 13.38.200(b); and
        (3) the trustee determines to follow an investment policy seeking a total return for the investments held by the trust, whether the return is to be derived from
             (A) appreciation of capital;
             (B) earnings and distributions from capital; or
             (C) both (A) and (B) of this paragraph.
   (b) In deciding whether and to what extent to exercise the power conferred by (a) of this section, a trustee may consider, among other things,
        (1) the size of the trust;
        (2) the nature and estimated duration of the trust;
        (3) the liquidity and distribution requirements of the trust;
        (4) the need for regular distributions and preservation and appreciation of capital;
        (5) the expected tax consequences of an adjustment;
        (6) the net amount allocated to income under the other sections of this chapter and the increase or decrease in the value of the principal assets, which the trustee may estimate as to assets for which market values are not readily available;
        (7) the assets held in the trust; the extent to which the assets consist of financial assets, interests in closely held enterprises, tangible and intangible personal property, or real property; the extent to which an asset is used by a beneficiary; and whether an asset was purchased by the trustee or received from the settlor or testator;
        (8) to the extent reasonably known to the trustee, the need of the beneficiaries for present and future distributions authorized or required by the governing instrument;
        (9) whether and to what extent the governing instrument gives the trustee the power to invade principal or accumulate income or prohibits the trustee from invading principal or accumulating income, and the extent to which the trustee has exercised a power from time to time to invade principal or accumulate income;
        (10) the intent of the settlor or testator; and
        (11) the actual and anticipated effect of economic conditions on principal and income and the effects of inflation and deflation.
   (c) A trustee may not make an adjustment under this section if
        (1) the adjustment would diminish the income interest in a trust that requires all of the income to be paid at least annually to a spouse and for which a federal estate tax or gift tax marital deduction would be allowed, in whole or in part, if the trustee did not have the power to make the adjustment; the prohibition in this paragraph does not apply to a trust after the trustee determines that the marital deduction has not been claimed or has not been allowed;
        (2) the adjustment 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 federal gift tax exclusion;
        (3) the adjustment would change the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets;
        (4) the adjustment is from any amount that is permanently set aside for charitable purposes under the governing instrument and for which a federal estate or gift tax charitable deduction has been taken, unless both income and principal are permanently set aside for charitable purposes under the governing instrument;
        (5) possessing or exercising the power to make an adjustment would cause an individual to be treated as the owner of all or part of the trust for federal income tax purposes, and the individual would not be treated as the owner if the trustee did not possess the power to make an adjustment;
        (6) possessing or exercising the power to make an adjustment would cause all or part of the trust assets to be subject to federal estate or gift tax with respect to an individual, and the assets would not be subject to federal estate or gift tax with respect to the individual if the trustee did not possess the power to make an adjustment;
        (7) the trustee is a beneficiary of the trust; or
        (8) the trust has been converted to a unitrust under AS 13.38.300 - 13.38.435.
   (d) If (c)(5), (6), or (7) of this section applies to a trustee and there is more than one trustee, a co-trustee to whom the provision does not apply may make the adjustment unless the exercise of the power by the remaining trustee or trustees is prohibited by the governing instrument.
   (e) A trustee may release the entire power conferred by (a) of this section, the power to adjust from income to principal, or the power to adjust from principal to income if the trustee is uncertain about whether possessing or exercising the power will cause a result described in (c)(1) - (6) of this section, or if the trustee determines that possessing or exercising the power will or may deprive the trust of a tax benefit or impose a tax burden not described in (c) of this section. The release may be permanent or for a specified period, including a period measured by the life of an individual.
   (f) A governing instrument that limits the power of a trustee to make an adjustment between principal and income does not affect the application of this section unless it is clear from the governing instrument that it is intended to deny the trustee the power of adjustment conferred by (a) of this section.

Authorities

13.38.200;13.38.300;13.38.400;13.38.680;13.38.690;13.38.730

Notes

References

AS 13.38.200 Fiduciary duties; general principles.
AS 13.38.300 Power to convert to unitrust.
AS 13.38.400 Reconversion from a unitrust.
AS 13.38.680 Insubstantial allocations not required.
AS 13.38.690 Retirement benefits, individual retirement accounts, deferred compensation, annuities, and similar payments.
AS 13.38.730 Property not productive of income; marital deduction.

History

(Sec. 2 ch 145 SLA 2003; am Sec. 17 ch 45 SLA 2013)