Allocating payments to principal or income
Sec. 31. (a) This section does not apply to payments to which
section 32 of this chapter applies.
(b) As used in this section, "payment" means a payment that a
trustee may receive over a fixed number of years or during the life of
one (1) or more individuals because of services rendered or property
transferred to the payer in exchange for future payments, regardless
of whether the trustee also has the option to receive the amount in a
lump sum or other form of payment. The term includes a payment
made in money or property from the payer's general assets or from a
separate fund created by the payer, including a private or commercial
annuity, an individual retirement account, and a pension, profit
sharing, stock bonus, or stock ownership plan.
(c) To the extent that a payment is characterized as interest or a
dividend or a payment made in lieu of interest or a dividend, a trustee
shall allocate it to income. The trustee shall allocate to principal the
balance of the payment and any other payment received in the same
accounting period that is not characterized as interest, a dividend, or
an equivalent payment.
(d) If a payment is not characterized as interest or a dividend, and
if the payment is made from an individual account corresponding to
an original participant, the payment shall be allocated between
income and principal by:
(1) determining the income occurring within the individual
account by treating the account as though it were a trust; and
(2) considering the income to be distributed as a pro rata
portion of all payments made from the individual account
during the year.
(e) If no part of a payment is characterized as interest, a dividend,
or allocated under subsection (d), and all or part of the payment is
required to be made, a trustee shall allocate to income ten percent
(10%) of the part that is required to be made during the accounting
period and the balance to principal. If no part of a payment is
required to be made or the payment received is the entire amount to
which the trustee is entitled, the trustee shall allocate the entire
payment to principal. For purposes of this subsection, a payment is
not "required to be made" to the extent that it is made because the
trustee exercises a right of withdrawal.
(f) Notwithstanding any other provision of this section, when a
private or commercial deferred annuity is held as an asset of a
charitable remainder trust, an increase in the value of the obligation
over the value of the obligation at the time of the acquisition by the
trust is distributable as income. For purposes of this subsection, the
increase in value is available for distribution only when the trustee
exercises a right of withdrawal or otherwise receives cash on account
of the obligation. If the obligation is surrendered wholly or partially
before annuitization, the cash available shall be attributed first to the
increase. The increase is distributable to the income beneficiary who
is the income beneficiary at the time the cash is received.
(g) If, to obtain a gift or estate tax marital deduction for a trust, a
trustee must allocate more of a payment to income than provided for
by this section, the trustee shall allocate to income the additional
amount necessary to obtain the deduction.
As added by P.L.84-2002, SEC.2.
Last modified: May 27, 2006