(1) As used in this section, “beneficiary” means a person who has an interest in the trust to be converted and who has the legal capacity to take all actions authorized under this section.
(2)(a) Unless expressly prohibited by the terms of the trust, a trustee may release the power to make adjustments under ORS 129.215 (1) and convert a trust into a unitrust if the trustee determines that the conversion will enable the trustee to carry out more accurately the intent of the settlor and the purposes of the trust and that operation of the trust as a unitrust is consistent with the duties of the trustee under ORS 129.210 (2).
(b) Not less than 60 days before making a conversion under this section, a trustee must give written notice to all beneficiaries who either are eligible to receive income from the trust at the time the notice is given, or who would receive a distribution of principal if the trust were to terminate immediately before the notice is given and no power of appointment was exercised. The notice must indicate that the trustee intends to release the power to adjust and to convert the trust into a unitrust, must describe how the unitrust will operate and must include a description of the initial decisions the trustee will make under this section.
(c) A trustee may not convert a trust to a unitrust under this section if any beneficiary objects to the conversion to a unitrust in a writing delivered to the trustee within 60 days after notice is given under this subsection.
(3) The trustee or any beneficiary may file a petition to seek issuance of a court order directing conversion of a trust to a unitrust. The court shall order the requested conversion if the court concludes that the conversion will enable the trustee to carry out more accurately the intent of the settlor and the purposes of the trust, and that operation of the trust as a unitrust is consistent with the duties of the trustee under ORS 129.210 (2).
(4) After a trust is converted to a unitrust under this section, all of the following apply:
(a) The trustee must invest and manage trust assets as a prudent investor, and must follow an investment policy seeking a total return for trust investments, whether that return is derived from appreciation of principal or from earnings and distributions from principal.
(b) The trustee must make regular distributions in accordance with the terms of the trust. All provisions of the trust relating to distribution of income shall be construed to refer to an annual unitrust distribution equal to four percent of the fair market value of trust assets, averaged over the lesser of the three preceding calendar years or the period during which the trust has been in existence.
(c) In calculating the unitrust distribution, the trustee shall use the value of trust assets on the first business day of each calendar year for purposes of determining average value. The trustee may, in the trustee’s discretion, determine the manner in which the unitrust distribution will be prorated for a year in which a beneficiary’s right to payments begins or ends, the effect on trust asset valuation of other payments from or contributions to the trust, whether to estimate the value of nonliquid assets, whether to omit from the calculations trust property occupied or possessed by a beneficiary and any other matters necessary for the proper administration of the unitrust.
(d) Expenses that would be deducted from income under this chapter if the trust was not a unitrust shall not be deducted from the unitrust distribution.
(e) Unless otherwise provided by the terms of the trust, the unitrust distribution must be paid first from net income, as that amount would be determined if the trust were not a unitrust. To the extent that net income is insufficient, the unitrust distribution shall be paid first from net realized short-term capital gains, then from net realized long-term capital gains and finally from trust principal.
(f) Conversion to a unitrust does not affect any provision in the terms of the trust directing or authorizing a trustee to distribute trust principal or authorizing a beneficiary to withdraw a portion or all of the principal.
(5) The trustee or any beneficiary may file a petition to seek issuance of a court order directing any of the following:
(a) The distribution of net income, as that amount would be determined if the trust were not a unitrust, in excess of the unitrust distribution, if the excess distribution is necessary to preserve a tax benefit.
(b) The selection of a period other than three years for purposes of calculating average trust asset values.
(c) Reconversion from a unitrust. If a reconversion is ordered, the power to make adjustments under ORS 129.215 (1) is revived.
(6) A trustee does not have and may not exercise any power under this section in any of the following circumstances:
(a) The unitrust distribution would be made from any amount that is permanently set aside for charitable purposes under the terms of the trust and for which a charitable deduction from federal gift, estate or income taxes has been taken.
(b) The possession or exercise of the power 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 an owner if the trustee did not possess or exercise the power.
(c) The possession or exercise of the power would cause all or any part of the trust assets to be subject to any federal gift or estate tax with respect to an individual and the trust assets would not be subject to that taxation if the trustee did not possess or exercise the power.
(d) The possession or exercise of the power would result in the disallowance of a marital deduction from federal estate or gift tax that would be allowed if the trustee did not possess or exercise the power.
(e) The trustee is a beneficiary of the trust.
(7) If subsection (6) of this section applies to a trustee and there is more than one trustee, a cotrustee to whom subsection (6) of this section does not apply may possess and exercise the powers under this section unless the possession or exercise of those powers is not permitted by the terms of the trust. If subsection (6) of this section restricts all trustees from possessing or exercising a power under this section, a trustee may file a petition requesting that the court order the requested action. [2003 c.279 §4b; 2005 c.348 §120]
DECEDENT’S ESTATE OR TERMINATING INCOME INTEREST
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