Sec. 116.172. DEFERRED COMPENSATION, ANNUITIES, AND SIMILAR PAYMENTS. (a) In this section:
(1) "Future payment asset" means the asset from which a payment is derived.
(2) "Payment" means a payment that a trustee may receive over a fixed number of years or during the life of one or more individuals because of services rendered or property transferred to the payer in exchange for future payments. 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.
(3) "Separate fund" includes a private or commercial annuity, an individual retirement account, and a pension, profit-sharing, stock-bonus, or stock-ownership plan.
(b) To the extent that the payer characterizes a payment 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.
(c) If no part of a payment is characterized as interest, a dividend, or an equivalent payment, and all or part of the payment is required to be made, a trustee shall allocate to income the part of the payment that does not exceed an amount equal to:
(1) four percent of the fair market value of the future payment asset on the date specified in Subsection (d); less
(2) the total amount that the trustee has allocated to income for all previous payments received from the future payment asset during the same accounting period in which the payment is received.
(d) For purposes of Subsection (c)(1), the determination of the fair market value of a future payment asset is made on the later of:
(1) the date on which the future payment asset first becomes subject to the trust; or
(2) the last day of the accounting period of the trust that immediately precedes the accounting period during which the payment is received.
(e) For each accounting period a payment is received, the amount determined under Subsection (c)(1) must be prorated on a daily basis unless the determination of the fair market value of a future payment asset is made under Subsection (d)(2) and is for an accounting period of 365 days or more.
(f) A trustee shall allocate to principal the part of the payment described by Subsection (c) that is not allocated to income.
(g) 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 Subsection (c) and this subsection, a payment is not "required to be made" to the extent that it is made only because the trustee exercises a right of withdrawal.
(h) Subsections (j) and (k) apply and Subsections (b) and (c) do not apply in determining the allocation of a payment made from a separate fund to:
(1) a trust to which an election to qualify for a marital deduction under Section 2056(b)(7), Internal Revenue Code of 1986, has been made; or
(2) a trust that qualifies for the marital deduction under Section 2056(b)(5), Internal Revenue Code of 1986.
(i) Subsections (h), (j), and (k) do not apply if and to the extent that a series of payments would, without the application of Subsection (h), qualify for the marital deduction under Section 2056(b)(7)(C), Internal Revenue Code of 1986.
(j) The trustee shall determine the internal income of the separate fund for the accounting period as if the separate fund were a trust subject to this code. On request of the surviving spouse, the trustee shall demand of the person administering the separate fund that this internal income be distributed to the trust. The trustee shall allocate a payment from the separate fund to income to the extent of the internal income of the separate fund, and the balance to the principal. On request of the surviving spouse, the trustee shall allocate principal to income to the extent the internal income of the separate fund exceeds payments made to the trust during the accounting period from the separate fund.
(k) If the trustee cannot determine the internal income of the separate fund but can determine the value of the separate fund, the internal income of the separate fund shall be four percent of the fund's value, according to the most recent statement of value preceding the beginning of the accounting period. If the trustee can determine neither the internal income of the separate fund nor the fund's value, the internal income of the fund shall be the product of the interest rate and the present value of the expected future payments, as determined under Section 7520, Internal Revenue Code of 1986, for the month preceding the accounting period for which the computation is made.
Added by Acts 2003, 78th Leg., ch. 659, Sec. 1, eff. Jan. 1, 2004.
Amended by:
Acts 2005, 79th Leg., Ch. 148 (H.B. 1190), Sec. 26, eff. January 1, 2006.
Acts 2007, 80th Leg., R.S., Ch. 451 (H.B. 564), Sec. 13, eff. September 1, 2007.
Acts 2009, 81st Leg., R.S., Ch. 672 (H.B. 2368), Sec. 8, eff. September 1, 2009.
Acts 2009, 81st Leg., R.S., Ch. 672 (H.B. 2368), Sec. 9, eff. September 1, 2009.
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