(a) This section applies when either of the following occurs:

1. (1) The death of an individual results in the creation of an estate or trust.
2. (2) An income interest in a trust terminates, whether the trust continues or is distributed.

(c) A fiduciary shall determine the income and net income of an estate or income interest in a trust that terminates, other than the amount of net income determined under subdivision (b), under Article 4 (commencing with Section 16340), Article 5 (commencing with Section 16360), and Article 7 (commencing with Section 16375), and by doing the following:

1. (1) Including in net income all income from property used or sold to discharge liabilities.

2. (2) Paying, from income or principal, in the fiduciary’s discretion, fees of attorneys, accountants, and fiduciaries, court costs and other expenses of administration, and interest on estate and inheritance taxes and other taxes imposed because of the decedent’s death, but the fiduciary may pay the expenses from income of property passing to a trust for which the fiduciary claims a federal estate tax marital or charitable deduction, only to the extent that either of the following conditions is met:

   1. (A) The payment of the expenses from income will not cause the reduction or loss of the deduction.
   2. (B) The fiduciary makes an adjustment under subdivision (b) of Section 16366.

3. (3) Paying from principal other disbursements made or incurred in connection with the settlement of the estate or the winding up of an income interest that terminates, including both of the following:

   1. (A) To the extent authorized by the decedent’s will, the terms of the trust, or applicable law, debts, funeral expenses, disposition of remains, family allowances, estate and inheritance taxes, and other taxes imposed because of the decedent’s death.
   2. (B) Related penalties that are apportioned by the decedent’s will, the terms of the trust, or applicable law, to the estate or income interest that terminates.