A. A tax required to be paid by a trustee based on receipts allocated to income must be paid from income.

B. A tax required to be paid by a trustee based on receipts allocated to principal must be paid from principal, even if the tax is called an income tax by the taxing authority.

C. A tax required to be paid by a trustee on the trust's share of an entity's taxable income must be paid:

1. (1) from income to the extent that receipts from the entity are allocated only to income;
2. (2) from principal to the extent that receipts from the entity are allocated only to principal;
3. (3) proportionately from principal and income to the extent that receipts from the entity are allocated to both income and principal; and

4. (4) from principal to the extent that the tax exceeds the total receipts from the entity.

   D. After applying Subsections A through C of this section, the trustee shall adjust income or principal receipts to the extent that the trust's taxes are reduced because the trust receives a deduction for payments made to a beneficiary.

History: Laws 2001, ch. 113, § 505; 2011, ch. 124, § 88.

ANNOTATIONS

The 2011 amendment, effective January 1, 2012, in Subsection D, provided for the proportional payment of a tax from principal and income if income is allocated to both principal and interest and from principal if the tax exceeds income; and required the trustee to adjust income and principal if the trust’s taxes are reduced because of a deduction for payments to a beneficiary.