§ 564-C:1-104 — Trustee's Power to Adjust

(a) A trustee may adjust between principal and income to the extent the trustee considers necessary if the trustee invests and manages trust assets as a prudent investor, the terms of the trust describe the amount that may or must be distributed to a beneficiary by referring to the trust's income, and the trustee determines, after applying the rules in RSA 564-C:1-103(a), that the trustee is unable to comply with RSA 564-C:1-103(b).
(b) In deciding whether and to what extent to exercise the power conferred by subsection (a), a trustee may consider factors to the extent they are relevant to the trust and its beneficiaries, including, but not limited to, the following factors:
(1) the nature, purpose, and expected duration of the trust;
(2) the intent of the settlor;
(3) the identity and circumstances of the beneficiaries;
(4) the needs for liquidity, regularity of income, and preservation and appreciation of capital;
(5) the assets held in the trust; the extent to which they consist of financial assets, interests in closely held enterprises, tangible and intangible personal property, or real property; the extent to which an asset is used by a beneficiary; and whether an asset was purchased by the trustee or received from the settlor;
(6) the net amount allocated to income under the other sections of this chapter and the increase or decrease in the value of the principal assets, which the trustee may estimate as to assets for which market values are not readily available;
(7) whether and to what extent the terms of the trust give the trustee the power to invade principal or accumulate income or prohibit the trustee from invading principal or accumulating income, and the extent to which the trustee has exercised a power from time to time to invade principal or accumulate income;
(8) the actual and anticipated effect of economic conditions on principal and income and effects of inflation and deflation;
(9) the anticipated tax consequences of an adjustment; and
(10) the investment return under current economic conditions from other portfolios meeting similar fiduciary requirements.
(c) A trustee may not make an adjustment between principal and income:
(1) that diminishes the income interest in a trust that requires all of the income to be paid at least annually to a spouse and for which an estate tax or gift tax marital deduction would be allowed, in whole or in part, if the trustee did not have the power to make the adjustment;
(2) that reduces the actuarial value of the income interest in a trust to which a person transfers property with the intent to qualify for a gift tax exclusion;
(3) that changes the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets;
(4) from any amount that is permanently set aside for charitable purposes under a will or the terms of a trust unless both income and principal are so set aside;
(5) if possessing or exercising the power to make an adjustment causes an individual to be treated as the owner of all or part of the trust for income tax purposes, and the individual would not be treated as the owner if the trustee did not possess the power to make an adjustment;
(6) if possessing or exercising the power to make an adjustment causes all or part of the trust assets to be included for estate tax purposes in the estate of an individual who has the power to remove a trustee or appoint a trustee, or both, and the assets would not be included in the estate of the individual if the trustee did not possess the power to make an adjustment;
(7) if the trustee is a beneficiary of the trust; or
(8) if the trust is being administered as a unitrust pursuant to the trustee's exercise of the power to convert to a unitrust provided in RSA 564-C:1-106 or pursuant to the terms of the will or the terms of the trust.
(d) If subsection (c)(5), (6), or (7) applies to a trustee and there is more than one trustee, the other cotrustee (if there is only one) or a majority of the other cotrustees (if there is more than one) to whom the provision does not apply may make the adjustment unless the exercise of the power by the remaining trustee or trustees is not permitted by the terms of the trust.
(e) A trustee may release the entire power conferred by subsection (a) or may release only the power to adjust from income to principal or the power to adjust from principal to income if the trustee is uncertain about whether possessing or exercising the power will cause a result described in subsection (c)(1) through (6) or if the trustee determines that possessing or exercising the power will or may deprive the trust of a tax benefit or impose a tax burden not described in subsection (c). The release may be permanent or for a specified period, including a period measured by the life of an individual.
(f) Terms of a trust that limit the power of a trustee to make an adjustment between principal and income do not affect the application of this section unless it is clear from the terms of the trust that the terms are intended to deny the trustee the power of adjustment conferred by subsection (a).
(g) Nothing in this section or chapter is intended to create or imply a duty to make an adjustment, and a fiduciary is not liable for not considering whether to make an adjustment or for choosing not to make an adjustment.
(h) A trustee may give notice of a proposed action regarding a matter governed by this section as provided in this subsection. For purposes of this subsection, a proposed action includes a course of action and a determination not to take action. For purposes of this subsection, the representation rules of article 3 of RSA 564-B shall apply.
(1) The trustee shall mail notice of the proposed action to all qualified beneficiaries (as defined in RSA 564-B:1-103(12)) of the trust who have attained 21 years of age and to those persons who have the rights of a qualified beneficiary with respect to the trust under RSA 564-B:1-110. Notice may be given to any other beneficiary. Notice of the proposed action need not be given to any person who consents in writing to the proposed action. The consent may be executed at any time before or after the proposed action is taken.
(2) The notice of proposed action must state that it is given pursuant to this paragraph and must contain the following:
(A) the name and mailing address of the trustee;
(B) the name and telephone number of a person who may be contacted for additional information;
(C) a description of the action proposed to be taken and an explanation of the reasons for the action;
(D) the time within which objections to the proposed action can be made, which must be at least 30 days from the mailing of the notice of proposed action;
(E) the date on or after which the proposed action may be taken or is effective;
(F) a statement that the beneficiary or person who has the rights of the beneficiary may petition for a judicial determination of the proposed action; and
(G) a form on which consent or objection to the proposed action may be indicated.
(3) A beneficiary or a person who has the rights of a qualified beneficiary may object to the proposed action by mailing a written objection to the trustee at the address stated in the notice of proposed action within the time period specified in the notice of proposed action.
(4) If a trustee does not receive a written objection to the proposed action from the beneficiary or the person who has the rights of a qualified beneficiary within the applicable period, the trustee is not liable for the action to a beneficiary if:
(A) notice is mailed to such beneficiary (or a person who may represent and bind the beneficiary under the provisions of article 3 of RSA 564-B) or such person at the address determined by the trustee after reasonable diligence;
(B) such beneficiary (or a person who may represent and bind the beneficiary under the provisions of article 3 of RSA 564-B) or such person receives actual notice; or
(C) such beneficiary (or a person who may represent and bind the beneficiary under the provisions of article 3 of RSA 564-B) or such person consents in writing to the proposed action either before or after the action is taken.
(5) If the trustee receives a written objection within the applicable time period, either the trustee, a beneficiary or a person who has the rights of a qualified beneficiary may petition the court to have the proposed action performed as proposed, performed with modifications, or denied. In the proceeding, a beneficiary objecting to the proposed action or a person who has the rights of a qualified beneficiary objecting to the proposed action has the burden of proof as to whether the trustee's proposed action should not be performed. A beneficiary who has not objected or a person who has the rights of a qualified beneficiary who has not objected is not estopped from opposing the proposed action in the proceeding. If the trustee decides not to implement the proposed action, the trustee shall notify the qualified beneficiaries of the trust who have attained 21 years of age and those persons who have the rights of a qualified beneficiary of the decision not to take the action and the reasons for the decision, and the trustee's decision not to implement the proposed action does not itself give rise to liability to any current or future beneficiary. A beneficiary or a person who has the rights of a qualified beneficiary may petition the court to have the action performed and has the burden of proof as to whether it should be performed.
(6) Nothing in this subsection limits the right of a trustee or beneficiary to petition the court pursuant to RSA 564-C:1-105 for instructions as to any action, failure to act, or determination not to act regarding a matter governed by this section in the absence of notice as provided in this subsection. In any such proceeding, any beneficiary filing such a petition or objecting to a petition of the trustee has the burden of proof as to any action taken, any failure to act, or determination not to act, by the trustee.
(i) Following the exercise of the power conferred by subsection (a) to adjust from principal to income, the trustee shall consider in the following order:
(1) the amount so adjusted as paid from ordinary income for federal income tax purposes to the extent not allocable to net accounting income;
(2) the amount so adjusted, after calculating the trust's capital gain net income described in section 1222(9) of the Internal Revenue Code, as paid from net short-term capital gain described in section 1222(5) of the Internal Revenue Code, and then from net long-term capital gain described in section 1222(7) of the Internal Revenue Code; and
(3) any remaining amount so adjusted as coming from the principal of the trust.

Legislative History

2006, 320:68, eff. Aug. 19, 2006. 2008, 374:19, 20, 32, eff. Sept. 9, 2008.