§ 18-4-28. Trustee's power to adjust.
(a) A trustee may adjust between principal and income to the extent the trustee considers
it to be advisable if the trustee invests and manages trust assets as a prudent investor
and the terms of the trust describe the amount that may or must be distributed to
a beneficiary by referring to the trust's income.
(b) In deciding whether and to what extent to exercise the power conferred by subsection
(a), a trustee shall consider all factors relevant to the trust and its beneficiaries,
including the following factors to the extent they are relevant:
(1) The nature, purpose and expected duration of the trust;
(2) The intent of the settler;
(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 settler;
(6) 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; and
(9) The anticipated tax consequences of an adjustment.
(c) A trustee may not make an adjustment:
(1) That diminishes the income interest in a trust that requires all of the income to
be used at least annually to a surviving 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 a 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 trustee is not a beneficiary, but the adjustment would benefit the trustee
directly or indirectly.
(d) If subsections (c)(5), (6), (7) or (8) herein apply to a trustee and there is more
than one trustee, a co-trustee 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 subsections (c)(1) — (6) or (c)(8) herein 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) herein.
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 in subsection (a) herein.