§ 18-4-29. Total return unitrusts — Alternative definition of income.
(a) The following provisions shall apply to a trust which by its governing instrument,
pursuant to court reformation or pursuant to adjustment in accordance with § 18-4-28 requires the distribution at least annually of an amount equal to a fixed percentage
of not less than three percent (3%) nor more than five percent (5%) per year of the
net fair market value of the trust's assets (the "Unitrust Amount�) valued at least
annually, such trust to be referred to as a "Total Return Unitrust�:
(1) The Unitrust Amount may be determined by reference to the net fair market value of
the trust's assets in one year or more than one year.
(2) Distribution of such a fixed percentage Unitrust Amount is considered a distribution
of all of the income of the Total Return Unitrust and shall not be considered a fundamental
departure from state law.
(3) Such a distribution of the fixed percentage of not less than three percent (3%) not
more than five percent (5%) is considered to be a reasonable apportionment of the
total return of a Total Return Unitrust.
(4) A Total Return Unitrust that provides for a fixed percentage in excess of five percent
(5%) per year shall be considered to have paid out all of the income of the Total
Return Unitrust, and to have paid out principal of the Total Return Unitrust to the
extent that the fixed percentage payout exceeds five percent (5%) per year.
(5) The governing instrument (including any changes effected by court reformation) may
or may not grant discretion to the trustee to adopt a consistent practice of treating
capital gains as part of the unitrust distribution, to the extent that the Unitrust
Amount exceeds the net accounting income, or it may specify the ordering of such classes
of income.
(b) Unless the terms of the governing instrument (including any changes effected by court
reformation) specifically provide otherwise or grant discretion to the trustee as
set forth above, a distribution of the Unitrust Amount shall be considered to have
been made from the following sources in order of priority:
(1) From ordinary income determined as if the trust were not a unitrust;
(2) From ordinary income not allocable to net accounting income;
(3) From net realized short-term capital gains;
(4) From net realized long-term capital gains; and
(5) From the principal of the trust estate.
(c) The governing instrument (including any changes effected by court reformation or adjustment
by the trustee) may provide that assets used by the trust beneficiary, such as residence
property or tangible personal property, may be excluded from the net fair market value
for computing to the Unitrust Amount. Such use may be considered equivalent to income
or the Unitrust Amount.