ÿWPCg ˜x¯ê-S¿ø"b8)1b|ÜMcQÅŠ4üÞÄçs]Ë 6"Sôõ·LØ ó2ˆÀŸJßÃãòËrÔo?†q]7gIÃÓæk›kÜ‹u²mã'•q $Û±ÿ>¸W׺Ä\ !ßüða×_Q lô_àÝ1SÀ³Ë0}m—E9×êí/óÙU¯V¥††]ŧ»µ®Ì±KÊã‘p$Û>å©$p·,E(Á¥yc %2Wg·“l£ëKZs°ê×›ÕÜ'Ù™Ü72ö¬Ú±Y ’EÄÏÑ÷â"ZºÝõGÐ3ãw!™5¼J:ئL‹Iï>ÔŠ=Ñù¢K×õkâòO¶¿ŠIÌ’i7ÝtÅNtkvÞ6håd<=¡º÷Éô¦“°aœãr¥{ÖD-(ö™ÞR8Þ~ã0ŒöØ-F*¹ü·5'·Qkÿ mþ}~Åe2Tù²A3äÝþüH—‘uÃÚÑ~®énÒ|ùøÌX×óÞe#äjø̛Ƈ»Ìø¯/ù é`+D]òvȦdóµ#›V<žó›£ N‡Â„g°¶YÿçýÓ®‡©}ƒ‹¡¿Z°Ty[ ÆGE£´~2|š»@Û^÷IM¦®;5¨Ôèý˜2ˆ·Êëbzþ¾m#Áà UÈN¡ %ï 0:õ U“N/ U€>} U@» » wû 4ÿ ^  0U t ƒ m… … … … … … … … … … … … … … … … … … … … … … … … … 0Vœ œ œ œ œ œ 0%0ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò 0A"""" 0~cc Bá 0Dþ 0TB 0 h– 0e|þ 0Vzzzz ÐÐÐÐÐÐþää Bâââ D1ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ B0000 CM˜0&Öd9 Z‹6Times New Roman RegularX(üœ$¡¡ÔUSUS.,Ô(ÖÃ9 Z ‹6Times New Roman Regularô\  `‹&Times New Roman(Ök9 Z‹(Times New Roman SyÍ.BLE Aîvê. (-2†æ$ªªÝ ƒüœ!ÝÔUSUS.,ÔÝ  Ý3|xBÿU‹ÿÀÀÀ(.3½Þ$§§Ý ƒüœ!ÝÔUSUS.,ÔÝ  Ý0ÿÿ.Normal(Vm$˜˜Ìà0  àà ° à(.(3Ä($¤¤Ý ƒüœ!ÝÔUSUS.,ÔÝ  Ýà  àòòÚ  Ú0Ú  Úóó d(#Ã$òòÚ  Ú0Ú  Úóó(,!ù$™™à0  àà0` (#(#àà  à(@›‚$ššà0  àà0` (#(#àà0¸ ` (#` (#àà ` à(TÅþ$››à0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ à(.3½Þ$©©Ý ƒüœ!ÝÔUSUS.,ÔÝ  ÝX`ab ôÝ ƒc½Þ)ÝÔUSUS.,ÔÝ  ÝÔ_Ôò òÔ‡ô‹W òXXÔThe€Uniform€Principal€and€Income€Act€of€Texas€ð!ð€With€Commentsà€X!X!!(#àPage€Ú  Ú1Ú  ÚÔ#†X7íX òô‹W@#Ôó óüÿP Pdoo)÷ÿ! dxdxöÿ  d ÿÿÿdÝ ƒüœ!ÝÔUSUS.,ÔÝ  ÝÔ_ÔÌÌÌÌà@ìàò òÔ‡ óXXÔTHE€UNIFORM€PRINCIPAL€AND€INCOME€ACT€OF€TEXASÔ#†X7íX óV#ԈР˜è ÐÌà@  ìàAs€Enacted€by€the€78òòthóó€Texas€Legislature€(2003)ˆÐ Ë  ÐÌà@ÅÅìàEffective€January€1,€2004ó óˆÐ ¿  ÐÌÌÌÌÌÌÌÌà@ââìàò òWith€the€Official€Comments€of€ˆÐ ‰Ù ÐÌà@ÿÿ ìàThe€National€Conference€of€Commissioners€on€Uniform€State€LawsˆÐ }Í ÐÌà@VV)ìàandˆÐ qÁ ÐÌà@ ìàThe€Real€Estate,€Probate€and€Trust€Law€SectionˆÐ eµ Ðà@ÐÐìàof€the€State€Bar€of€Texasó óˆÐ _¯ ÐÌÌÔ‡Â>ÂXX7íÔÓ  ÓThe€comments€and€prefatory€note€to€the€Uniform€Prudent€Investor€Act€are€copyrightedÐ M Ѐðð€1997€by€the€National€Conference€of€Commissioners€on€Uniform€State€Laws.€€Used€with€permission.Ô#†X7íXÂÂ>ÿ#ÔÐ  f ÐÓÓÌÌÌò òÓ  ÓòòÌóóJune€2003òòó óÐ œ%ì ! ÐÌóóò òÐ  e(µ## ÐÓDÓó óÑ % ÑÐ  ° Ðà@  "ìàÔ‡ óXX7íÔò òTable€of€Contentsó óÔ#†X7íX óâ#ԈР° ÐÌÓ€gÝ ÓÓ  ÓÝ‚XVmÿÝÌÝ  ÝÝ‚XVmnÝà0  àà ° àÝ  ÝINTRODUCTIONà‚#Ä"Ä"J(#.ƒ ƒ (#(##à1݃XVmnŠÝŒˆÐ Ý- ÐŒÝ  ÝÝ‚XVmÿÝÌÝ  ÝÝ‚XVm*Ýà0  àà ° àÝ  ÝUNIFORM€ACT€PREFATORY€NOTEà‚#Ä"Ä"J(#.ÓÓ$(#(##à3݃XVm*FÝŒˆÐ Ñ ! ÐŒÝ  ÝÝ‚XVmÿÝÌÝ  ÝÝ‚XVmôÝà0  àà ° àÝ  ÝTEXAS€TRUST€CODE€CHAPTER€116.€UNIFORM€PRINCIPAL€AND€INCOME€ACTà‚#Ä"Ä"J(#.èèH(#(##à7݃XVmôÝŒˆÐ Å  ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ùâÝà0  àà0` (#(#àà  àÝ  ÝÔ_ÔSUBCHAPTERÔ_Ô€A.€DEFINITIONS,€FIDUCIARY€DUTIES,€AND€OTHERÐ ¿  ÐMISCELLANEOUS€PROVISIONSà‚#Ä"Ä"J(#.ŠŠ,` (#` (##à7݃`!ùâýÝŒˆÐ ¹  ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþ( Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.001.€SHORT€TITLE.à‚#Ä"Ä"J(#.3(#(##à7݃bÅþ( C ÝŒˆÐ ³  ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþ- Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.002.€DEFINITIONS.à‚#Ä"Ä"J(#.**3(#(##à7݃bÅþ- H ÝŒˆÐ ­ý  ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþ2 Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.003.€UNIFORMITY€OF€APPLICATION€ANDÐ §÷  ÐCONSTRUCTION.à‚#Ä"Ä"J(#.GG+(#(##à9݃bÅþ2 M ÝŒˆÐ ¡ñ  ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþj Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.004.€FIDUCIARY€DUTIES;€GENERAL€PRINCIPLES.à‚#Ä"Ä"J(#.³³L(#(##à9݃bÅþj … ÝŒˆÐ ›ë  ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþˆ Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.005.€TRUSTEE'S€POWER€TO€ADJUST.€à‚#`"`"I(#.{{B(#(##à11݃bÅþˆ £ ÝŒˆÐ •å ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþÝà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.006.€JUDICIAL€CONTROL€OF€DISCRETIONARY€POWER.Ð ß Ðà‚#`"`"I(#.(#(##à20݃bÅþ¸ÝŒˆÐ ‰Ù ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþÕÝà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.007.€PROVISIONS€REGARDING€Ô_ÔNONCHARITABLEÔ_ÔÐ ƒÓ ÐÔ_ÔUNITRUSTSÔ_Ô.€à‚#`"`"I(#.žž)(#(##à22݃bÅþÕðÝŒˆÐ }Í ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ùQÝà0  àà0` (#(#àà  àÝ  ÝÔ_ÔSUBCHAPTERÔ_Ô€B.€DECEDENT'S€ESTATE€ORÐ wÇ ÐTERMINATING€INCOME€INTERESTà‚#`"`"I(#./` (#` (##à25݃`!ùQlÝŒˆÐ qÁ ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþˆÝà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.051.€DETERMINATION€AND€DISTRIBUTION€OF€NETÐ k» ÐINCOME.à‚#`"`"I(#.WW%(#(##à25݃bÅþˆ£ÝŒˆÐ eµ ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþÃÝà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.052.€DISTRIBUTION€TO€RESIDUARY€AND€REMAINDERÐ _¯ ÐBENEFICIARIES.à‚#`"`"I(#.ØØ,(#(##à29݃bÅþÃÞÝŒˆÐ Y© ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ùÝà0  àà0` (#(#àà  àÝ  ÝÔ_ÔSUBCHAPTERÔ_Ô€C.€APPORTIONMENT€AT€BEGINNINGÐ S£ ÐAND€END€OF€INCOME€INTERESTà‚#`"`"I(#..` (#` (##à31݃`!ù"ÝŒˆÐ M ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþCÝà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.101.€WHEN€RIGHT€TO€INCOME€BEGINS€AND€ENDS.à‚#`"`"I(#. L(#(##à31݃bÅþC^ÝŒˆÐ G — ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþbÝà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.102.€APPORTIONMENT€OF€RECEIPTS€ANDÐ A!‘ ÐDISBURSEMENTS€WHEN€DECEDENT€DIES€OR€INCOMEÐ ;"‹ ÐINTEREST€BEGINS.€à‚#`"`"I(#.ëë/(#(##à32݃bÅþb}ÝŒˆÐ 5#… ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþÞÝà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.103.€APPORTIONMENT€WHEN€INCOME€INTEREST€ENDS.Ð /$  Ðà‚#`"`"I(#.(#(##à33݃bÅþÞùÝŒˆÐ )%y ! ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ùÝà0  àà0` (#(#àà  àÝ  ÝÔ_ÔSUBCHAPTERÔ_Ô€D.€ALLOCATION€OF€RECEIPTS€DURINGÐ #&s!" ÐADMINISTRATION€OF€TRUSTà‚#`"`"I(#.ÁÁ+` (#` (##à36݃`!ù1ÝŒˆÐ 'm"# ÐŒÝ  ÝÝ‚a›‚ÿÝÝ  ÝÝ‚a›‚RÝà0  àà0` (#(#àà0¸ ` (#` (#àà ` àÝ  ÝPART€1.€RECEIPTS€FROM€ENTITIESà‚#`"`"I(#.žž2¸ (#¸ (##à36݃a›‚RmÝŒˆÐ (g#$ ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþHÝà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.151.€CHARACTER€OF€RECEIPTS.à‚#`"`"I(#.ÑÑ=(#(##à36݃bÅþHcÝŒˆÐ )a$% ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþXÝà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.152.€DISTRIBUTION€FROM€TRUST€OR€ESTATE.à‚#`"`"I(#.ÎÎI(#(##à38݃bÅþXsÝŒˆÐ  *[%& ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþtÝà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.153.€BUSINESS€AND€OTHER€ACTIVITIES€CONDUCTED€BYÐ +U&' ÐTRUSTEE.à‚#`"`"I(#.~~&(#(##à39݃bÅþtÝŒˆÐ ÿ+O'( ÐŒÝ  ÝÝ‚a›‚ÿÝÝ  ÝÝ‚a›‚µÝà0  àà0` (#(#àà0¸ ` (#` (#àà ` àÝ  ÝPART€2.€RECEIPTS€NOT€NORMALLY€APPORTIONEDà‚#`"`"I(#.••=¸ (#¸ (##à41݃a›‚µÐÝŒˆÐ ù,I() ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþ¶ Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.161.€PRINCIPAL€RECEIPTS.à‚#`"`"I(#.:(#(##à41݃bÅþ¶ Ñ ÝŒˆÐ ° ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþÃ!Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.162.€RENTAL€PROPERTY.à‚#`"`"I(#.]]7(#(##à41݃bÅþÃ!Þ!ÝŒˆÐ ªú ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþÍ"Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.163.€OBLIGATION€TO€PAY€MONEY.à‚#`"`"I(#.?(#(##à42݃bÅþÍ"è"ÝŒˆÐ ¤ô ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþß#Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.164.€INSURANCE€POLICIES€AND€SIMILAR€CONTRACTS.Ð žî Ðà‚#`"`"I(#.(#(##à43݃bÅþß#ú#ÝŒˆÐ ˜è ÐŒÝ  ÝÝ‚a›‚ÿÝÝ  ÝÝ‚a›‚%Ýà0  àà0` (#(#àà0¸ ` (#` (#àà ` àÝ  ÝPART€3.€RECEIPTS€NORMALLY€APPORTIONEDà‚#`"`"I(#.ÆÆ9¸ (#¸ (##à44݃a›‚%3%ÝŒˆÐ ’ â ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþ&Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.171.€INSUBSTANTIAL€ALLOCATIONS€NOT€REQUIRED.Ð Œ Ü Ðà‚#`"`"I(#.(#(##à44݃bÅþ&0&ÝŒˆÐ † Ö ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþL'Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.172.€DEFERRED€COMPENSATION,€ANNUITIES,€ANDÐ € Ð ÐSIMILAR€PAYMENTS.à‚#`"`"I(#.§§/(#(##à45݃bÅþL'g'ÝŒˆÐ z Ê  ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþ‘(Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.173.€LIQUIDATING€ASSET.à‚#`"`"I(#.ÐÐ9(#(##à50݃bÅþ‘(¬(ÝŒˆÐ tÄ  ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþ)Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.174.€MINERALS,€WATER,€AND€OTHER€NATURALÐ n¾  ÐRESOURCES.à‚#`"`"I(#.ªª((#(##à51݃bÅþ)¸)ÝŒˆÐ h¸  ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþØ*Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.175.€TIMBER.à‚#`"`"I(#.''.(#(##à53݃bÅþØ*ó*ÝŒˆÐ b²  ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþÙ+Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.176.€PROPERTY€NOT€PRODUCTIVE€OF€INCOME.à‚#`"`"I(#.‰‰I(#(##à54݃bÅþÙ+ô+ÝŒˆÐ \¬  ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþõ,Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.177.€DERIVATIVES€AND€OPTIONS.à‚#`"`"I(#.¦¦?(#(##à56݃bÅþõ,-ÝŒˆÐ V¦ ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþ.Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.178.€ASSET„BACKED€SECURITIES.à‚#`"`"I(#.ŽŽ?(#(##à58݃bÅþ.".ÝŒˆÐ P  ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ù/Ýà0  àà0` (#(#àà  àÝ  ÝÔ_ÔSUBCHAPTERÔ_Ô€E.€ALLOCATION€OF€DISBURSEMENTS€DURINGÐ Jš ÐADMINISTRATION€OF€TRUSTà‚#`"`"I(#.ÁÁ+` (#` (##à60݃`!ù/4/ÝŒˆÐ D” ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþZ0Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.201.€DISBURSEMENTS€FROM€INCOME.à‚#`"`"I(#.AAA(#(##à60݃bÅþZ0u0ÝŒˆÐ >Ž ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþn1Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.202.€DISBURSEMENTS€FROM€PRINCIPAL.à‚#`"`"I(#.$$D(#(##à61݃bÅþn1‰1ÝŒˆÐ 8ˆ ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþ…2Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.203.€TRANSFERS€FROM€INCOME€TO€PRINCIPAL€FORÐ 2‚ ÐDEPRECIATION.à‚#`"`"I(#.ËË+(#(##à63݃bÅþ…2 2ÝŒˆÐ ,| ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþÇ3Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.204.€TRANSFERS€FROM€INCOME€TO€REIMBURSEÐ &v ÐPRINCIPAL.à‚#`"`"I(#.::((#(##à64݃bÅþÇ3â3ÝŒˆÐ  p ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþ5Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.205.€INCOME€TAXES.à‚#`"`"I(#.  4(#(##à65݃bÅþ55ÝŒˆÐ j ÐŒÝ  ÝÝ‚bÅþÿÝÝ  ÝÝ‚bÅþ 6Ýà0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ àÝ  ÝSec.€116.206.€ADJUSTMENTS€BETWEEN€PRINCIPAL€AND€INCOMEÐ d ÐBECAUSE€OF€TAXES.à‚#`"`"I(#.‚‚/(#(##à66݃bÅþ 6$6ÝŒˆÐ ^ ÐŒÝ  ÝÝ‚XVmÿÝÌÝ  ÝÝ‚XVmQ7Ýà0  àà ° àÝ  ÝEFFECTIVE€DATE€PROVISIONà‚#`"`"I(#.,,"(#(##à69݃XVmQ7m7ÝŒˆÐ !R ÐŒÝ  ÝÓ bÓÐ  ü!L ÐØØÖ€mÿÿÖà@õõ$ìàò òÔ‡ óXX7íÔÔ  ÔINTRODUCTIONó óÔ#†X7íX óz8#ÔÔ Ý ™8ԈР° ÐÌÔ‡&ºú %XX7íÔà  àThe€78òòthóó€Texas€Legislature€enacted€a€Texas€version€of€the€Uniform€Principal€and€Income€Act€ofÐ ã3 Ð1997.€€HB€2241€becomes€effective€January€1,€2004.€€This€legislation€was€part€of€the€2003€legislativeÐ Ä Ðpackage€of€the€Real€Estate,€Probate€and€Trust€Law€Section€of€the€State€Bar€of€Texas.€€The€SectionÐ ¥õ Ðstudied€three€uniform€acts€promulgated€by€the€National€Conference€of€Commissioners€on€Uniform€StateÐ † Ö ÐLaws€(Ô_ÔNCCUSLÔ_Ô)€ð!ð€the€Uniform€Prudent€Investor€Act€of€1994,€the€Uniform€Principal€and€Income€Act€ofÐ g · Ð1997€and€the€Uniform€Trust€Code€of€2000€ð!ð€for€more€than€two€years.€€The€Section€urged€the€adoption€ofÐ H ˜ ÐTexas€versions€of€two€of€those€acts€ð!ð€Prudent€Investor€and€Principal€and€Income€ð!ð€in€2003,€and€bothÐ ) y Ðwere€enacted€into€law.Ð  Z  ÐÌà  àFollowing€are€the€provisions€of€the€Uniform€Principal€and€Income€Act€of€1997€(the€ð ðActðð)€asÐ Ì  Ðenacted€in€Texas,€the€official€Ô_ÔNCCUSLÔ_Ô€notes€and€comments€to€the€Act€and€each€section€of€the€ActÐ ­ý  Ð(identified€as€ð ðUniform€Act€Notesðð€or€ð ðUniform€Act€Commentsðð)€and€the€official€comments€of€the€RealÐ ŽÞ  ÐEstate,€Probate€and€Trust€Law€Section€of€the€State€Bar€of€Texas€(the€ð ðSectionðð)€on€the€Texas€variationsÐ o¿  Ðof€the€Act€(identified€as€ð ðTexas€Bar€Commentsðð).Ô#†X7íX %&ºú9#ÔÐ  P   ÐÑ € ÑÐ  ° ÐÔ‡X7íXXX7íÔà@i i ìàò òÔ‡ óXX7íÔÔ  ÔUNIFORM€ACT€PREFATORY€NOTEÔ Ý Ï?ÔÔ#†X7íX ó°?#Ôó óˆÐ ° ÐÌÔ‡&ºú %XX7íÔà  àThis€revision€of€the€1931€Uniform€Principal€and€Income€Act€and€the€1962€Revised€UniformÐ ã3 ÐPrincipal€and€Income€Act€has€two€purposes.Ð Ä ÐÌà  àOne€purpose€is€to€revise€the€1931€and€the€1962€Acts.€€Revision€is€needed€to€support€the€nowÐ † Ö Ðwidespread€use€of€the€revocable€living€trust€as€a€will€substitute,€to€change€the€rules€in€those€Acts€thatÐ g · Ðexperience€has€shown€need€to€be€changed,€and€to€establish€new€rules€to€cover€situations€not€provided€forÐ H ˜ Ðin€the€old€Acts,€including€rules€that€apply€to€financial€instruments€invented€since€1962.Ð ) y ÐÌà  àThe€other€purpose€is€to€provide€a€means€for€implementing€the€transition€to€an€investment€regimeÐ ë ;  Ðbased€on€principles€embodied€in€the€Uniform€Prudent€Investor€Act,€especially€the€principle€of€investing€forÐ Ì  Ðtotal€return€rather€than€a€certain€level€of€ð ðincomeðð€as€traditionally€perceived€in€terms€of€interest,€dividends,Ð ­ý  Ðand€rents.Ð ŽÞ  ÐÌÓ€Óà@@@ìàò òRevision€of€the€1931€and€1962€Actsó óˆÐ P   ÐÓ€Óà  àThe€prior€Acts€and€this€revision€of€those€Acts€deal€with€four€questions€affecting€the€rights€ofÐ £ó Ðbeneficiaries:Ð „Ô ÐÌà  à(1)€€How€is€income€earned€during€the€probate€of€an€estate€to€be€distributed€to€trusts€and€toÐ F– Ðpersons€who€receive€outright€bequests€of€specific€property,€pecuniary€gifts,€and€the€residue?Ð 'w ÐÌà  à(2)€€When€an€income€interest€in€a€trust€begins€(i.e.,€when€a€person€who€creates€the€trust€dies€orÐ é9 Ðwhen€she€transfers€property€to€a€trust€during€life),€what€property€is€principal€that€will€eventually€go€to€theÐ Ê Ðremainder€beneficiaries€and€what€is€income?Ð «û ÐÌà  à(3)€€When€an€income€interest€ends,€who€gets€the€income€that€has€been€received€but€notÐ m½ Ðdistributed,€or€that€is€due€but€not€yet€collected,€or€that€has€accrued€but€is€not€yet€due?Ð Nž ÐÌà  à(4)€€After€an€income€interest€begins€and€before€it€ends,€how€should€its€receipts€and€disbursementsÐ ` Ðbe€allocated€to€or€between€principal€and€income?Ð ñA ÐÌà  àChanges€in€the€traditional€sections€are€of€three€types:€new€rules€that€deal€with€situations€notÐ ³!! Ðcovered€by€the€prior€Acts,€clarification€of€provisions€in€the€1962€Act,€and€changes€to€rules€in€the€priorÐ ”"ä" ÐActs.Ð u#Å# ÐÌà  àò òNew€rules.ó ó€€Issues€addressed€by€some€of€the€more€significant€new€rules€include:Ð 7%‡ % ÐÌà  à(1)€€The€application€of€the€probate€administration€rules€to€revocable€living€trusts€after€the€Ô_ÔsettlorÔ_ÔððsÐ 'V"' Ðdeath€and€to€other€terminating€trusts.€€Articles€2€and€3€[Ô_ÔSubchaptersÔ_Ô€B€and€C,€Chapter€116,€Texas€TrustÐ ç'7#( ÐCode].Ð È($) ÐÌà  à(2)€€The€payment€of€interest€or€some€other€amount€on€the€delayed€payment€of€an€outrightÐ Š*Ú%+ Ðpecuniary€gift€that€is€made€pursuant€to€a€trust€agreement€instead€of€a€will€when€the€agreement€or€stateÐ k+»&, Ðlaw€does€not€provide€for€such€a€payment.€€Section€201(3)€[Texas€Trust€Code€ðð116.051(3)].Ð L,œ'- Їà  à(3)€€The€allocation€of€net€income€from€partnership€interests€acquired€by€the€trustee€other€thanÐ ° Ðfrom€a€decedent€(the€old€Acts€deal€only€with€partnership€interests€acquired€from€a€decedent).€€SectionÐ ‘á Ð401€[Texas€Trust€Code€ðð116.Ô#†&ºú % %&ºú|?#ÔÔ‡&ºú % %&ºúÔ151].Ð r ÐÌà  à(4)€€An€ð ðunincorporated€entityðð€concept€has€been€introduced€to€deal€with€businesses€operated€byÐ 4„ Ða€trustee,€including€farming€and€livestock€operations,€and€investment€activities€in€rental€real€estate,€naturalÐ  e Ðresources,€timber,€and€derivatives.€€Section€403€[Texas€Trust€Code€ðð116.Ô#†&ºú % %&ºú?O#ÔÔ‡&ºú % %&ºúÔ153].Ð ö F ÐÌà  à(5)€€The€allocation€of€receipts€from€discount€obligations€such€as€zero„coupon€bonds.€€SectionÐ ¸  Ð406(b)€[Texas€Trust€Code€ðð116.Ô#†&ºú % %&ºúñP#ÔÔ‡&ºú % %&ºúÔ163(b)].Ð ™ é  ÐÌà  à(6)€€The€allocation€of€net€income€from€harvesting€and€selling€timber€between€principal€andÐ [«  Ðincome.€€Section€412€[Texas€Trust€Code€ðð116.Ô#†&ºú % %&ºúíQ#ÔÔ‡&ºú % %&ºúÔ174].Ð <Œ  ÐÌà  à(7)€€The€allocation€between€principal€and€income€of€receipts€from€derivatives,€options,€and€asset„Ð þN  Ðbacked€securities.€€Sections€414€and€415€[Texas€Trust€Code€ðððð116.Ô#†&ºú % %&ºú÷R#ÔÔ‡&ºú % %&ºúÔ177€and€116.178].Ð ß/  ÐÌà  à(8)€€Disbursements€made€because€of€environmental€laws.€€Section€502(a)(7)€[Texas€Trust€CodeÐ ¡ñ Ððð116.Ô#†&ºú % %&ºúT#ÔÔ‡&ºú % %&ºúÔ202(a)(7)].Ð ‚Ò ÐÌà  à(9)€€Income€tax€obligations€resulting€from€the€ownership€of€S€corporation€stock€and€interests€inÐ D” Ðpartnerships.€€Section€505€[Texas€Trust€Code€ðð116.Ô#†&ºú % %&ºú U#ÔÔ‡&ºú % %&ºúÔ205].Ð %u ÐÌà  à(10)€€The€power€to€make€adjustments€between€principal€and€income€to€correct€inequities€causedÐ ç7 Ðby€tax€elections€or€peculiarities€in€the€way€the€fiduciary€income€tax€rules€apply.€€Section€506€[Texas€TrustÐ È ÐCode€ðð116.Ô#†&ºú % %&ºú$V#ÔÔ‡&ºú % %&ºúÔ206].Ð ©ù ÐÌà  àò òClarifications€and€changes€in€existing€rules.ó ó€€A€number€of€matters€provided€for€in€the€priorÐ k» ÐActs€have€been€changed€or€clarified€in€this€revision,€including€the€following:Ð Y© ÐÌà  à(1)€€An€income€beneficiaryððs€estate€will€be€entitled€to€receive€only€net€income€actually€receivedÐ k Ðby€a€trust€before€the€beneficiaryððs€death€and€not€items€of€accrued€income.€€Section€303€[Texas€TrustÐ üL ÐCode€ðð116.Ô#†&ºú % %&ºúW#ÔÔ‡&ºú % %&ºúÔ103].Ð Ý -  ÐÌà  à(2)€€Income€from€a€partnership€is€based€on€actual€distributions€from€the€partnership,€in€the€sameÐ Ÿ"ï" Ðmanner€as€corporate€distributions.€€Section€401€[Texas€Trust€Code€ðð116.Ô#†&ºú % %&ºúßY#ÔÔ‡&ºú % %&ºúÔ151].Ð €#Ð# ÐÌà  à(3)€€Distributions€from€corporations€and€partnerships€that€exceed€20%€of€the€entityððs€gross€assetsÐ B%’ % Ðwill€be€principal€whether€or€not€intended€by€the€entity€to€be€a€partial€liquidation.€€Section€401(d)(2)€[TexasÐ #&s!& ÐTrust€Code€ðð116.Ô#†&ºú % %&ºú[#ÔÔ‡&ºú % %&ºúÔ151(d)(2)].Ð 'T"' ÐÌà  à(4)€€Deferred€compensation€is€dealt€with€in€greater€detail€in€a€separate€section.€€Section€409Ð Æ($) Ð[Texas€Trust€Code€ðð116.Ô#†&ºú % %&ºú\#ÔÔ‡&ºú % %&ºúÔ172].Ð §)÷$* ÐÌà  à(5)€€The€1962€Act€rule€for€ððproperty€subject€to€depletion,ðð€(patents,€copyrights,€royalties,€and€theÐ i+¹&, Ðlike),€which€provides€that€a€trustee€may€allocate€up€to€5%€of€the€assetððs€inventory€value€to€income€and€theÐ J,š'- Ðbalance€to€principal,€has€been€replaced€by€a€rule€that€allocates€90%€of€the€amounts€received€to€principalÐ ° Ðand€the€balance€to€income.€€Section€410€[Texas€Trust€Code€ðð116.Ô#†&ºú % %&ºú}]#ÔÔ‡&ºú % %&ºúÔ173].Ð ‘á ÐÌà  à(6)€€The€percentage€used€to€allocate€amounts€received€from€oil€and€gas€has€been€changedð!ð€90%Ð S£ Ðof€those€receipts€are€allocated€to€principal€and€the€balance€to€income.€€Section€411€[Texas€Trust€CodeÐ 4„ Ððð116.174€ð!ð€but€see€this€section€and€the€Texas€Bar€Comment€for€changes€from€uniform€act].Ð  e ÐÌà  à(7)€€The€unproductive€property€rule€has€been€eliminated€for€trusts€other€than€marital€deductionÐ × ' Ðtrusts.€€Section€413€[Texas€Trust€Code€ðð116.Ô#†&ºú % %&ºú¨_#ÔÔ‡&ºú % %&ºúÔ176].Ð ¸  ÐÌà  à(8)€€Charging€depreciation€against€income€is€no€longer€mandatory,€and€is€left€to€the€discretion€ofÐ z Ê  Ðthe€trustee.€€Section€503€[Texas€Trust€Code€ðð116.Ô#†&ºú % %&ºú$b#ÔÔ‡&ºú % %&ºúÔ203].Ð [«  ÐÌÓ€Óà@– – ìàò òCoordination€with€the€Uniform€Prudent€Investor€Actó óˆÐ m  ÐÓ€Óà  àThe€law€of€trust€investment€has€been€modernized.€€See€Uniform€Prudent€Investor€Act€(1994);Ð pÀ  ÐRestatement€(Third)€of€Trusts:€Prudent€Investor€Rule€(1992)€(hereinafter€Restatement€of€Trusts€3d:Ð Q¡  ÐPrudent€Investor€Rule).€€Now€it€is€time€to€update€the€principal€and€income€allocation€rules€so€the€twoÐ 2‚ Ðbodies€of€doctrine€can€work€well€together.€€This€revision€deals€conservatively€with€the€tension€betweenÐ c Ðmodern€investment€theory€and€traditional€income€allocation.€€The€starting€point€is€to€use€the€traditionalÐ ôD Ðsystem.€€If€prudent€investing€of€all€the€assets€in€a€trust€viewed€as€a€portfolio€and€traditional€allocationÐ Õ% Ðeffectuate€the€intent€of€the€Ô_ÔsettlorÔ_Ô,€then€nothing€need€be€done.€€The€Act,€however,€helps€the€trustee€whoÐ ¶ Ðhas€made€a€prudent,€modern€portfolio„based€investment€decision€that€has€the€initial€effect€of€skewingÐ —ç Ðreturn€from€all€the€assets€under€management,€viewed€as€a€portfolio,€as€between€income€and€principalÐ xÈ Ðbeneficiaries.€€The€Act€gives€that€trustee€a€power€to€reallocate€the€portfolio€return€suitably.€€To€leave€aÐ Y© Ðtrustee€constrained€by€the€traditional€system€would€inhibit€the€trusteeððs€ability€to€fully€implement€modernÐ :Š Ðportfolio€theory.Ð k ÐÌà  àAs€to€modern€investing€see,€e.g.,€the€Preface€to,€terms€of,€and€Comments€to€the€Uniform€PrudentÐ Ý- ÐInvestor€Act€(1994);€the€discussion€and€reporterððs€note€by€Edward€C.€Ô_ÔHalbachÔ_Ô,€Jr.€in€Restatement€ofÐ ¾ ÐTrusts€3d:€Prudent€Investor€Rule;€John€H.€Ô_ÔLangbeinÔ_Ô,€The€Uniform€Prudent€Investor€Act€and€the€Future€ofÐ Ÿï ÐTrust€Investing,€81€Iowa€L.€Rev.€641€(1996);€Ô_ÔBevisÔ_Ô€Ô_ÔLongstrethÔ_Ô,€Modern€Investment€Management€and€theÐ €Ð ÐPrudent€Man€Rule€(1986);€John€H.€Ô_ÔLangbeinÔ_Ô€&€Richard€A.€Ô_ÔPosnerÔ_Ô,€The€Revolution€in€Trust€InvestmentÐ a ±  ÐLaw,€62€Ô_ÔA.B.A.J.Ô_Ô€887€(1976);€and€Jeffrey€N.€Gordon,€The€Puzzling€Persistence€of€the€ConstrainedÐ B!’! ÐPrudent€Man€Rule,€62€Ô_ÔN.Y.U.Ô_Ô€L.€Rev.€52€(1987).€€See€also€R.A.€Ô_ÔBrearlyÔ_Ô,€An€Introduction€to€Risk€andÐ #"s" ÐReturn€from€Common€Stocks€(2d€ed.€1983);€Jonathan€R.€Ô_ÔMaceyÔ_Ô,€An€Introduction€to€Modern€FinancialÐ #T# ÐTheory€(2d€ed.€1998).€€As€to€the€need€for€principal€and€income€reform€see,€e.g.,€Joel€C.€Ô_ÔDobrisÔ_Ô,€RealÐ å#5$ ÐReturn,€Modern€Portfolio€Theory€and€College,€University€and€Foundation€Decisions€on€Annual€SpendingÐ Æ$ % ÐFrom€Endowments:€A€Visit€to€the€World€of€Spending€Rules,€28€Real€Prop.,€Prob.,€&€Tr.€J.€49€(1993);€JoelÐ §%÷ & ÐC.€Ô_ÔDobrisÔ_Ô,€The€Probate€World€at€the€End€of€the€Century:€Is€a€New€Principal€and€Income€Act€in€YourÐ ˆ&Ø!' ÐFuture?,€28€Real€Prop.,€Prob.,€&€Tr.€J.€393€(1993);€and€Kenneth€L.€Hirsch,€Inflation€and€the€Law€ofÐ i'¹"( ÐTrusts,€18€Real€Prop.,€Prob.,€&€Tr.€J.€601€(1983).€€See€also,€Ô_ÔJeroldÔ_Ô€I.€Horn,€The€Prudent€Investor€Ruleð!ðÐ J(š#) ÐImpact€on€Drafting€and€Administration€of€Trusts,€20€Ô_ÔACTECÔ_Ô€Notes€26€(Summer€1994).Ô#†X7íX %&ºúF@#ÔÐ  +){$* ÐÔ#†X7íXXX7í8c#ÔÓ  Óò òÔ  ÔÔ‡ŠâˆXX7íÔTEXAS€TRUST€CODE€CHAPTER€116.€UNIFORM€PRINCIPAL€AND€INCOME€ACTÔ of²rÔó óÐ ° ÐÌò òÔ  ÔÔ_ÔSUBCHAPTERÔ_Ô€A.€DEFINITIONS,€FIDUCIARY€DUTIES,€AND€OTHERÐ ¤ô ÐMISCELLANEOUS€PROVISIONSÔ toKsÔó óÐ žî ÐÌÓ  Óà  àò òÔ  ÔSec.€116.001.€SHORT€TITLE.Ô to"tÔó ó€This€chapter€may€be€cited€as€the€Uniform€PrincipalÐ ’ â Ðand€Income€Act.ò òÐ Œ Ü ÐÌó óà  àò òÔ  ÔSec.€116.002.€DEFINITIONS.Ô átÔó ó€In€this€chapter:ÓÓÐ € Ð ÐÌÓÓà  àà ` à(1)€"Accounting€period"€means€a€calendar€year€unless€another€12„ÓÓmonthÐ tÄ  Ðperiod€is€selected€by€a€fiduciary.€The€term€includes€a€portion€of€a€calendar€year€or€otherÐ n¾  Ð12„ÓÓmonth€period€that€begins€when€an€income€interest€begins€or€ends€when€an€incomeÐ h¸  Ðinterest€ends.Ð b²  ÐÌÓÓà  àà ` à(2)€"Beneficiary"€includes,€in€the€case€of€a€decedent's€estate,€an€heir,€legatee,Ð V¦ Ðand€devisee€and,€in€the€case€of€a€trust,€an€income€beneficiary€and€a€remainder€beneficiary.ÓÓÐ P  ÐÌÓÓà  àà ` à(3)€"Fiduciary"€means€a€personal€representative€or€a€trustee.€The€termÐ D” Ðincludes€an€executor,€administrator,€successor€personal€representative,€specialÐ >Ž Ðadministrator,€and€a€person€performing€substantially€the€same€function.Ð 8ˆ ÐÌÓÓà  àà ` à(4)€"Income"€means€money€or€property€that€a€fiduciary€receives€as€currentÐ ,| Ðreturn€from€a€principal€asset.€The€term€includes€a€portion€of€receipts€from€a€sale,€exchange,Ð &v Ðor€liquidation€of€a€principal€asset,€to€the€extent€provided€in€Ô_ÔSubchapterÔ_Ô€D.Ð  p ÐÌÓÓà  àà ` à(5)€"Income€beneficiary"€means€a€person€to€whom€net€income€of€a€trust€is€orÐ d Ðmay€be€payable.ÓÓÐ ^ ÐÌÓÓà  àà ` à(6)€"Income€interest"€means€the€right€of€an€income€beneficiary€to€receive€allÐ !R Ðor€part€of€net€income,€whether€the€terms€of€the€trust€require€it€to€be€distributed€or€authorizeÐ ü!L Ðit€to€be€distributed€in€the€trustee's€discretion.Ð ö"F ÐÌÓÓà  àà ` à(7)€"Mandatory€income€interest"€means€the€right€of€an€income€beneficiary€toÐ ê$: ! Ðreceive€net€income€that€the€terms€of€the€trust€require€the€fiduciary€to€distribute.ÓÓÐ ä%4!" ÐÌÓÓà  àà ` à(8)€"Net€income"€means€the€total€receipts€allocated€to€income€during€anÐ Ø'(#$ Ðaccounting€period€minus€the€disbursements€made€from€income€during€the€period,€plus€orÐ Ò("$% Ðminus€transfers€under€this€chapter€to€or€from€income€during€the€period.ÓÓÐ Ì)%& ÐÌÓÓà  àà ` à(9)€"Person"€means€an€individual,€corporation,€business€trust,€estate,€trust,Ð À+'( Ðpartnership,€limited€liability€company,€association,€joint€venture,€government;€governmentalÐ ° Ðsubdivision,€agency,€or€instrumentality;€public€corporation,€or€any€other€legal€orÐ ªú Ðcommercial€entity.Ð ¤ô ÐÌÓÓà  àà ` à(10)€"Principal"€means€property€held€in€trust€for€distribution€to€a€remainderÐ ˜è Ðbeneficiary€when€the€trust€terminates.ÓÓÐ ’ â ÐÌÓÓà  àà ` à(11)€"Remainder€beneficiary"€means€a€person€entitled€to€receive€principalÐ † Ö Ðwhen€an€income€interest€ends.Ð € Ð ÐÌÓÓà  àà ` à(12)€"Terms€of€a€trust"€means€the€manifestation€of€the€intent€of€a€Ô_ÔsettlorÔ_Ô€orÐ tÄ  Ðdecedent€with€respect€to€the€trust,€expressed€in€a€manner€that€admits€of€its€proof€in€aÐ n¾  Ðjudicial€proceeding,€whether€by€written€or€spoken€words€or€by€conduct.ÓÓÐ h¸  ÐÌÓÓà  àà ` à(13)€"Trustee"€includes€an€original,€additional,€or€successor€trustee,€whetherÐ \¬  Ðor€not€appointed€or€confirmed€by€a€court.Ô#†X7íXˆŠâ¿r#ÔÓÓÐ V¦ ÐÌÔ‡X7íXXX7íÔà@NN!ìàò òÔ‡&ºú %XX7íÔUniform€Act€Commentó óˆÐ Jš ÐÌà  àò òð ðIncome€beneficiary.ððó ó€€The€definitions€of€income€beneficiary€(Section€102(5)€[Texas€TrustÐ  ] ÐCode€ðð116.002(5)])€and€income€interest€(Section€102(6)€[Texas€Trust€Code€ðð116.002(6)])€cover€bothÐ ûK Ðmandatory€and€discretionary€beneficiaries€and€interests.€€There€are€no€definitions€for€ð ðdiscretionaryÐ Ü, Ðincome€beneficiaryðð€or€ð ðdiscretionary€income€interestðð€because€those€terms€are€not€used€in€the€Act.Ð ½  ÐÌà  àò òInventory€value.ó ó€€There€is€no€definition€for€inventory€value€in€this€Act€because€the€provisions€inÐ Ï Ðwhich€that€term€was€used€in€the€1962€Act€have€either€been€eliminated€(in€the€case€of€the€Ô_ÔunderproductiveÔ_ÔÐ m½ Ðproperty€provision)€or€changed€in€a€way€that€eliminates€the€need€for€the€term€(in€the€case€of€bonds€andÐ Nž Ðother€money€obligations,€property€subject€to€depletion,€and€the€method€for€determining€entitlement€toÐ / Ðincome€distributed€from€a€probate€estate).Ð ` ÐÌà  àð ðò òNet€income.ððó ó€€The€reference€to€ð ðtransfers€under€this€Act€to€or€from€incomeðð€means€transfersÐ Ò " Ðmade€under€Sections€104(a)€[Texas€Trust€Code€ðð116.005(a)],€412(b)€[Texas€Trust€Code€ðð116.174(b)],Ð À! Ð502(b)€[Texas€Trust€Code€ðð116.202(b)]€,€503(b)€[Texas€Trust€Code€ðð116.203(b)],€504(a)€[Texas€TrustÐ ¡"ñ  ÐCode€Ô_Ôðð116.204],Ô_Ô€and€506€[Texas€Trust€Code€ðð116.Ô#†&ºú % %&ºú³„#ÔÔ‡&ºú % %&ºúÔ206].Ð ‚#Ò! ÐÌà  àò òð ðTerms€of€a€trust.ððó ó€€This€term€was€chosen€in€preference€to€ð ðterms€of€the€trust€instrumentðð€(theÐ D%” # Ðphrase€used€in€the€1962€Act)€to€make€it€clear€that€the€Act€applies€to€oral€trusts€as€well€as€those€whoseÐ 2&‚!$ Ðterms€are€expressed€in€written€documents.€€The€definition€is€based€on€the€Restatement€(Second)€of€TrustsÐ 'c"% Ððð4€(1959)€and€the€Restatement€(Third)€of€Trusts€ðð4€(Tent.€Draft€No.€1,€1996).€€ConstructionalÐ ô'D#& Ðpreferences€or€rules€would€also€apply,€if€necessary,€to€determine€the€terms€of€the€trust.Ô#†&ºú % %&ºú‹#ÔÔ‡&ºú % %&ºúÔÐ Õ(%$' ÐÔ#†X7íX %&ºúç„#ÔÌÓÓÔ‡ŠâˆXX7íÔà  àò òÔ  ÔSec.€116.003.€UNIFORMITY€OF€APPLICATION€AND€CONSTRUCTION.Ô  âŽÔ€ó óInÐ °*&) Ðapplying€and€construing€this€Uniform€Act,€consideration€must€be€given€to€the€need€toÐ ª+ú&* Ðpromote€uniformity€of€the€law€with€respect€to€its€subject€matter€among€states€that€enact€it.ÓÓÐ ° ÐÌÓÓà  àò òÔ  ÔSec.€116.004.€FIDUCIARY€DUTIES;€GENERAL€PRINCIPLES.Ô  `Ôó ó€(a)€In€allocatingÐ ¤ô Ðreceipts€and€disbursements€to€or€between€principal€and€income,€and€with€respect€to€anyÐ žî Ðmatter€within€the€scope€of€Ô_ÔSubchaptersÔ_Ô€B€and€C,€a€fiduciary:ÓÓÐ ˜è ÐÌÓÓà  àà ` à(1)€shall€administer€a€trust€or€estate€in€accordance€with€the€terms€of€the€trustÐ Œ Ü Ðor€the€will,€even€if€there€is€a€different€provision€in€this€chapter;Ð † Ö ÐÌÓÓà  àà ` à(2)€may€administer€a€trust€or€estate€by€the€exercise€of€a€discretionary€powerÐ z Ê  Ðof€administration€given€to€the€fiduciary€by€the€terms€of€the€trust€or€the€will,€even€if€theÐ tÄ  Ðexercise€of€the€power€produces€a€result€different€from€a€result€required€or€permitted€byÐ n¾  Ðthis€chapter;ÓÓÐ h¸  ÐÌÓÓà  àà ` à(3)€shall€administer€a€trust€or€estate€in€accordance€with€this€chapter€if€theÐ \¬  Ðterms€of€the€trust€or€the€will€do€not€contain€a€different€provision€or€do€not€give€theÐ V¦ Ðfiduciary€a€discretionary€power€of€administration;€andÓÓ€ÓÓÐ P  ÐÌà  àà ` à(4)€shall€add€a€receipt€or€charge€a€disbursement€to€principal€to€the€extent€thatÐ D” Ðthe€terms€of€the€trust€and€this€chapter€do€not€provide€a€rule€for€allocating€the€receipt€orÐ >Ž Ðdisbursement€to€or€between€principal€and€income.ÓÓÐ 8ˆ ÐÌÓÓà  à(b)€In€exercising€the€power€to€adjust€under€Section€116.005(a)€or€a€discretionaryÐ ,| Ðpower€of€administration€regarding€a€matter€within€the€scope€of€this€chapter,€whetherÐ &v Ðgranted€by€the€terms€of€a€trust,€a€will,€or€this€chapter,€a€fiduciary€shall€administer€a€trust€orÐ  p Ðestate€impartially,€based€on€what€is€fair€and€reasonable€to€all€of€the€beneficiaries,€except€toÐ j Ðthe€extent€that€the€terms€of€the€trust€or€the€will€clearly€manifest€an€intention€that€theÐ d Ðfiduciary€shall€or€may€favor€one€or€more€of€the€beneficiaries.€A€determination€inÐ ^ Ðaccordance€with€this€chapter€is€presumed€to€be€fair€and€reasonable€to€all€of€theÐ  X Ðbeneficiaries.Ô#†X7íXˆŠâ´Ž#ÔÓÓÐ !R ÐÌÔ#†X7íXXX7íLŽ#ÔÔ‡X7íXXX7íÔà@NN!ìàò òÔ‡&ºú %XX7íÔUniform€Act€Ô#†&ºú % %&ºúxš#ÔÔ‡&ºú % %&ºúÔCommentó óˆÐ ö"F ÐÌà  àò òPrior€Act.ó ó€€The€rule€in€Section€2(a)€of€the€1962€Act€is€restated€in€Section€103(a)€[Texas€TrustÐ ¹$ ! ÐCode€ðð116.004(a)],€without€changing€its€substance,€to€emphasize€that€the€Act€contains€only€default€rulesÐ §%÷ " Ðand€that€provisions€in€the€terms€of€the€trust€are€paramount.€€However,€Section€2(a)€of€the€1962€ActÐ ˆ&Ø!# Ðapplies€only€to€the€allocation€of€receipts€and€disbursements€to€or€between€principal€and€income.€€In€thisÐ i'¹"$ ÐAct,€the€first€sentence€of€Section€103(a)€[Texas€Trust€Code€ðð116.004(a)]€states€that€it€also€applies€toÐ J(š#% Ðmatters€within€the€scope€of€Articles€2€and€3€[Ô_ÔSubchaptersÔ_Ô€B€and€C€of€Texas€Trust€Code€Chapter€116].€Ð +){$& ÐSection€103(a)(2)€[Texas€Trust€Code€ðð116.004(b)(2)]€incorporates€the€rule€in€Section€2(b)€of€the€1962Ð  *\%' ÐAct€that€a€discretionary€allocation€made€by€the€trustee€that€is€contrary€to€a€rule€in€the€Act€should€not€giveÐ í*=&( Ðrise€to€an€inference€of€imprudence€or€partiality€by€the€trustee.Ð Î+') Їà  à€The€Act€deletes€the€language€that€appears€at€the€end€of€1962€Act€Section€2(a)(3)ð!ð€ððand€in€viewÐ ° Ðof€the€manner€in€which€men€of€ordinary€prudence,€discretion€and€judgment€would€act€in€the€managementÐ ‘á Ðof€their€affairsððð!ð€because€persons€of€ordinary€prudence,€discretion€and€judgment,€acting€in€theÐ r Ðmanagement€of€their€own€affairs€do€not€normally€think€in€terms€of€the€interests€of€successiveÐ S£ Ðbeneficiaries.€€If€there€is€an€analogy€to€an€individualððs€decision-making€process,€it€is€probably€theÐ 4„ Ðindividualððs€decision€to€spend€or€to€save,€but€this€is€not€a€useful€guideline€for€trust€administration.€€No€caseÐ  e Ðhas€been€found€in€which€a€court€has€relied€on€the€ð ðprudent€manðð€rule€of€the€1962€Act.Ð ö F ÐÌà  àò òFiduciary€discretion.ó ó€€The€general€rule€is€that€if€a€discretionary€power€is€conferred€upon€aÐ ¸  Ðtrustee,€the€exercise€of€that€power€is€not€subject€to€control€by€a€court€except€to€prevent€an€abuse€ofÐ ¦ ö  Ðdiscretion.€€Restatement€(Second)€of€Trusts€ðð187.€€The€situations€in€which€a€court€will€control€theÐ ‡ ×  Ðexercise€of€a€trusteeððs€discretion€are€discussed€in€the€comments€to€ðð187.€€See€also€id.€ðð233€Comment€òòp.óóÐ h¸  ÐÌà  àò òQuestions€for€which€there€is€no€provision.ó ó€€Section€103(a)(4)€[Texas€Trust€CodeÐ *z  Ððð116.004(a)(4)]€allocates€receipts€and€disbursements€to€principal€when€there€is€no€provision€for€aÐ h  Ðdifferent€allocation€in€the€terms€of€the€trust,€the€will,€or€the€Act.€€This€may€occur€because€money€isÐ ùI  Ðreceived€from€a€financial€instrument€not€available€at€the€present€time€(inflation„indexed€bonds€might€haveÐ Ú* Ðfallen€into€this€category€had€they€been€announced€after€this€Act€was€approved€by€the€Commissioners€onÐ »  ÐUniform€State€Laws)€or€because€a€transaction€is€of€a€type€or€occurs€in€a€manner€not€anticipated€by€theÐ œì ÐDrafting€Committee€for€this€Act€or€the€drafter€of€the€trust€instrument.Ð }Í ÐÌà  àAllocating€to€principal€a€disbursement€for€which€there€is€no€provision€in€the€Act€or€the€terms€ofÐ ? Ðthe€trust€preserves€the€income€beneficiaryððs€level€of€income€in€the€year€it€is€allocated€to€principal,€butÐ  p Ðthereafter€will€reduce€the€amount€of€income€produced€by€the€principal.€€Allocating€to€principal€a€receiptÐ Q Ðfor€which€there€is€no€provision€will€increase€the€income€received€by€the€income€beneficiary€in€subsequentÐ â2 Ðyears,€and€will€eventually,€upon€termination€of€the€trust,€also€favor€the€remainder€beneficiary.€€AllocatingÐ Ã Ðthese€items€to€principal€implements€the€rule€that€requires€a€trustee€to€administer€the€trust€impartially,€basedÐ ¤ô Ðon€what€is€fair€and€reasonable€to€both€income€and€remainder€beneficiaries.€€However,€if€the€trusteeÐ …Õ Ðdecides€that€an€adjustment€between€principal€and€income€is€needed€to€enable€the€trustee€to€comply€withÐ f¶ ÐSection€103(b)€[Texas€Trust€Code€ðð116.004(b)],€after€considering€the€return€from€the€portfolio€as€aÐ G— Ðwhole,€the€trustee€may€make€an€appropriate€adjustment€under€Section€104(a)€[Texas€Trust€CodeÐ (x Ððð116.005(a)].Ð  Y ÐÌà  àò òDuty€of€impartiality.ó ó€€Whenever€there€are€two€or€more€beneficiaries,€a€trustee€is€under€a€duty€toÐ Ë!! Ðdeal€impartially€with€them.€€Restatement€of€Trusts€3d:€Prudent€Investor€Rule€ðð183€(1992).€€This€ruleÐ ¹" " Ðapplies€whether€the€beneficiariesðð€interests€in€the€trust€are€concurrent€or€successive.€€If€the€terms€of€theÐ š#ê# Ðtrust€give€the€trustee€discretion€to€favor€one€beneficiary€over€another,€a€court€will€not€control€the€exerciseÐ {$Ë$ Ðof€such€discretion€except€to€prevent€the€trustee€from€abusing€it.€€Id.€ðð183,€Comment€òòa.óó€€ð ðThe€preciseÐ \%¬ % Ðmeaning€of€the€trusteeððs€duty€of€impartiality€and€the€balancing€of€competing€interests€and€objectivesÐ =&!& Ðinevitably€are€matters€of€judgment€and€interpretation.€€Thus,€the€duty€and€balancing€are€affected€by€theÐ 'n"' Ðpurposes,€terms,€distribution€requirements,€and€other€circumstances€of€the€trust,€not€only€at€the€outset€butÐ ÿ'O#( Ðas€they€may€change€from€time€to€time.ðð€€Id.€ðð232,€Comment€òòc.óóÐ à(0$) ÐÌà  àThe€terms€of€a€trust€may€provide€that€the€trustee,€or€an€accountant€engaged€by€the€trustee,€or€aÐ ¢*ò%+ Ðcommittee€of€persons€who€may€be€family€members€or€business€associates,€shall€have€the€power€toÐ ƒ+Ó&, Ðdetermine€what€is€income€and€what€is€principal.€€If€the€terms€of€a€trust€provide€that€this€Act€specifically€orÐ d,´'- Ðprincipal€and€income€legislation€in€general€does€not€apply€to€the€trust€but€fail€to€provide€a€rule€to€deal€withÐ ° Ða€matter€provided€for€in€this€Act,€the€trustee€has€an€implied€grant€of€discretion€to€decide€the€question.€Ð ‘á ÐSection€103(b)€[Texas€Trust€Code€ðð116.004(b)]€provides€that€the€rule€of€impartiality€applies€in€theÐ r Ðexercise€of€such€a€discretionary€power€to€the€extent€that€the€terms€of€the€trust€do€not€provide€that€one€orÐ S£ Ðmore€of€the€€beneficiaries€are€to€be€favored.€€The€fact€that€a€person€is€named€an€income€beneficiary€or€aÐ 4„ Ðremainder€beneficiary€is€not€by€itself€an€indication€of€partiality€for€that€beneficiary.Ð  e ÐÌà@™™"ìàò òTexas€Bar€Commentó óÔ#†&ºú % %&ºúúš#ÔÔ‡&ºú % %&ºúÔˆÐ × ' ÐÌà  àTexas€Trust€Code€ðð116.004(a)(4)€provides€that€a€receipt€or€disbursement€shall€be€allocated€toÐ š ê  Ðprincipal€if€neither€the€terms€of€the€trust€nor€the€Act€addresses€how€such€receipt€or€disbursement€is€to€beÐ { Ë  Ðallocated.€€In€contrast,€former€Section€113.101€of€the€Texas€Trust€Code€provided€that€the€trustee€mustÐ \¬  Ðallocate€such€receipts€and€disbursements€in€accordance€with€what€is€reasonable€and€equitable.€€While€thisÐ =  Ðappears€to€be€a€significant€change,€its€effect€is€mitigated€by€Texas€Trust€Code€ðð116.005,€which€gives€theÐ n  Ðfiduciary€the€power€to€make€adjustments€between€income€and€principal€and€such€adjustments€must€beÐ ÿO  Ðbased€on€what€is€fair€and€reasonable€to€all€of€the€beneficiaries.Ð à0  ÐÌà  àTexas€Trust€Code€ðð116.004(b)€provides€greater€protection€for€fiduciaries€by€providing€that€anÐ ¢ò Ðallocation€in€accordance€with€the€Uniform€Act€will€be€presumed€to€be€fair€and€reasonable€to€allÐ ƒÓ Ðbeneficiaries.€€The€Section€believes€that€this€is€a€positive€adjustment€to€former€Section€113.101(b)€of€theÐ d´ ÐTexas€Trust€Code,€which€provided€that€no€inference€arises€from€the€fact€that€the€fiduciary€makes€anÐ E• Ðallocation€contrary€to€the€Texas€Trust€Code.Ô#†X7íX %&ºú¬š#ÔÔ#†X7íXXX7ín¶#ÔÔ‡X7íXXX7íÔÐ &v ÐÌÓÓÔ‡ŠâˆXX7íÔà  àò òÔ  ÔSec.€116.005.€TRUSTEE'S€POWER€TO€ADJUST.ó ó€Ô €a¾¼Ô(a)€A€trustee€may€adjustÐ Q Ðbetween€principal€and€income€to€the€extent€the€trustee€considers€necessary€if€the€trusteeÐ ûK Ðinvests€and€manages€trust€assets€as€a€prudent€investor,€the€terms€of€the€trust€describe€theÐ õE Ðamount€that€may€or€must€be€distributed€to€a€beneficiary€by€referring€to€the€trust's€income,Ð ï? Ðand€the€trustee€determines,€after€applying€the€rules€in€Section€116.004(a),€that€the€trustee€isÐ é9 Ðunable€to€comply€with€Section€116.004(b).€The€power€to€adjust€conferred€by€thisÐ ã3 Ðsubsection€includes€the€power€to€allocate€all€or€part€of€a€capital€gain€to€trust€income.ÓÓÐ Ý- ÐÌÓÓà  à(b)€In€deciding€whether€and€to€what€extent€to€exercise€the€power€conferred€byÐ Ñ ! ÐSubsection€(a),€a€trustee€shall€consider€all€factors€relevant€to€the€trust€and€its€beneficiaries,Ð Ë!  Ðincluding€the€following€factors€to€the€extent€they€are€relevant:ÓӀРÅ"! ÐÌÓÓà  àà ` à(1)€the€nature,€purpose,€and€expected€duration€of€the€trust;ÓÓ€ÓÓÐ ¹$ # ÐÌà  àà ` à(2)€the€intent€of€the€Ô_ÔsettlorÔ_Ô;ÓӀР­&ý!% ÐÌÓÓà  àà ` à(3)€the€identity€and€circumstances€of€the€beneficiaries;ÓӀР¡(ñ#' ÐÌà  àà ` àÓÓ(4)€the€needs€for€liquidity,€regularity€of€income,€and€preservation€andÐ •*å%) Ðappreciation€of€capital;ÓÓÐ +ß&* ЀÓÓÌà  àà ` à(5)€the€assets€held€in€the€trust;€the€extent€to€which€they€consist€of€financialÐ ªú Ðassets,€interests€in€closely€held€enterprises,€tangible€and€intangible€personal€property,€orÐ ¤ô Ðreal€property;€the€extent€to€which€an€asset€is€used€by€a€beneficiary;€and€whether€an€asset€wasÐ žî Ðpurchased€by€the€trustee€or€received€from€the€Ô_ÔsettlorÔ_Ô;ÓӀР˜è ÐÌÓÓà  àà ` à(6)€the€net€amount€allocated€to€income€under€the€other€sections€of€thisÐ Œ Ü Ðchapter€and€the€increase€or€decrease€in€the€value€of€the€principal€assets,€which€the€trusteeÐ † Ö Ðmay€estimate€as€to€assets€for€which€market€values€are€not€readily€available;ÓӀР€ Ð ÐÌÓÓà  àà ` à(7)€whether€and€to€what€extent€the€terms€of€the€trust€give€the€trustee€theÐ tÄ  Ðpower€to€invade€principal€or€accumulate€income€or€prohibit€the€trustee€from€invadingÐ n¾  Ðprincipal€or€accumulating€income,€and€the€extent€to€which€the€trustee€has€exercised€a€powerÐ h¸  Ðfrom€time€to€time€to€invade€principal€or€accumulate€income;ÓӀРb²  ÐÓÓÌà  àà ` à(8)€the€actual€and€anticipated€effect€of€economic€conditions€on€principal€andÐ V¦ Ðincome€and€effects€of€inflation€and€deflation;€andÓÓ€ÓÓÐ P  ÐÌà  àà ` à(9)€the€anticipated€tax€consequences€of€an€adjustment.Ð D” ÐÌÓÓà  à(c)€A€trustee€may€not€make€an€adjustment:ÓӀР8ˆ ÐÌÓÓà  àà ` à(1)€that€diminishes€the€income€interest€in€a€trust€that€requires€all€of€theÐ ,| Ðincome€to€be€paid€at€least€annually€to€a€spouse€and€for€which€an€estate€tax€or€gift€tax€maritalÐ &v Ðdeduction€would€be€allowed,€in€whole€or€in€part,€if€the€trustee€did€not€have€the€power€toÐ  p Ðmake€the€adjustment;ÓÓ€ÓÓÐ j ÐÌà  àà ` à(2)€that€reduces€the€actuarial€value€of€the€income€interest€in€a€trust€to€which€aÐ ^ Ðperson€transfers€property€with€the€intent€to€qualify€for€a€gift€tax€exclusion;ÓӀР X ÐÌÓÓà  àà ` à(3)€that€changes€the€amount€payable€to€a€beneficiary€as€a€fixed€annuity€or€aÐ ü!L Ðfixed€fraction€of€the€value€of€the€trust€assets;ÓÓ€ÓÓÐ ö"F ÐÌà  àà ` à(4)€from€any€amount€that€is€permanently€set€aside€for€charitable€purposesÐ ê$: ! Ðunder€a€will€or€the€terms€of€a€trust€unless€both€income€and€principal€are€so€set€aside;ÓÓ€ÓÓÐ ä%4!" ÐÌà  àà ` à(5)€if€possessing€or€exercising€the€power€to€make€an€adjustment€causes€anÐ Ø'(#$ Ðindividual€to€be€treated€as€the€owner€of€all€or€part€of€the€trust€for€income€tax€purposes,€andÐ Ò("$% Ðthe€individual€would€not€be€treated€as€the€owner€if€the€trustee€did€not€possess€the€power€toÐ Ì)%& Ðmake€an€adjustment;ÓÓ€ÓÓÐ Æ*&' ÐÐ À+'( Ðà  àà ` à(6)€if€possessing€or€exercising€the€power€to€make€an€adjustment€causes€all€orÐ ° Ðpart€of€the€trust€assets€to€be€included€for€estate€tax€purposes€in€the€estate€of€an€individualÐ ªú Ðwho€has€the€power€to€remove€a€trustee€or€appoint€a€trustee,€or€both,€and€the€assets€wouldÐ ¤ô Ðnot€be€included€in€the€estate€of€the€individual€if€the€trustee€did€not€possess€the€power€toÐ žî Ðmake€an€adjustment;ÓÓ€ÓÓÐ ˜è ÐÌà  àà ` à(7)€if€the€trustee€is€a€beneficiary€of€the€trust;€orÓÓ€ÓÓÐ Œ Ü ÐÌà  àà ` à(8)€if€the€trustee€is€not€a€beneficiary,€but€the€adjustment€would€benefit€theÐ € Ð Ðtrustee€directly€or€indirectly.ÓÓÐ z Ê  ÐÌÓÓà  à(d)€If€Subsection€(c)(5),€(6),€(7),€or€(8)€applies€to€a€trustee€and€there€is€more€thanÐ n¾  Ðone€trustee,€a€Ô_ÔcotrusteeÔ_Ô€to€whom€the€provision€does€not€apply€may€make€the€adjustmentÐ h¸  Ðunless€the€exercise€of€the€power€by€the€remaining€trustee€or€trustees€is€not€permitted€by€theÐ b²  Ðterms€of€the€trust.ÓӀР\¬  ÐÌÓÓà  à(e)€A€trustee€may€release€the€entire€power€conferred€by€Subsection€(a)€or€mayÐ P  Ðrelease€only€the€power€to€adjust€from€income€to€principal€or€the€power€to€adjust€fromÐ Jš Ðprincipal€to€income€if€the€trustee€is€uncertain€about€whether€possessing€or€exercising€theÐ D” Ðpower€will€cause€a€result€described€in€Subsection€(c)(1)„ÓÓ(6)€or€(c)(8)€or€if€the€trusteeÐ >Ž Ðdetermines€that€possessing€or€exercising€the€power€will€or€may€deprive€the€trust€of€a€taxÐ 8ˆ Ðbenefit€or€impose€a€tax€burden€not€described€in€Subsection€(c).€The€release€may€beÐ 2‚ Ðpermanent€or€for€a€specified€period,€including€a€period€measured€by€the€life€of€anÐ ,| Ðindividual.Ð &v ÐÓÓ€ÌÓÓà  à(f)€Terms€of€a€trust€that€limit€the€power€of€a€trustee€to€make€an€adjustment€betweenÐ j Ðprincipal€and€income€do€not€affect€the€application€of€this€section€unless€it€is€clear€from€theÐ d Ðterms€of€the€trust€that€the€terms€are€intended€to€deny€the€trustee€the€power€of€adjustmentÐ ^ Ðconferred€by€Subsection€(a).ÓÓÐ  X ÐÔ#†X7íXˆŠâ¼#ÔÔ‡&ºú %XX7íÔÌÔ#†&ºú % %&ºúK¼#ÔÔ‡&ºú % %&ºúÔà@NN!ìàò òUniform€Act€Ô#†&ºú % %&ºú*Û#ÔÔ‡&ºú % %&ºúÔCommentó óˆÐ ã!3 ÐÌà  àò òPurpose€and€Scope€of€Provision.ó ó€€The€purpose€of€Section€104€[Texas€Trust€Code€ðð116.005]€isÐ ¦#ö  Ðto€enable€a€trustee€to€select€investments€using€the€standards€of€a€prudent€investor€without€having€to€realizeÐ ”$ä! Ða€particular€portion€of€the€portfolioððs€total€return€in€the€form€of€traditional€trust€accounting€income€such€asÐ u%Å " Ðinterest,€dividends,€and€rents.€€Section€104(a)€]Texas€Trust€Code€ðð116.005(a)]Ô#†&ºú % %&ºúÛ#ÔÔ‡&ºú % %&ºúÔ€authorizes€a€trustee€toÐ V&¦!# Ðmake€adjustments€between€principal€and€income€if€three€conditions€are€met:€(1)€the€trustee€must€beÐ 7'‡"$ Ðmanaging€the€trust€assets€under€the€prudent€investor€rule;€(2)€the€terms€of€the€trust€must€express€theÐ (h#% Ðincome€beneficiaryððs€distribution€rights€in€terms€of€the€right€to€receive€ð ðincomeðð€in€the€sense€of€traditionalÐ ù(I$& Ðtrust€accounting€income;€and€(3)€the€trustee€must€determine,€after€applying€the€rules€in€Section€103(a)Ð Ú)*%' Ð[Texas€Trust€Code€ðð116.004(a)]Ô#†&ºú % %&ºúÎÝ#ÔÔ‡&ºú % %&ºúÔ,€that€he€is€unable€to€comply€with€Section€103(b)€[Texas€Trust€CodeÐ »* &( Ððð116.004(b)]Ô#†&ºú % %&ºúXà#ÔÔ‡&ºú % %&ºúÔ.€€In€deciding€whether€and€to€what€extent€to€exercise€the€power€to€adjust,€the€trustee€isÐ œ+ì&) Ðrequired€to€consider€the€factors€described€in€Section€104(b)€[Texas€Trust€Code€ðð116.005(b)]Ô#†&ºú % %&ºúá#ÔÔ‡&ºú % %&ºúÔ,€but€theÐ ° Ðtrustee€may€not€make€an€adjustment€in€circumstances€described€in€Section€104(c)€[Texas€Trust€CodeÐ ‘á Ððð116.005(c)]Ô#†&ºú % %&ºúâ#ÔÔ‡&ºú % %&ºúÔ.Ð r ÐÌà  àSection€104€[Texas€Trust€Code€ðð116.005]Ô#†&ºú % %&ºúôâ#ÔÔ‡&ºú % %&ºúÔ€does€not€empower€a€trustee€to€increase€or€decreaseÐ 4„ Ðthe€degree€of€beneficial€enjoyment€to€which€a€beneficiary€is€entitled€under€the€terms€of€the€trust;€rather,€itÐ  e Ðauthorizes€the€trustee€to€make€adjustments€between€principal€and€income€that€may€be€necessary€if€theÐ ö F Ðincome€component€of€a€portfolioððs€total€return€is€too€small€or€too€large€because€of€investment€decisionsÐ × ' Ðmade€by€the€trustee€under€the€prudent€investor€rule.€€The€paramount€consideration€in€applying€SectionÐ ¸  Ð104(a)€[Texas€Trust€Code€ðð116.005(a)]Ô#†&ºú % %&ºúƒã#ÔÔ‡&ºú % %&ºúÔ€is€the€requirement€in€Section€103(b)€€[Texas€Trust€CodeÐ ™ é  Ððð116.004(b)]Ô#†&ºú % %&ºú+æ#ÔÔ‡&ºú % %&ºúÔ€that€ð ða€fiduciary€must€administer€a€trust€or€estate€impartially,€based€on€what€is€fair€andÐ z Ê  Ðreasonable€to€all€of€the€beneficiaries,€except€to€the€extent€that€the€terms€of€the€trust€or€the€will€clearlyÐ [«  Ðmanifest€an€intention€that€the€fiduciary€shall€or€may€favor€one€or€more€of€the€beneficiaries.ðð€€The€powerÐ <Œ  Ðto€adjust€is€subject€to€control€by€the€court€to€prevent€an€abuse€of€discretion.€€Restatement€(Second)€ofÐ m  ÐTrusts€ðð187€(1959).€€See€also€id.€ðððð183,€232,€233,€Comment€òòpóó€(1959).Ð þN  ÐÌà  àSection€104€[Texas€Trust€Code€ðð116.005]Ô#†&ºú % %&ºúÉæ#ÔÔ‡&ºú % %&ºúÔ€will€be€important€for€trusts€that€are€irrevocable€when€aÐ À ÐState€adopts€the€prudent€investor€rule€by€statute€or€judicial€approval€of€the€rule€in€Restatement€of€TrustsÐ ¡ñ Ð3d:€Prudent€Investor€Rule.€€Wills€and€trust€instruments€executed€after€the€rule€is€adopted€can€be€drafted€toÐ ‚Ò Ðdescribe€a€beneficiaryððs€distribution€rights€in€terms€that€do€not€depend€upon€the€amount€of€trust€accountingÐ c³ Ðincome,€but€to€the€extent€that€drafters€of€trust€documents€continue€to€describe€an€income€beneficiaryððsÐ D” Ðdistribution€rights€by€referring€to€trust€accounting€income,€Section€104€[Texas€Trust€Code€ðð116.005]Ô#†&ºú % %&ºúžé#ÔÔ‡&ºú % %&ºúÔ€willÐ %u Ðbe€an€important€tool€in€trust€administration.Ð V ÐÌà  àò òThree€conditions€to€the€exercise€of€the€power€to€adjust.ó ó€€The€first€of€the€three€conditionsÐ È Ðthat€must€be€met€before€a€trustee€can€exercise€the€power€to€adjustð!ð€that€the€trustee€invest€and€manageÐ ¶ Ðtrust€assets€as€a€prudent€investorð!ð€is€expressed€in€this€Act€by€language€derived€from€the€UniformÐ —ç ÐPrudent€Investor€Act,€but€the€condition€will€be€met€whether€the€prudent€investor€rule€applies€because€theÐ xÈ ÐUniform€Act€or€other€prudent€investor€legislation€has€been€enacted,€the€prudent€investor€rule€has€beenÐ Y© Ðapproved€by€the€courts,€or€the€terms€of€the€trust€require€it.€€Even€if€a€Stateððs€legislature€or€courts€have€notÐ :Š Ðformally€adopted€the€rule,€the€Restatement€establishes€the€prudent€investor€rule€as€an€authoritativeÐ k Ðinterpretation€of€the€common€law€prudent€man€rule,€referring€to€the€prudent€investor€rule€as€a€ð ðmodestÐ üL Ðreformulation€of€the€Harvard€College€dictum€and€the€basic€rule€of€prior€Restatements.ðð€€Restatement€ofÐ Ý -  ÐTrusts€3d:€Prudent€Investor€Rule,€Introduction,€at€5.€€As€a€result,€there€is€a€basis€for€concluding€that€theÐ ¾!! Ðfirst€condition€is€satisfied€in€virtually€all€States€except€those€in€which€a€trustee€is€permitted€to€invest€only€inÐ Ÿ"ï" Ðassets€set€forth€in€a€statutory€ð ðlegal€list.ððÐ €#Ð# ÐÌà  àThe€second€condition€will€be€met€when€the€terms€of€the€trust€require€all€of€the€ð ðincomeðð€to€beÐ B%’ % Ðdistributed€at€regular€intervals;€or€when€the€terms€of€the€trust€require€a€trustee€to€distribute€all€of€theÐ #&s!& Ðincome,€but€permit€the€trustee€to€decide€how€much€to€distribute€to€each€member€of€a€class€ofÐ 'T"' Ðbeneficiaries;€or€when€the€terms€of€a€trust€provide€that€the€beneficiary€shall€receive€the€greater€of€theÐ å'5#( Ðtrust€accounting€income€and€a€fixed€dollar€amount€(an€annuity),€or€of€trust€accounting€income€and€aÐ Æ($) Ðfractional€share€of€the€value€of€the€trust€assets€(a€Ô_ÔunitrustÔ_Ô€amount).€€If€the€trust€authorizes€the€trustee€in€itsÐ §)÷$* Ðdiscretion€to€distribute€the€trustððs€income€to€the€beneficiary€or€to€accumulate€some€or€all€of€the€income,Ð ˆ*Ø%+ Ðthe€condition€will€be€met€because€the€terms€of€the€trust€do€not€permit€the€trustee€to€distribute€more€thanÐ i+¹&, Ðthe€trust€accounting€income.Ð J,š'- Їà  àTo€meet€the€third€condition,€the€trustee€must€first€meet€the€requirements€of€Section€103(a)€[TexasÐ ° ÐTrust€Code€ðð116.004(a)]Ô#†&ºú % %&ºú™ì#ÔÔ‡&ºú % %&ºúÔ,€i.e.,€she€must€apply€the€terms€of€the€trust,€decide€whether€to€exercise€theÐ ‘á Ðdiscretionary€powers€given€to€the€trustee€under€the€terms€of€the€trust,€and€must€apply€the€provisions€of€theÐ r ÐAct€if€the€terms€of€the€trust€do€not€contain€a€different€provision€or€give€the€trustee€discretion.€€Second,€theÐ S£ Ðtrustee€must€determine€the€extent€to€which€the€terms€of€the€trust€clearly€manifest€an€intention€by€theÐ 4„ ÐÔ_ÔsettlorÔ_Ô€that€the€trustee€may€or€must€favor€one€or€more€of€the€beneficiaries.€€To€the€extent€that€the€termsÐ  e Ðof€the€trust€do€not€require€partiality,€the€trustee€must€conclude€that€she€is€unable€to€comply€with€the€duty€toÐ ö F Ðadminister€the€trust€impartially.€€To€the€extent€that€the€terms€of€the€trust€do€require€or€permit€the€trustee€toÐ × ' Ðfavor€the€income€beneficiary€or€the€remainder€beneficiary,€the€trustee€must€conclude€that€she€is€unable€toÐ ¸  Ðachieve€the€degree€of€partiality€required€or€permitted.€€If€the€trustee€comes€to€either€conclusionð!ð€that€sheÐ ™ é  Ðis€unable€to€administer€the€trust€impartially€or€that€she€is€unable€to€achieve€the€degree€of€partiality€requiredÐ z Ê  Ðor€permittedð!ð€she€may€exercise€the€power€to€adjust€under€Section€104(a)€[Texas€Trust€CodeÐ [«  Ððð116.005(a)]Ô#†&ºú % %&ºúÝ÷#ÔÔ‡&ºú % %&ºúÔ.Ð <Œ  ÐÌà  àò òImpartiality€and€productivity€of€income.ó ó€€The€duty€of€impartiality€between€income€andÐ þN  Ðremainder€beneficiaries€is€linked€to€the€trusteeððs€duty€to€make€the€portfolio€productive€of€trust€accountingÐ ì<  Ðincome€whenever€the€distribution€requirements€are€expressed€in€terms€of€distributing€the€trustððs€ð ðincome.ðð€Ð Í ÐThe€1962€Act€implies€that€the€duty€to€produce€income€applies€on€an€asset€by€asset€basis€because€the€rightÐ ®þ Ðof€an€income€beneficiary€to€receive€ð ðdelayed€incomeðð€from€the€sale€proceeds€of€Ô_ÔunderproductiveÔ_Ô€propertyÐ ß Ðunder€Section€12€of€that€Act€arises€if€ð ðany€part€of€principal€...€has€not€produced€an€average€net€income€ofÐ pÀ Ða€least€1%€per€year€of€its€inventory€value€for€more€than€a€year€...€.ðð€€Under€the€prudent€investor€rule,Ð Q¡ Ðð ð[Ô_Ôt]oÔ_Ô€whatever€extent€a€requirement€of€income€productivity€exists,€...€the€requirement€applies€notÐ 2‚ Ðinvestment€by€investment€but€to€the€portfolio€as€a€whole.ðð€€Restatement€of€Trusts€3d:€Prudent€InvestorÐ c ÐRule€ðð227,€Comment€òòÔ_ÔiÔ_Ô,óó€at€34.€€The€power€to€adjust€under€Section€104(a)€[Texas€Trust€CodeÐ ôD Ððð116.005(a)]Ô#†&ºú % %&ºú³ý#ÔÔ‡&ºú % %&ºúÔ€is€also€to€be€exercised€by€considering€net€income€from€the€portfolio€as€a€whole€and€notÐ Õ% Ðinvestment€by€investment.€€Section€413(b)€[Texas€Trust€Code€ðð116.176(b)]Ô#†&ºú % %&ºúv#ÔÔ‡&ºú % %&ºúÔ€of€this€Act€eliminates€theÐ ¶ ÐÔ_ÔunderproductiveÔ_Ô€property€rule€in€all€cases€other€than€trusts€for€which€a€marital€deduction€is€allowed;€theÐ —ç Ðrule€applies€to€a€marital€deduction€trust€if€the€trustððs€assets€ð ðconsist€substantially€of€property€that€does€notÐ xÈ Ðprovide€the€spouse€with€sufficient€income€from€or€use€of€the€trust€assets€...ððð!ð€in€other€words,€the€sectionÐ Y© Ðapplies€by€reference€to€the€portfolio€as€a€whole.Ð :Š ÐÌà  àWhile€the€purpose€of€the€power€to€adjust€in€Section€104(a)€[Texas€Trust€Code€ðð116.005(a)]Ô#†&ºú % %&ºúp#ÔÔ‡&ºú % %&ºúÔ€is€toÐ üL Ðeliminate€the€need€for€a€trustee€who€operates€under€the€prudent€investor€rule€to€be€concerned€about€theÐ Ý -  Ðincome€component€of€the€portfolioððs€total€return,€the€trustee€must€still€determine€the€extent€to€which€aÐ ¾!! Ðdistribution€must€be€made€to€an€income€beneficiary€and€the€adequacy€of€the€portfolioððs€liquidity€as€a€wholeÐ Ÿ"ï" Ðto€make€that€distribution.Ð €#Ð# ÐÌà  àFor€a€discussion€of€investment€considerations€involving€specific€investments€and€techniques€underÐ B%’ % Ðthe€prudent€investor€rule,€see€Restatement€of€Trusts€3d:€Prudent€Investor€Rule€ðð227,€Comments€òòk-p.óóÐ #&s!& ÐÌà  àò òFactors€to€consider€in€exercising€the€power€to€adjust.ó ó€€Section€104(b)€[Texas€Trust€CodeÐ å'5#( Ððð116.005(b)]Ô#†&ºú % %&ºúB#ÔÔ‡&ºú % %&ºúÔ€requires€a€trustee€to€consider€factors€relevant€to€the€trust€and€its€beneficiaries€in€decidingÐ Ó(#$) Ðwhether€and€to€what€extent€the€power€to€adjust€should€be€exercised.€€Section€2(c)€of€the€Uniform€PrudentÐ ´)%* ÐInvestor€Act€[Texas€Trust€Code€ðð117.004(c)]€sets€forth€circumstances€that€a€trustee€is€to€consider€inÐ •*å%+ Ðinvesting€and€managing€trust€assets.€€The€circumstances€in€Section€2(c)€of€the€Uniform€Prudent€InvestorÐ v+Æ&, ÐAct€[Texas€Trust€Code€ðð117.004(c)]Ô#†&ºú % %&ºúà #ÔÔ‡&ºú % %&ºúÔ€are€the€source€of€the€factors€in€paragraphs€(3)€through€(6)€and€(8)Ð W,§'- Ðof€Section€104(b)€[Texas€Trust€Code€ðð116.005(b)]€(modified€where€necessary€to€adapt€them€to€theÐ ° Ðpurposes€of€this€Act)€so€that,€to€the€extent€possible,€comparable€factors€will€apply€to€investment€decisionsÐ ‘á Ðand€decisions€involving€the€power€to€adjust.€€If€a€trustee€who€is€operating€under€the€prudent€investor€ruleÐ r Ðdecides€that€the€portfolio€should€be€composed€of€financial€assets€whose€total€return€will€result€primarilyÐ S£ Ðfrom€capital€appreciation€rather€than€dividends,€interest,€and€rents,€the€trustee€can€decide€at€the€same€timeÐ 4„ Ðthe€extent€to€which€an€adjustment€from€principal€to€income€may€be€necessary€under€Section€104€€[TexasÐ  e ÐTrust€Code€ðð116.005]Ô#†&ºú % %&ºú1 #ÔÔ‡&ºú % %&ºúÔ.€€On€the€other€hand,€if€a€trustee€decides€that€the€risk€and€return€objectives€for€theÐ ö F Ðtrust€are€best€achieved€by€a€portfolio€whose€total€return€includes€interest€and€dividend€income€that€isÐ × ' Ðsufficient€to€provide€the€income€beneficiary€with€the€beneficial€interest€to€which€the€beneficiary€is€entitledÐ ¸  Ðunder€the€terms€of€the€trust,€the€trustee€can€decide€that€it€is€unnecessary€to€exercise€the€power€to€adjust.Ð ™ é  ÐÌà  àò òAssets€received€from€the€Ô_ÔsettlorÔ_Ô.ó ó€€Section€3€of€the€Uniform€Prudent€Investor€Act€[TexasÐ [«  ÐTrust€Code€ðð117.005]€provides€that€ð ð[a]€trustee€shall€diversify€the€investments€of€the€trust€unless€theÐ I™  Ðtrustee€reasonably€determines€that,€because€of€special€circumstances,€the€purposes€of€the€trust€are€betterÐ *z  Ðserved€without€diversifying.ðð€€The€special€circumstances€may€include€the€wish€to€retain€a€family€business,Ð  [  Ðthe€benefit€derived€from€deferring€liquidation€of€the€asset€in€order€to€defer€payment€of€income€taxes,€orÐ ì<  Ðthe€anticipated€capital€appreciation€from€retaining€an€asset€such€as€undeveloped€real€estate€for€a€longÐ Í Ðperiod.€€To€the€extent€the€trustee€retains€assets€received€from€the€Ô_ÔsettlorÔ_Ô€because€of€specialÐ ®þ Ðcircumstances€that€overcome€the€duty€to€diversify,€the€trustee€may€take€these€circumstances€into€accountÐ ß Ðin€determining€whether€and€to€what€extent€the€power€to€adjust€should€be€exercised€to€change€the€resultsÐ pÀ Ðproduced€by€other€provisions€of€this€Act€that€apply€to€the€retained€assets.€€See€Section€104(b)(5)€[TexasÐ Q¡ ÐTrust€Code€ðð116.105(b)(5)];€Uniform€Prudent€Investor€Act€ðð3€[Texas€Trust€Code€ðð117.005],€Comment,Ð 2‚ Ð7B€Ô_ÔU.L.A.Ô_Ô€18,€at€25-26€(Supp.€1997);€Restatement€of€Trusts€3d:€Prudent€Investor€Rule€ðð229€andÐ c ÐComments€òòa-e.óóÐ ôD ÐÌà  àò òLimitations€on€the€power€to€adjust.ó ó€€The€purpose€of€subsections€(c)(1)€through€(4)€is€toÐ ¶ Ðpreserve€tax€benefits€that€may€have€been€an€important€purpose€for€creating€the€trust.€€Subsections€(c)(5),Ð ¤ô Ð(6),€and€(8)€deny€the€power€to€adjust€in€the€circumstances€described€in€those€subsections€in€order€toÐ …Õ Ðprevent€adverse€tax€consequences,€and€subsection€(c)(7)€denies€the€power€to€adjust€to€any€beneficiary,Ð f¶ Ðwhether€or€not€possession€of€the€power€may€have€adverse€tax€consequences.Ð G— ÐÌà  àUnder€subsection€(c)(1),€a€trustee€cannot€make€an€adjustment€that€diminishes€the€income€interestÐ  Y Ðin€a€trust€that€requires€all€of€the€income€to€be€paid€at€least€annually€to€a€spouse€and€for€which€an€estateÐ ê :  Ðtax€or€gift€tax€marital€deduction€is€allowed;€but€this€subsection€does€not€prevent€the€trustee€from€makingÐ Ë!! Ðan€adjustment€that€increases€the€amount€of€income€paid€from€a€marital€deduction€trust€to€the€spouse.€Ð ¬"ü" ÐSubsection€(c)(1)€applies€to€a€trust€that€qualifies€for€the€marital€deduction€because€the€spouse€has€aÐ #Ý# Ðgeneral€power€of€appointment€over€the€trust,€but€it€applies€to€a€qualified€terminable€interest€propertyÐ n$¾$ Ð(Ô_ÔQTIPÔ_Ô)€trust€only€if€and€to€the€extent€that€the€fiduciary€makes€the€election€required€to€obtain€the€taxÐ O%Ÿ % Ðdeduction.€€Subsection€(c)(1)€does€not€apply€to€a€so„called€ð ðestateðð€trust.€€This€type€of€trust€qualifies€forÐ 0&€!& Ðthe€marital€deduction€because€the€terms€of€the€trust€require€the€principal€and€undistributed€income€to€beÐ 'a"' Ðpaid€to€the€surviving€spouseððs€estate€when€the€spouse€dies;€it€is€not€necessary€for€the€terms€of€an€estateÐ ò'B#( Ðtrust€to€require€the€income€to€be€distributed€annually.€€Reg.€ðð20.2056(c)-2(b)(1)(iii).à x àÐ Ó(#$) ÐÌà  àSubsection€(c)(3)€applies€to€annuity€trusts€and€Ô_ÔunitrustsÔ_Ô€with€no€charitable€beneficiaries€as€well€asÐ •*å%+ Ðto€trusts€with€charitable€income€or€remainder€beneficiaries;€its€purpose€is€to€make€it€clear€that€aÐ v+Æ&, Ðbeneficiaryððs€right€to€receive€a€fixed€annuity€or€a€fixed€fraction€of€the€value€of€a€trustððs€assets€is€notÐ W,§'- Ðsubject€to€adjustment€under€Section€104(a)€[Texas€Trust€Code€ðð116.005(a)].€€Subsection€(c)(3)€does€notÐ ° Ðapply€to€any€additional€amount€to€which€the€beneficiary€may€be€entitled€that€is€expressed€in€terms€of€aÐ ‘á Ðright€to€receive€income€from€the€trust.€€For€example,€if€a€beneficiary€is€to€receive€a€fixed€annuity€or€theÐ r Ðtrustððs€income,€whichever€is€greater,€subsection€(c)(3)€does€not€prevent€a€trustee€from€making€anÐ S£ Ðadjustment€under€Section€104(a)€[Texas€Trust€Code€ðð116.005(a)]Ô#†&ºú % %&ºúÖ#ÔÔ‡&ºú % %&ºúÔ€in€determining€the€amount€of€the€trustððsÐ 4„ Ðincome.Ð  e ÐÌà  àIf€subsection€(c)(5),€(6),€(7),€or€(8),€prevents€a€trustee€from€exercising€the€power€to€adjust,Ð × ' Ðsubsection€(d)€permits€a€Ô_ÔcotrusteeÔ_Ô€who€is€not€subject€to€the€provision€to€exercise€the€power€unless€theÐ ¸  Ðterms€of€the€trust€do€not€permit€the€Ô_ÔcotrusteeÔ_Ô€to€do€so.Ð ™ é  ÐÌà  àò òRelease€of€the€power€to€adjust.ó ó€€Section€104(e)€[Texas€Trust€Code€ðð116.005(e)]Ô#†&ºú % %&ºú#%#ÔÔ‡&ºú % %&ºúÔ€permits€aÐ [«  Ðtrustee€to€release€all€or€part€of€the€power€to€adjust€in€circumstances€in€which€the€possession€or€exercise€ofÐ I™  Ðthe€power€might€deprive€the€trust€of€a€tax€benefit€or€impose€a€tax€burden.€€For€example,€if€possessing€theÐ *z  Ðpower€would€diminish€the€actuarial€value€of€the€income€interest€in€a€trust€for€which€the€incomeÐ  [  Ðbeneficiaryððs€estate€may€be€eligible€to€claim€a€credit€for€property€previously€taxed€if€the€beneficiary€diesÐ ì<  Ðwithin€ten€years€after€the€death€of€the€person€creating€the€trust,€the€trustee€is€permitted€under€subsectionÐ Í Ð(e)€to€release€just€the€power€to€adjust€from€income€to€principal.Ð ®þ ÐÌà  àò òTrust€terms€that€limit€a€power€to€adjust.ó ó€€Section€104(f)€[Texas€Trust€Code€ðð116.005(f)]Ô#†&ºú % %&ºú°'#ÔÔ‡&ºú % %&ºúÔÐ pÀ Ðapplies€to€trust€provisions€that€limit€a€trusteeððs€power€to€adjust.€€Since€the€power€is€intended€to€enableÐ ^® Ðtrustees€to€employ€the€prudent€investor€rule€without€being€constrained€by€traditional€principal€and€incomeÐ ? Ðrules,€an€instrument€executed€before€the€adoption€of€this€Act€whose€terms€describe€the€amount€that€mayÐ  p Ðor€must€be€distributed€to€a€beneficiary€by€referring€to€the€trustððs€income€or€that€prohibit€the€invasion€ofÐ Q Ðprincipal€or€that€prohibit€equitable€adjustments€in€general€should€not€be€construed€as€forbidding€the€use€ofÐ â2 Ðthe€power€to€adjust€under€Section€104(a)€[Texas€Trust€Code€ðð116.005(a)]Ô#†&ºú % %&ºúO+#ÔÔ‡&ºú % %&ºúÔ€if€the€need€for€adjustmentÐ Ã Ðarises€because€the€trustee€is€operating€under€the€prudent€investor€rule.€€Instruments€containing€suchÐ ¤ô Ðprovisions€that€are€executed€after€the€adoption€of€this€Act€should€specifically€refer€to€the€power€to€adjustÐ …Õ Ðif€the€Ô_ÔsettlorÔ_Ô€intends€to€forbid€its€use.€€See€generally,€Joel€C.€Ô_ÔDobrisÔ_Ô,€Limits€on€the€Doctrine€of€EquitableÐ f¶ ÐAdjustment€in€Sophisticated€Postmortem€Tax€Planning,€66€Iowa€L.€Rev.€273€(1981).Ð G— ÐÌà  àò òExamplesó ó.€€The€following€examples€illustrate€the€application€of€Section€104€[Texas€Trust€CodeÐ  Y Ððð116.005]Ô#†&ºú % %&ºúp.#ÔÔ‡&ºú % %&ºúÔ:Ð ÷ G  ÐÌà  àà ` àò òExample€(1)ó óð!ð€T€is€the€successor€trustee€of€a€trust€that€provides€income€to€A€for€life,Ð ¹" " Ðremainder€to€B.€€T€has€received€from€the€prior€trustee€a€portfolio€of€financial€assets€invested€20%€inÐ §#÷# Ðstocks€and€80%€in€bonds.€€Following€the€prudent€investor€rule,€T€determines€that€a€strategy€of€investingÐ ˆ$Ø$ Ðthe€portfolio€50%€in€stocks€and€50%€in€bonds€has€risk€and€return€objectives€that€are€reasonably€suited€toÐ i%¹ % Ðthe€trust,€but€T€also€determines€that€adopting€this€approach€will€cause€the€trust€to€receive€a€smallerÐ J&š!& Ðamount€of€dividend€and€interest€income.€€After€considering€the€factors€in€Section€104(b)€[Texas€TrustÐ +'{"' ÐCode€ðð116.005(b)]Ô#†&ºú % %&ºú•1#ÔÔ‡&ºú % %&ºúÔ,€T€may€transfer€cash€from€principal€to€income€to€the€extent€T€considers€it€necessary€toÐ  (\#( Ðincrease€the€amount€distributed€to€the€income€beneficiary.Ð í(=$) ÐÌà  àà ` àò òExample€(2)ó óð!ð€T€is€the€trustee€of€a€trust€that€requires€the€income€to€be€paid€to€theÐ ¯*ÿ%+ ÐÔ_ÔsettlorÔ_Ôððs€son€C€for€life,€remainder€to€Cððs€daughter€D.€€In€a€period€of€very€high€inflation,€T€purchases€bondsÐ +í&, Ðthat€pay€double„digit€interest€and€determines€that€a€portion€of€the€interest,€which€is€allocated€to€incomeÐ ° Ðunder€Section€406€[Texas€Trust€Code€ðð116.163]Ô#†&ºú % %&ºúú4#ÔÔ‡&ºú % %&ºúÔ€of€this€Act,€is€a€return€of€capital.€€In€consideration€of€theÐ ‘á Ðloss€of€value€of€principal€due€to€inflation€and€other€factors€that€T€considers€relevant,€T€may€transfer€partÐ r Ðof€the€interest€to€principal.Ð S£ ÐÌà  àà ` àò òExample€(3)ó óð!ð€T€is€the€trustee€of€a€trust€that€requires€the€income€to€be€paid€to€theÐ  e ÐÔ_ÔsettlorÔ_Ôððs€sister€E€for€life,€remainder€to€charity€F.€€E€is€a€retired€schoolteacher€who€is€single€and€has€noÐ  S Ðchildren.€€Eððs€income€from€her€social€security,€pension,€and€savings€exceeds€the€amount€required€toÐ ä 4 Ðprovide€for€her€accustomed€standard€of€living.€€The€terms€of€the€trust€permit€T€to€invade€principal€toÐ Å  Ðprovide€for€Eððs€health€and€to€support€her€in€her€accustomed€manner€of€living,€but€do€not€otherwiseÐ ¦ ö  Ðindicate€that€T€should€favor€E€or€F.€€Applying€the€prudent€investor€rule,€T€determines€that€the€trust€assetsÐ ‡ ×  Ðshould€be€invested€entirely€in€growth€stocks€that€produce€very€little€dividend€income.€€Even€though€it€is€notÐ h¸  Ðnecessary€to€invade€principal€to€maintain€Eððs€accustomed€standard€of€living,€she€is€entitled€to€receive€fromÐ I™  Ðthe€trust€the€degree€of€beneficial€enjoyment€normally€accorded€a€person€who€is€the€sole€incomeÐ *z  Ðbeneficiary€of€a€trust,€and€T€may€transfer€cash€from€principal€to€income€to€provide€her€with€that€degree€ofÐ  [  Ðenjoyment.Ð ì<  ÐÌà  àà ` àò òExample€(4)ó óð!ð€T€is€the€trustee€of€a€trust€that€is€governed€by€the€law€of€State€X.€€TheÐ ®þ Ðtrust€became€irrevocable€before€State€X€adopted€the€prudent€investor€rule.€€The€terms€of€the€trust€requireÐ œì Ðall€of€the€income€to€be€paid€to€G€for€life,€remainder€to€H,€and€also€give€T€the€power€to€invade€principal€forÐ }Í Ðthe€benefit€of€G€for€ð ðdire€emergencies€only.ðð€The€terms€of€the€trust€limit€the€aggregate€amount€that€T€canÐ ^® Ðdistribute€to€G€from€principal€during€Gððs€life€to€6%€of€the€trustððs€value€at€its€inception.€€The€trustððsÐ ? Ðportfolio€is€invested€initially€50%€in€stocks€and€50%€in€bonds,€but€after€State€X€adopts€the€prudent€investorÐ  p Ðrule€T€determines€that,€to€achieve€suitable€risk€and€return€objectives€for€the€trust,€the€assets€should€beÐ Q Ðinvested€90%€in€stocks€and€10%€in€bonds.€€This€change€increases€the€total€return€from€the€portfolio€andÐ â2 Ðdecreases€the€dividend€and€interest€income.€€Thereafter,€even€though€G€does€not€experience€a€direÐ Ã Ðemergency,€T€may€exercise€the€power€to€adjust€under€Section€104(a)€[Texas€Trust€Code€ðð116.005(a)]Ô#†&ºú % %&ºúÚ7#ÔÔ‡&ºú % %&ºúÔ€toÐ ¤ô Ðthe€extent€that€T€determines€that€the€adjustment€is€from€only€the€capital€appreciation€resulting€from€theÐ …Õ Ðchange€in€the€portfolioððs€asset€allocation.€€If€T€is€unable€to€determine€the€extent€to€which€capitalÐ f¶ Ðappreciation€resulted€from€the€change€in€asset€allocation€or€is€unable€to€maintain€adequate€records€toÐ G— Ðdetermine€the€extent€to€which€principal€distributions€to€G€for€dire€emergencies€do€not€exceed€the€6%Ð (x Ðlimitation,€T€may€not€exercise€the€power€to€adjust.€€See€Joel€C.€Ô_ÔDobrisÔ_Ô,€Limits€on€the€Doctrine€ofÐ  Y ÐEquitable€Adjustment€in€Sophisticated€Postmortem€Tax€Planning,€66€Iowa€L.€Rev.€273€(1981).Ð ê :  ÐÌà  àà ` àò òExample€(5)ó óð!ð€T€is€the€trustee€of€a€trust€for€the€Ô_ÔsettlorÔ_Ôððs€child.€€The€trust€owns€aÐ ¬"ü" Ðdiversified€portfolio€of€marketable€financial€assets€with€a€value€of€$600,000,€and€is€also€the€soleÐ š#ê# Ðbeneficiary€of€the€Ô_ÔsettlorÔ_Ôððs€IRA,€which€holds€a€diversified€portfolio€of€marketable€financial€assets€with€aÐ {$Ë$ Ðvalue€of€$900,000.€€The€trust€receives€a€distribution€from€the€IRA€that€is€the€minimum€amount€required€toÐ \%¬ % Ðbe€distributed€under€the€Internal€Revenue€Code,€and€T€allocates€10%€of€the€distribution€to€income€underÐ =&!& ÐSection€409(c)€[Texas€Trust€Code€ðð116.172(c)€ð!ð€but€see€Section116.172(c)€and€the€Texas€Bar€CommentÐ 'n"' Ðto€that€section,€since€the€Texas€version€varies€from€uniform€act]Ô#†&ºú % %&ºúIC#ÔÔ‡&ºú % %&ºúÔ€of€this€Act.€€The€total€return€on€theÐ ÿ'O#( ÐIRAððs€assets€exceeds€the€amount€distributed€to€the€trust,€and€the€value€of€the€IRA€at€the€end€of€the€yearÐ à(0$) Ðis€more€than€its€value€at€the€beginning€of€the€year.€€Relevant€factors€that€T€may€consider€in€determiningÐ Á)%* Ðwhether€to€exercise€the€power€to€adjust€and€the€extent€to€which€an€adjustment€should€be€made€to€complyÐ ¢*ò%+ Ðwith€Section€103(b)€[Texas€Trust€Code€ðð116.004(b)]Ô#†&ºú % %&ºúJ#ÔÔ‡&ºú % %&ºúÔ€include€the€total€return€from€all€of€the€trustððs€assets,Ð ƒ+Ó&, Ðthose€owned€directly€as€well€as€its€interest€in€the€IRA,€the€extent€to€which€the€trust€will€be€subject€toÐ d,´'- Ðincome€tax€on€the€portion€of€the€IRA€distribution€that€is€allocated€to€principal,€and€the€extent€to€which€theÐ ° Ðincome€beneficiary€will€be€subject€to€income€tax€on€the€amount€that€T€distributes€to€the€incomeÐ ‘á Ðbeneficiary.Ð r ÐÌà  àà ` àò òExample€(6)ó óð!ð€T€is€the€trustee€of€a€trust€whose€portfolio€includes€a€large€parcel€ofÐ 4„ Ðundeveloped€real€estate.€€T€pays€real€property€taxes€on€the€undeveloped€parcel€from€income€each€yearÐ " r Ðpursuant€to€Section€501(3)€[Texas€Trust€Code€ðð116.201(3)]Ô#†&ºú % %&ºúDL#ÔÔ‡&ºú % %&ºúÔ.€€After€considering€the€return€from€the€trustððsÐ  S Ðportfolio€as€a€whole€and€other€relevant€factors€described€in€Section€104(b)€[Texas€Trust€CodeÐ ä 4 Ððð116.005(b)]Ô#†&ºú % %&ºú¬O#ÔÔ‡&ºú % %&ºúÔ,€T€may€exercise€the€power€to€adjust€under€Section€104(a)€[Texas€Trust€Code€ðð116.005(a)]Ô#†&ºú % %&ºú·P#ÔÔ‡&ºú % %&ºúÔÐ Å  Ðto€transfer€cash€from€principal€to€income€in€order€to€distribute€to€the€income€beneficiary€an€amount€that€TÐ ¦ ö  Ðconsiders€necessary€to€comply€with€Section€103(b)€[Texas€Trust€Code€ðð116.004(b)]Ô#†&ºú % %&ºúTQ#ÔÔ‡&ºú % %&ºúÔ.Ð ‡ ×  ÐÌà  àà ` àò òExample€(7)ó óð!ð€T€is€the€trustee€of€a€trust€whose€portfolio€includes€an€interest€in€a€mutualÐ I™  Ðfund€that€is€sponsored€by€T.€€As€the€manager€of€the€mutual€fund,€T€charges€the€fund€a€management€feeÐ 7‡  Ðthat€reduces€the€amount€available€to€distribute€to€the€trust€by€$2,000.€€If€the€fee€had€been€paid€directly€byÐ h  Ðthe€trust,€one„half€of€the€fee€would€have€been€paid€from€income€under€Section€501(1)€[Texas€Trust€CodeÐ ùI  Ððð116.201(1)]Ô#†&ºú % %&ºú~R#ÔÔ‡&ºú % %&ºúÔ€and€the€other€one„half€would€have€been€paid€from€principal€under€Section€502(a)(1)€[TexasÐ Ú* ÐTrust€Code€ðð116.202(a)(1)]Ô#†&ºú % %&ºúìT#ÔÔ‡&ºú % %&ºúÔ.€€After€considering€the€total€return€from€the€portfolio€as€a€whole€and€otherÐ »  Ðrelevant€factors€described€in€Section€104(b)€[Texas€Trust€Code€ðð116.005(b)]Ô#†&ºú % %&ºúºU#ÔÔ‡&ºú % %&ºúÔ,€T€may€exercise€its€power€toÐ œì Ðadjust€under€Section€104(a)€[Texas€Trust€Code€ðð116.005(a)]Ô#†&ºú % %&ºú¬V#ÔÔ‡&ºú % %&ºúÔ€by€transferring€$1,000,€or€half€of€the€trustððsÐ }Í Ðproportionate€share€of€the€fee,€from€principal€to€income.Ð ^® ÐÌà@™™"ìàò òTexas€Bar€Commentó óÔ#†&ºú % %&ºú]W#ÔÔ‡&ºú % %&ºúԈР p ÐÌà  àOther€states€that€have€adopted€the€Uniform€Principal€and€Income€Act€have€also€adopted€aÐ ã3 Ðprovision€which€allows€the€trustee€to€give€notice€to€the€beneficiaries€of€a€proposed€adjustment€and€givesÐ Ä Ðthe€beneficiaries€a€limited€time€to€object€to€the€proposed€adjustment.€€The€Section€decided€not€to€includeÐ ¥õ Ðsuch€a€notice€provision,€because€statutory€and€common€law€provide€adequate€protections€and€remediesÐ †Ö Ðfor€trustees€and€beneficiaries€if€a€trustee€exercises€its€power€to€adjust.€€Ð g· ÐÌà  àSome€states€that€have€adopted€the€Uniform€Principal€and€Income€Act€have€also€adopted€aÐ )y Ðprovision€which€allows€the€trustee€to€elect€a€Ô_ÔunitrustÔ_Ô€distribution€standard.€€Instead€of€requiring€the€trusteeÐ  Z Ðto€allocate€receipts€between€income€and€principal,€these€states€authorized€the€trustee€to€pay€a€statedÐ ë ;  Ðpercentage€of€the€trust€property€to€the€income€beneficiaries.€€The€Section€decided€that€this€provision€isÐ Ì!! Ðunnecessary.€€Each€year,€the€trustee€can€use€the€power€to€adjust€to€allocate€a€certain€percentage€of€theÐ ­"ý" Ðtrust€property€to€the€income€beneficiaries.€€Although€this€would€require€the€trustee€to€determine€whetherÐ Ž#Þ# Ðto€exercise€the€power€each€year,€the€trustee€could€effectively€achieve€a€Ô_ÔunitrustÔ_Ô€standard.€€The€SectionÐ o$¿$ Ðconsidered€the€yearly€review€and€determination€to€be€appropriate.Ð P%  % ÐÌà  àThe€Section€included€a€specific€provision€permitting€the€allocation€of€capital€gains€to€trust€incomeÐ 'b"' Ðin€subsection€(a)€to€allow€the€newly€allocated€income€to€be€treated€as€distributable€net€income,€in€light€ofÐ ó'C#( Ðproposed€treasury€regulations€under€Section€643€of€the€Internal€Revenue€Code.Ð Ô($$) ÐÌà  àIn€cases€where€Section€116.005€cannot€be€used€(for€example,€in€cases€where€the€trustee€also€is€aÐ –*æ%+ Ðbeneficiary€of€the€trust,€judicial€means€may€be€available€to€provide€relief€in€appropriate€cases€(see,€forÐ w+Ç&, Ðexample,€Sections€112.054€and€115.001€of€the€Texas€Trust€Code).Ô#†&ºú % %&ºú^X#ÔÔ‡&ºú % %&ºúÔÐ X,¨'- ÐÔ#†X7íX %&ºúçÚ#ÔÌÔ‡ŠâˆXX7íÔà  àò òÔ  ÔSec.€116.006.€JUDICIAL€CONTROL€OF€DISCRETIONARY€POWER.Ô  7bÔ€ó ó€(a)€TheÐ ªú Ðcourt€may€not€order€a€trusteeò òó ó€to€change€a€decision€to€exercise€or€not€to€exercise€aÐ ¤ô Ðdiscretionary€power€conferred€by€Section€116.005€of€this€chapter€unless€the€courtÐ žî Ðdetermines€that€the€decision€was€an€abuse€of€the€trustee'sò òó ó€discretion.€A€trustee'sò òó ó€decision€isÐ ˜è Ðnot€an€abuse€of€discretion€merely€because€the€court€would€have€exercised€the€power€in€aÐ ’ â Ðdifferent€manner€or€would€not€have€exercised€the€power.Ð Œ Ü ÐÌÓÓà  à(b)€The€decisions€to€which€Subsection€(a)€applies€include:ÓÓ€ÓÓÐ € Ð ÐÌà  àà ` à(1)€a€decision€under€Section€116.005(a)€as€to€whether€and€to€what€extent€anÐ tÄ  Ðamount€should€be€transferred€from€principal€to€income€or€from€income€to€principal;€andÓӀРn¾  ÐÌÓÓà  àà ` à(2)€a€decision€regarding€the€factors€that€are€relevant€to€the€trust€and€itsÐ b²  Ðbeneficiaries,€the€extent€to€which€the€factors€are€relevant,€and€the€weight,€if€any,€to€be€givenÐ \¬  Ðto€those€factors,€in€deciding€whether€and€to€what€extent€to€exercise€the€discretionary€powerÐ V¦ Ðconferred€by€Section€116.005(a).ÓӀРP  ÐÌà  àÓÓ(c)€If€the€court€determines€that€a€trustee€has€abused€the€trustee'sò òó ó€discretion,€theÐ D” Ðcourt€may€place€the€income€and€remainder€beneficiaries€in€the€positions€they€would€haveÐ >Ž Ðoccupied€if€the€discretion€had€not€been€abused,€according€to€the€following€rules:ÓӀР8ˆ ÐÌÓÓà  àà ` à(1)€to€the€extent€that€the€abuse€of€discretion€has€resulted€in€no€distribution€toÐ ,| Ða€beneficiary€or€in€a€distribution€that€is€too€small,€the€court€shall€order€the€trustee€ò òó ótoÐ &v Ðdistribute€from€the€trust€to€the€beneficiary€an€amount€that€the€court€determines€will€restoreÐ  p Ðthe€beneficiary,€in€whole€or€in€part,€to€the€beneficiary's€appropriate€position;ÓӀРj ÐÌÓÓà  àà ` à(2)€to€the€extent€that€the€abuse€of€discretion€has€resulted€in€a€distribution€to€aÐ ^ Ðbeneficiary€which€is€too€large,€the€court€shall€place€the€beneficiaries,€the€trust,€or€both,€inÐ  X Ðwhole€or€in€part,€in€their€appropriate€positions€by€ordering€the€trusteeò òó ó€to€withhold€anÐ !R Ðamount€from€one€or€more€future€distributions€to€the€beneficiary€who€received€theÐ ü!L Ðdistribution€that€was€too€large€or€ordering€that€beneficiary€to€return€some€or€all€of€theÐ ö"F Ðdistribution€to€the€trust;€andÓӀРð#@  ÐÌÓÓà  àà ` à(3)€to€the€extent€that€the€court€is€unable,€after€applying€Subdivisions€(1)€andÐ ä%4!" Ð(2),€to€place€the€beneficiaries,€the€trust,€or€both,€in€the€positions€they€would€have€occupiedÐ Þ&."# Ðif€the€discretion€had€not€been€abused,€the€court€may€order€the€trusteeò òó ó€to€pay€an€appropriateÐ Ø'(#$ Ðamount€from€its€own€funds€to€one€or€more€of€the€beneficiaries€or€the€trust€or€both.ÓÓ€ÓÓÐ Ò("$% ÐÌà  àÔ#†ŠâˆˆŠâ±a#ÔÔ‡ŠâˆˆŠâÔà ` à(d)ò òó ó€If€the€trustee€of€a€trust€reasonably€believes€that€one€or€more€beneficiariesÐ Æ*&' Ðof€such€trust€will€object€to€the€manner€in€which€the€trustee€intends€to€exercise€or€notÐ À+'( Ðexercise€a€discretionary€power€conferred€by€Section€116.005€of€this€chapter,€the€trusteeÐ ° Ðmay€petition€the€court€having€jurisdiction€over€ò òó óthe€trustò òó ó,€and€the€court€shall€determineÐ ªú Ðwhetherò òó ó€the€proposed€exercise€or€Ô_ÔnonexerciseÔ_Ô€by€the€trusteeò òó ó€of€ò òó ósuch€discretionary€powerÐ ¤ô Ðwill€result€in€an€abuse€of€the€trusteeððsò òó ó€discretion.€€The€trustee€shall€state€in€such€petition€theÐ žî Ðbasis€for€its€belief€that€a€beneficiary€would€object.€€The€failure€or€refusal€of€a€beneficiary€toÐ ˜è Ðsign€a€waiver€or€release€is€not€reasonable€grounds€for€a€trustee€to€believe€the€beneficiaryÐ ’ â Ðwill€object.€€The€court€may€appoint€one€or€more€guardians€ad€litem€pursuant€to€SectionÐ Œ Ü Ð115.014€of€this€subtitle.€€If€the€petition€describes€the€proposed€exercise€or€Ô_ÔnonexerciseÔ_Ô€ofÐ † Ö Ðthe€power€and€contains€sufficient€information€to€inform€the€beneficiaries€of€the€reasons€forÐ € Ð Ðthe€proposal,€the€facts€upon€which€the€trusteeò òó ó€relies,€and€an€explanation€of€how€the€incomeÐ z Ê  Ðand€remainder€beneficiaries€will€be€affected€by€the€proposed€exercise€or€Ô_ÔnonexerciseÔ_Ô€ofÐ tÄ  Ðthe€power,ò òòòó óóó€a€beneficiary€who€challenges€the€proposed€exercise€or€Ô_ÔnonexerciseÔ_Ô€has€theÐ n¾  Ðburden€of€establishing€that€it€will€result€in€an€abuse€of€discretion.€€The€trustee€shall€advanceÐ h¸  Ðfrom€the€trust€principal€all€costs€incident€to€the€judicial€determination,€including€theÐ b²  Ðreasonable€attorneyððsò òòò€óóó ófees€and€costs€of€ò òó óthe€trusteeò òòò,€ó óóóò òó óany€beneficiary€or€beneficiaries€ò òó ówho€areÐ \¬  Ðparties€to€the€action€and€who€retain€counsel,€and€any€guardian€ad€litem.€€At€the€conclusionÐ c³ Ðof€the€proceeding,€the€court€may€award€costs€and€reasonable€and€necessary€attorneyððs€feesÐ ]­ Ðas€provided€in€Section€114.064€of€this€subtitle,€including,€if€the€court€considers€itÐ W§ Ðappropriate,€awarding€part€or€all€of€such€costs€against€the€trust€principal€or€income,Ð Q¡ Ðawarding€part€or€all€of€such€costs€against€one€or€more€beneficiaries€or€such€beneficiaryððs€orÐ K› Ðbeneficiariesðð€share€of€the€trust,€or€awarding€part€or€all€of€such€costs€against€the€trustee€inÐ E• Ðthe€trusteeððs€individual€capacity€if€the€court€determines€the€trusteeððs€exercise€orÐ ? ÐÔ_ÔnonexerciseÔ_Ô€of€discretionary€power€would€have€resulted€in€an€abuse€of€discretion€or€thatÐ 9‰ Ðthe€trustee€did€not€have€reasonable€grounds€for€believing€one€or€more€beneficiaries€willÐ 3ƒ Ðobject€to€the€proposed€exercise€or€Ô_ÔnonexerciseÔ_Ô€of€the€discretionary€power.€€€€€Ô#†X7íXˆŠâ b#ÔÔ#†X7íXXX7íp#ÔÔ‡X7íXXX7íÔò òó óÐ -} ÐÔ‡&ºú %XX7íÔÌà@™™"ìàò òTexas€Bar€Commentó óˆÐ X ÐÌà  àSection€116.006€is€based€on€Section€105€of€the€Act.€€Section€105€was€not€originally€included€asÐ Ë Ðpart€of€the€Act.€€Rather,€it€was€added€in€2000.€€It€permits€a€trustee€who€worries€that€one€or€moreÐ ¬ ü Ðbeneficiaries€may€object€to€the€trusteeððs€exercise€of€discretion€regarding€a€possible€adjustment€underÐ !Ý ÐSection€116.005€of€the€Act€to€seek€a€court€determination€that€its€proposed€action€(or€inaction)€will€not€beÐ n"¾ Ðan€abuse€of€their€discretion.€€In€such€a€proceeding,€a€beneficiary€challenging€the€trusteeððs€proposed€actionÐ O#Ÿ  Ð(or€inaction)€has€the€burden€of€establishing€that€it€will€result€in€an€abuse€of€discretion.Ð 0$€! ÐÌà  àThe€Section€was€concerned€that€Section€105€of€the€Act€did€not€have€adequate€protection€for€theÐ ò%B!# Ðrights€of€beneficiaries.€€As€a€result,€the€Texas€version€has€additional€protections€for€beneficiaries.Ð Ó&#"$ ÐÌà  àFirst,€the€trustee€must€have€a€reasonable€belief€that€a€beneficiary€will€object,€and€the€trustee€mustÐ •(å#& Ðstate€the€grounds€for€this€belief€in€the€petition.€€The€failure€of€a€beneficiary€to€sign€a€waiver€or€Ô_ÔreleasÔ_Ô,Ð v)Æ$' Ðstanding€alone,€is€not€reasonable€grounds€for€a€trustee€to€believe€the€beneficiary€will€object.€€Thus,€if€theÐ W*§%( Ðtrustee€asks€a€beneficiary€to€sign€a€waiver€or€release€and€the€beneficiary€refuses€to€do€so€but€does€notÐ 8+ˆ&) Ðaffirmatively€object,€then€the€refusal,€standing€alone,€cannot€form€the€basis€of€the€trusteeððs€lawsuit€underÐ ,i'* ÐSection€116.006(d).Ð ° ÐÌà  àSecond,€Section€116.006(d)€confirms€that€the€court€may€appoint€one€or€more€guardians€ad€litem€ifÐ r Ðunder€the€terms€of€Trust€Code€Section€115.014€the€court€considers€this€appropriate.Ð S£ ÐÌà  àThird,€the€trustee€must€advance€ð ðcosts€incident€to€the€judicial€determinationðð€from€trust€principal.€Ð  e ÐThese€costs€include€the€reasonable€attorneyððs€fees€and€costs€of€the€trustee€and€of€any€beneficiary€whoÐ ö F Ðretains€counsel€in€the€proceeding,€as€well€as€the€guardian€ad€litemððs€fees.€€These€fees€and€costs€must€beÐ × ' Ðincident€to€the€judicial€determination,€but€they€are€to€be€advanced€to€any€beneficiary€who€retains€counsel,Ð ¸  Ðnot€just€to€a€beneficiary€who€objects€to€the€trusteeððs€proposed€action.€€The€advancement€of€costs€makes€itÐ ™ é  Ðpossible€for€all€interested€parties€to€obtain€representation€in€the€proceeding,€but€it€does€not€mean€that€theÐ z Ê  Ðprincipal€of€the€trust€ultimately€will€bear€these€costs.€€The€provision€permits€the€court€to€Ô#†&ºú % %&ºú7}#ÔÔ‡&ºú % %&ºúÔaward€costs€andÐ [«  Ðreasonable€and€necessary€attorneyððs€fees€as€provided€in€Trust€Code€Section€114.064.€€This€could€result€inÐ <Œ  Ðpart€or€all€of€the€costs€being€awarded€against€trust€principal€or€income,€against€a€beneficiary€or€his€or€herÐ m  Ðinterest€in€the€trust,€or€against€the€trustee€in€its€individual€capacity.€€The€provision€mentions€two€specificÐ þN  Ðreasons€why€the€court€may€choose€to€award€costs€against€the€trustee€ð!ð€Ô#†&ºú % %&ºú‰#ÔÔ‡&ºú % %&ºúÔif€the€trusteeððs€action€or€inactionÐ ß/  Ðwould€have€resulted€in€an€abuse€of€discretion€or€if€the€trustee€did€not€have€reasonable€grounds€forÐ À Ðbelieving€a€beneficiary€would€object€to€the€trusteeððs€action.€€€€€Ô#†&ºú % %&ºú7‹#ÔÔ‡&ºú % %&ºúÔÐ ¡ñ ÐÔ#†X7íX %&ºúq}#ÔÌÔ#†X7íXXX7íqŒ#ÔÔ‡X7íXXX7íÔÔ‡ŠâˆXX7íÔà  àò òÔ  ÔSec.€116.007.€PROVISIONS€REGARDING€Ô_ÔNONCHARITABLEÔ_Ô€Ô_ÔUNITRUSTSÔ_Ô.ó óÐ |Ì ÐÔ €o9Ô(a)€This€section€does€not€apply€to€a€charitable€remainder€Ô_ÔunitrustÔ_Ô€as€defined€by€SectionÐ vÆ Ð664(d),€Internal€Revenue€Code€of€1986€(26€U.S.C.€Section€664),€as€amended.ÓӀРpÀ ÐÌÓÓà  à(b)€In€this€section:ÓӀРd´ ÐÌÓÓà  àà ` à(1)€"Ô_ÔUnitrustÔ_Ô"€means€a€trust€the€terms€of€which€require€distribution€of€aÐ X¨ ÐÔ_ÔunitrustÔ_Ô€amount.ÓӀРR¢ ÐÌÓÓà  àà ` à(2)€"Ô_ÔUnitrustÔ_Ô€amount"€means€a€distribution€mandated€by€the€terms€of€a€trust€inÐ F– Ðan€amount€equal€to€a€fixed€percentage€of€not€less€than€three€or€more€than€five€percent€perÐ @ Ðyear€of€the€net€fair€market€value€of€the€trust's€assets,€valued€at€least€annually.€The€Ô_ÔunitrustÔ_ÔÐ : Š Ðamount€may€be€determined€by€reference€to€the€net€fair€market€value€of€the€trust's€assets€inÐ 4!„ Ðone€year€or€more€than€one€year.ÓӀР."~  ÐÌÓÓà  à(c)€Distribution€of€the€Ô_ÔunitrustÔ_Ô€amount€is€considered€a€distribution€of€all€of€theÐ "$r" Ðincome€of€the€Ô_ÔunitrustÔ_Ô€and€shall€not€be€considered€a€fundamental€departure€from€applicableÐ %l # Ðstate€law.€A€distribution€of€the€Ô_ÔunitrustÔ_Ô€amount€reasonably€apportions€the€total€return€of€aÐ &f!$ ÐÔ_ÔunitrustÔ_Ô.ÓӀР'`"% ÐÌÓÓà  à(d)€Unless€the€terms€of€the€trust€specifically€provide€otherwise,€a€distribution€of€theÐ )T$' ÐÔ_ÔunitrustÔ_Ô€amount€shall€be€treated€as€first€being€made€from€the€following€sources€in€order€ofÐ þ)N%( Ðpriority:ÓӀРø*H&) ÐÐ ò+B'* ÐÓÓà  àà ` à(1)€from€net€accounting€income€determined€as€if€the€trust€were€not€a€Ô_ÔunitrustÔ_Ô;ÓӀР° ÐÌÓÓà  àà ` à(2)€from€ordinary€accounting€income€not€allocable€to€net€accounting€income;ÓӀР¤ô ÐÌÓÓà  àà ` à(3)€from€net€realized€short„ÓÓterm€capital€gains;ÓÓ€ÓÓÐ ˜è ÐÌà  àà ` à(4)€from€net€realized€long„ÓÓterm€capital€gains;€andÓÓ€ÓÓÐ Œ Ü ÐÌà  àà ` à(5)€from€the€principal€of€the€trust€estate.ÓÓÐ € Ð ÐÔ#†X7íXˆŠâ #ÔÔ‡&ºú %XX7íÔÌÌà@™™"ìàò òTexas€Bar€Commentó óˆÐ <Œ  ÐÌÔ#†&ºú % %&ºúìŒ#Ôà  àSection€116.007€is€not€part€of€the€uniform€act€and€is€not€a€Ô_ÔunitrustÔ_Ô€conversion€statute.€€Rather€itÐ ÿO  Ðpermits€a€Ô_ÔsettlorÔ_Ô€to€draft€a€non-charitable€Ô_ÔunitrustÔ_Ô€and€includes€support€in€Texas€law€for€defining€trustÐ à0  Ðincome€in€terms€of€a€Ô_ÔunitrustÔ_Ô€amount.€€This€provision€is€intended€to€take€advantage€of€Proposed€TreasuryÐ Á ÐRegulation€1.643(b)-1,€66€Fed.€Reg.€10396€(February€15,€2001),€when€it€becomes€final,€which€providesÐ ¢ò Ðthat€amounts€allocated€between€income€and€principal€pursuant€to€applicable€local€law€will€be€respected€ifÐ ƒÓ Ðlocal€law€provides€for€a€reasonable€apportionment€between€the€income€and€remainder€beneficiaries€of€theÐ d´ Ðtotal€return€of€the€trust.€Under€the€proposed€regulation,€a€state€law€that€provides€for€the€incomeÐ E• Ðbeneficiary€to€receive€each€year€a€Ô_ÔunitrustÔ_Ô€amount€of€between€3%€and€5%€of€the€annual€fair€marketÐ &v Ðvalue€of€the€trust€assets€is€a€reasonable€apportionment€of€the€total€return€of€the€Ô_Ôtrust.ð  ðÔ_Ô€Section€116.007Ð W Ðprovides€support€in€Texas€law€for€a€Ô_ÔsettlorÔ_Ô€who€wishes€to€create€a€non-charitable€Ô_ÔunitrustÔ_Ô€paying€a€Ô_ÔunitrustÔ_ÔÐ è8 Ðamount€of€between€3%€and€5%€by€defining€such€amount€as€"income"€for€state€fiduciary€accountingÐ É ÐÔ_Ôpurposes.ð  ðÔ_Ô€If€the€proposed€regulation€becomes€final,€this€should€make€it€unnecessary€for€a€Ô_ÔsettlorÔ_Ô€toÐ ªú Ðprovide€for€the€payment€of€the€greater€of€the€Ô_ÔunitrustÔ_Ô€amount€or€actual€income€in€order€to€meet€taxÐ ‹Û Ðrequirements€for€a€trust€which€requires€the€distribution€of€all€income€to€a€beneficiary€(for€example,€aÐ l¼ Ðmarital€deduction€trust).Ô_Ôð  ðÔ_Ô€The€provision€does€not€require€that€trust€income€be€defined€in€terms€of€a€Ô_ÔunitrustÔ_ÔÐ M Ðpercentage,€nor€does€it€provide€a€means€for€converting€an€all-income€trust€into€a€Ô_Ôunitrust.ð  ðÔ_Ô€Because€otherÐ .~ Ðrules€apply€to€charitable€Ô_ÔunitrustsÔ_Ô,€this€provision€does€not€apply€to€them.Ô‡&ºú % %&ºúÔÐ _ ÐÔ#†X7íX %&ºú"™#Ô€Ô‡ŠâˆXX7íÔÐ ð@ ÐÓÓÝ‚.ÿÿÿÝÝ  ÝÔS=!ê :ÔÓ  ÓÝ‚.ÿÿÿZ¤ÝÝ  ÝÓÓ[Sections€116.008„ÓÓ116.050€reserved€for€expansion]݃.ÿÿZ¤–¤ÝŒÐ =! ÐŒÝ  ÝÓ  ÓÓÓÝ‚.ÿÿÿÝÝ  ÝÔSŠ"Ú7"‡ÔÓ  ÓÝ‚.ÿÿÿ[¥ÝÝ  ÝÓÓ݃.ÿÿ[¥—¥ÝŒÌŒÝ  Ýò òÐ  „#Ô! ÐÔ  ÔÔ_ÔSUBCHAPTERÔ_Ô€B.€DECEDENT'S€ESTATE€ORÐ ° ÐTERMINATING€INCOME€INTERESTÔ ea¦Ôó óÐ ªú ÐÓ  ÓÌà  àò òÔ  ÔSec.€116.051.€DETERMINATION€AND€DISTRIBUTION€OF€NET€INCOME.Ô eaɦÔó óÐ žî ÐAfter€a€decedent€dies,€in€the€case€of€an€estate,€or€after€an€income€interest€in€a€trust€ends,€theÐ ˜è Ðfollowing€rules€apply:ÓӀР’ â ÐÌÓÓà  àà ` à(1)€A€fiduciary€of€an€estate€or€of€a€terminating€income€interest€shallÐ † Ö Ðdetermine€the€amount€of€net€income€and€net€principal€receipts€received€from€propertyÐ € Ð Ðspecifically€given€to€a€beneficiary€under€the€rules€in€Ô_ÔSubchaptersÔ_Ô€C,€D,€and€E€which€apply€toÐ z Ê  Ðtrustees€and€the€rules€in€Subdivision€(5).€The€fiduciary€shall€distribute€the€net€income€andÐ tÄ  Ðnet€principal€receipts€to€the€beneficiary€who€is€to€receive€the€specific€property.ÓӀРn¾  ÐÌÓÓà  àà ` à(2)€A€fiduciary€shall€determine€the€remaining€net€income€of€a€decedent'sÐ b²  Ðestate€or€a€terminating€income€interest€under€the€rules€in€Ô_ÔSubchaptersÔ_Ô€C,€D,€and€E€whichÐ \¬  Ðapply€to€trustees€and€by:ÓÓ€ÓÓÐ V¦ ÐÌà  àà ` àà ¸ à(A)€including€in€net€income€all€income€from€property€used€toÐ Jš Ðdischarge€liabilities;ÓÓ€ÓÓÐ D” ÐÌà  àà ` àà ¸ à(B)€paying€from€income€or€principal,€in€the€fiduciary's€discretion,€feesÐ 8ˆ Ðof€attorneys,€accountants,€and€fiduciaries;€court€costs€and€other€expenses€of€administration;Ð 2‚ Ðand€interest€on€death€taxes,€but€the€fiduciary€may€pay€those€expenses€from€income€ofÐ ,| Ðproperty€passing€to€a€trust€for€which€the€fiduciary€claims€an€estate€tax€marital€or€charitableÐ &v Ðdeduction€only€to€the€extent€that€the€payment€of€those€expenses€from€income€will€not€causeÐ  p Ðthe€reduction€or€loss€of€the€deduction;€andÓӀРj ÐÌÓÓà  àà ` àà ¸ à(C)€paying€from€principal€all€other€disbursements€made€or€incurred€inÐ ^ Ðconnection€with€the€settlement€of€a€decedent's€estate€or€the€winding€up€of€a€terminatingÐ  X Ðincome€interest,€including€debts,€funeral€expenses,€disposition€of€remains,€familyÐ !R Ðallowances,€and€death€taxes€and€related€penalties€that€are€apportioned€to€the€estate€orÐ ü!L Ðterminating€income€interest€by€the€will,€the€terms€of€the€trust,€or€applicable€law.ÓӀРö"F ÐÌÓÓà  àà ` à(3)€A€fiduciary€shall€distribute€to€a€beneficiary€who€receives€a€pecuniaryÐ ê$: ! Ðamount€outright€the€interest€or€any€other€amount€provided€by€the€will,€the€terms€of€the€trust,Ð ä%4!" Ðor€applicable€law€from€net€income€determined€under€Subdivision€(2)€or€from€principal€toÐ Þ&."# Ðthe€extent€that€net€income€is€insufficient.€If€a€beneficiary€is€to€receive€a€pecuniary€amountÐ Ø'(#$ Ðoutright€from€a€trust€after€an€income€interest€ends€and€no€interest€or€other€amount€isÐ Ò("$% Ðprovided€for€by€the€terms€of€the€trust€or€applicable€law,€the€fiduciary€shall€distribute€theÐ Ì)%& Ðinterest€or€other€amount€to€which€the€beneficiary€would€be€entitled€under€applicable€law€ifÐ Æ*&' Ðthe€pecuniary€amount€were€required€to€be€paid€under€a€will.€Unless€otherwise€provided€byÐ À+'( Ðthe€will€or€the€terms€of€the€trust,€a€beneficiary€who€receives€a€pecuniary€amount,€regardlessÐ ° Ðof€whether€in€trust,€shall€be€paid€interest€on€the€pecuniary€amount€at€the€legal€rate€ofÐ ªú Ðinterest€as€provided€by€Section€302.002,€Finance€Code.€Interest€on€the€pecuniary€amount€isÐ ¤ô Ðpayable:ÓӀРžî ÐÌÓÓà  àà ` àà ¸ à(A)€under€a€will,€beginning€on€the€first€anniversary€of€the€date€of€theÐ ’ â Ðdecedent's€death;€orÓӀРŒ Ü ÐÌÓÓà  àà ` àà ¸ à(B)€under€a€trust,€beginning€on€the€first€anniversary€of€the€date€onÐ € Ð Ðwhich€an€income€interest€ends.ÓӀРz Ê  ÐÌÓÓà  àà ` à(4)€A€fiduciary€shall€distribute€the€net€income€remaining€after€distributionsÐ n¾  Ðrequired€by€Subdivision€(3)€in€the€manner€described€in€Section€116.052€to€all€otherÐ h¸  Ðbeneficiaries€even€if€the€beneficiary€holds€an€unqualified€power€to€withdraw€assets€from€theÐ b²  Ðtrust€or€other€presently€exercisable€general€power€of€appointment€over€the€trust.ÓӀР\¬  ÐÌÓÓà  àà ` à(5)€A€fiduciary€may€not€reduce€principal€or€income€receipts€from€propertyÐ P  Ðdescribed€in€Subdivision€(1)€because€of€a€payment€described€in€Section€116.201€orÐ Jš Ð116.202€to€the€extent€that€the€will,€the€terms€of€the€trust,€or€applicable€law€requires€theÐ D” Ðfiduciary€to€make€the€payment€from€assets€other€than€the€property€or€to€the€extent€that€theÐ >Ž Ðfiduciary€recovers€or€expects€to€recover€the€payment€from€a€third€party.€The€net€income€andÐ 8ˆ Ðprincipal€receipts€from€the€property€are€determined€by€including€all€of€the€amounts€theÐ 2‚ Ðfiduciary€receives€or€pays€with€respect€to€the€property,€whether€those€amounts€accrued€orÐ ,| Ðbecame€due€before,€on,€or€after€the€date€of€a€decedent's€death€or€an€income€interest'sÐ &v Ðterminating€event,€and€by€making€a€reasonable€provision€for€amounts€that€the€fiduciaryÐ  p Ðbelieves€the€estate€or€terminating€income€interest€may€become€obligated€to€pay€after€theÐ j Ðproperty€is€distributed.ÓӀРd ÐÌÓÓà  àà ` à(6)€A€fiduciary,€without€reduction€for€taxes,€shall€pay€to€a€charitableÐ  X Ðorganization€that€is€entitled€to€receive€income€under€Subdivision€(4)€any€amount€allowed€asÐ !R Ða€tax€deduction€to€the€estate€or€trust€for€income€payable€to€the€charitable€organization.ÓÓ€ÓÓÐ ü!L ÐÔ#†X7íXˆŠâ¤#ÔÔ‡&ºú %XX7íÔÌÔ#†&ºú % %&ºú¾£#ÔÔ‡&ºú % %&ºúÔà@NN!ìàò òUniform€Act€Ô#†&ºú % %&ºúZÀ#ÔÔ‡&ºú % %&ºúÔCommentó óˆÐ ×#'  ÐÌà  àò òTerminating€income€interests€and€successive€income€interests.ó ó€€A€trust€that€provides€for€aÐ š%ê " Ðsingle€income€beneficiary€and€an€outright€distribution€of€the€remainder€ends€when€the€income€interestÐ ˆ&Ø!# Ðends.€€A€more€complex€trust€may€have€a€number€of€income€interests,€either€concurrent€or€successive,€andÐ i'¹"$ Ðthe€trust€will€not€necessarily€end€when€one€of€the€income€interests€ends.€€For€that€reason,€the€Act€speaksÐ J(š#% Ðin€terms€of€income€interests€ending€and€beginning€rather€than€trusts€ending€and€beginning.€€When€anÐ +){$& Ðincome€interest€in€a€trust€ends,€the€trusteeððs€powers€continue€during€the€winding€up€period€required€toÐ  *\%' Ðcomplete€its€administration.€€A€terminating€income€interest€is€one€that€has€ended€but€whose€administrationÐ í*=&( Ðis€not€complete.Ð Î+') Їà  àIf€two€or€more€people€are€given€the€right€to€receive€specified€percentages€or€fractions€of€theÐ ° Ðincome€from€a€trust€concurrently€and€one€of€the€concurrent€interests€ends,€e.g.,€when€a€beneficiary€dies,Ð ‘á Ðthe€beneficiaryððs€income€interest€ends€but€the€trust€does€not.€€Similarly,€when€a€trust€with€only€one€incomeÐ r Ðbeneficiary€ends€upon€the€beneficiaryððs€death,€the€trust€instrument€may€provide€that€part€or€all€of€the€trustÐ S£ Ðassets€shall€continue€in€trust€for€another€income€beneficiary.€€While€it€is€common€to€think€and€speak€of€thisÐ 4„ Ð(and€even€to€characterize€it€in€a€trust€instrument)€as€a€ð ðnewðð€trust,€it€is€a€continuation€of€the€original€trustÐ  e Ðfor€a€remainder€beneficiary€who€has€an€income€interest€in€the€trust€assets€instead€of€the€right€to€receiveÐ ö F Ðthem€outright.€€For€purposes€of€this€Act,€this€is€a€successive€income€interest€in€the€same€trust.€€The€factÐ × ' Ðthat€a€trust€may€or€may€not€end€when€an€income€interest€ends€is€not€significant€for€purposes€of€this€Act.Ð ¸  ÐÌà  àIf€the€assets€that€are€subject€to€a€terminating€income€interest€pass€to€another€trust€because€theÐ z Ê  Ðincome€beneficiary€exercises€a€general€power€of€appointment€over€the€trust€assets,€the€recipient€trustÐ [«  Ðwould€be€a€new€trust;€and€if€they€pass€to€another€trust€because€the€beneficiary€exercises€a€Ô_ÔnongeneralÔ_ÔÐ <Œ  Ðpower€of€appointment€over€the€trust€assets,€the€recipient€trust€might€be€a€new€trust€in€some€States€(seeÐ m  Ð5A€Austin€W.€Scott€&€William€F.€Ô_ÔFratcherÔ_Ô,€The€Law€of€Trusts€ðð640,€at€483€(4th€ed.€1989));€but€forÐ þN  Ðpurposes€of€this€Act€a€new€trust€created€in€these€circumstances€is€also€a€successive€income€interest.Ð ß/  ÐÌà  àò òGift€of€a€pecuniary€amount.ó ó€€Section€201(3)€and€(4)€[Texas€Trust€Code€ðð116.051(3)€and€(4)]Ð ¡ñ Ðprovide€different€rules€for€an€outright€gift€of€a€pecuniary€amount€and€a€gift€in€trust€of€a€pecuniary€amount;Ð ß Ðthis€is€the€same€approach€used€in€Section€5(b)(2)€of€the€1962€Act.Ð pÀ ÐÌà  àò òInterest€on€pecuniary€amounts.ó ó€€Section€201(3)€€[Texas€Trust€Code€ðð116.051(3)]Ô#†&ºú % %&ºú½À#ÔÔ‡&ºú % %&ºúÔ€provides€thatÐ 2‚ Ðthe€beneficiary€of€an€outright€pecuniary€amount€is€to€receive€the€interest€or€other€amount€provided€byÐ  p Ðapplicable€law€if€there€is€no€provision€in€the€will€or€the€terms€of€the€trust.€[See€Texas€Bar€Comment,Ð Q Ðbelow.]€€Many€States€have€no€applicable€law€that€provides€for€interest€or€some€other€amount€to€be€paid€onÐ â2 Ðan€outright€pecuniary€gift€under€an€inter€vivos€trust;€this€section€provides€that€in€such€a€case€the€interest€orÐ Ã Ðother€amount€to€be€paid€shall€be€the€same€as€the€interest€or€other€amount€required€to€be€paid€onÐ ¤ô Ðtestamentary€pecuniary€gifts.€€This€provision€is€intended€to€accord€gifts€under€inter€vivos€instruments€theÐ …Õ Ðsame€treatment€as€testamentary€gifts.€€The€various€state€authorities€that€provide€for€the€amount€that€aÐ f¶ Ðbeneficiary€of€an€outright€pecuniary€amount€is€entitled€to€receive€are€collected€in€Richard€B.€Covey,Ð G— ÐMarital€Deduction€and€Credit€Shelter€Dispositions€and€the€Use€of€Formula€Provisions,€App.€B€(4th€ed.Ð (x Ð1997).Ð  Y ÐÌà  àò òAdministration€expenses€and€interest€on€death€taxes.ó ó€€Under€Section€201(2)(B)€€[TexasÐ Ë!! ÐTrust€Code€ðð116.051(2)(B)]Ô#†&ºú % %&ºú.Î#ÔÔ‡&ºú % %&ºúÔ€a€fiduciary€may€pay€administration€expenses€and€interest€on€death€taxesÐ ¹" " Ðfrom€either€income€or€principal.€€An€advantage€of€permitting€the€fiduciary€to€choose€the€source€of€theÐ š#ê# Ðpayment€is€that,€if€the€fiduciaryððs€decision€is€consistent€with€the€decision€to€deduct€these€expenses€forÐ {$Ë$ Ðincome€tax€purposes€or€estate€tax€purposes,€it€eliminates€the€need€to€adjust€between€principal€and€incomeÐ \%¬ % Ðthat€may€arise€when,€for€example,€an€expense€that€is€paid€from€principal€is€deducted€for€income€taxÐ =&!& Ðpurposes€or€an€expense€that€is€paid€from€income€is€deducted€for€estate€tax€purposes.Ð 'n"' ÐÌà  àThe€United€States€Supreme€Court€has€considered€the€question€of€whether€an€estate€tax€maritalÐ à(0$) Ðdeduction€or€charitable€deduction€should€be€reduced€when€administration€expenses€are€paid€from€incomeÐ Á)%* Ðproduced€by€property€passing€in€trust€for€a€surviving€spouse€or€for€charity€and€deducted€for€income€taxÐ ¢*ò%+ Ðpurposes.€€The€Court€rejected€the€IRS€position€that€administration€expenses€properly€paid€from€incomeÐ ƒ+Ó&, Ðunder€the€terms€of€the€trust€or€state€law€must€reduce€the€amount€of€a€marital€or€charitable€transfer,€andÐ d,´'- Ðheld€that€the€value€of€the€transferred€property€is€not€reduced€for€estate€tax€purposes€unless€theÐ ° Ðadministration€expenses€are€material€in€light€of€the€income€the€trust€corpus€could€have€been€expected€toÐ ‘á Ðgenerate.€€òòCommissioner€v.€Estate€of€Otis€C.€Hubertóó,€117€Ô_ÔS.CtÔ_Ô.€1124€(1997).€€The€provision€in€SectionÐ r Ð201(2)(B)€[Texas€Trust€Code€ðð116.051(2)(B)]Ô#†&ºú % %&ºú¥Ó#ÔÔ‡&ºú % %&ºúÔ€permits€a€fiduciary€to€pay€and€deduct€administrationÐ S£ Ðexpenses€from€income€only€to€the€extent€that€it€will€not€cause€the€reduction€or€loss€of€an€estate€tax€maritalÐ 4„ Ðor€charitable€contributions€deduction,€which€means€that€the€limit€on€the€amount€payable€from€income€willÐ  e Ðbe€established€eventually€by€Treasury€Regulations.Ð ö F ÐÌà  àò òInterest€on€estate€taxes.ó ó€€The€IRS€agrees€that€interest€on€estate€and€inheritance€taxes€may€beÐ ¸  Ðdeducted€for€income€tax€purposes€without€having€to€reduce€the€estate€tax€deduction€for€amounts€passingÐ ¦ ö  Ðto€a€charity€or€surviving€spouse,€whether€the€interest€is€paid€from€principal€or€income.€€Rev.€Rul.€93-48,Ð ‡ ×  Ð93-2€C.B.€270.€€For€estates€of€persons€who€died€before€1998,€a€fiduciary€may€not€want€to€deduct€forÐ h¸  Ðincome€tax€purposes€interest€on€estate€tax€that€is€deferred€under€Section€6166€or€6163€because€deductingÐ I™  Ðthat€interest€for€estate€tax€purposes€may€produce€more€beneficial€results,€especially€if€the€estate€has€littleÐ *z  Ðor€no€income€or€the€income€tax€bracket€is€significantly€lower€than€the€estate€tax€bracket.€€For€estates€ofÐ  [  Ðpersons€who€die€after€1997,€no€estate€tax€or€income€tax€deduction€will€be€allowed€for€interest€paid€onÐ ì<  Ðestate€tax€that€is€deferred€under€Section€6166.€€However,€interest€on€estate€tax€deferred€under€SectionÐ Í Ð6163€will€continue€to€be€deductible€for€both€purposes,€and€interest€on€estate€tax€deficiencies€will€continueÐ ®þ Ðto€be€deductible€for€estate€tax€purposes€if€an€election€under€Section€6166€is€not€in€effect.Ð ß ÐÌà  àUnder€the€1962€Act,€Section€13(c)(5)€charges€interest€on€estate€and€inheritance€taxes€to€principal.€Ð Q¡ ÐThe€1931€Act€has€no€provision.€€Section€501(3)€[Texas€Trust€Code€ðð116.201(3)]Ô#†&ºú % %&ºúÌÚ#ÔÔ‡&ºú % %&ºúÔ€of€this€Act€provides€that,Ð 2‚ Ðexcept€to€the€extent€provided€in€Section€201(2)(B)€or€(C)€[Texas€Trust€Code€ðð116.051(2)(B)€or€(C)]Ô#†&ºú % %&ºúÔâ#ÔÔ‡&ºú % %&ºúÔ,€allÐ c Ðinterest€must€be€paid€from€income.Ð ôD ÐÌÔ#†&ºú % %&ºú«ã#ÔÔ‡&ºú % %&ºúÔà@™™"ìàò òTexas€Bar€Commentó óˆÐ ¶ ÐÌà  àSection€201(3)€of€the€Uniform€Principal€and€Income€Act,€as€originally€promulgated,€provideò òó ód€thatÐ yÉ Ða€beneficiary€who€receives€a€pecuniary€amount€outright€shall€also€receive€the€interest€or€any€other€amountÐ Zª Ðprovided€by€the€will,€the€terms€of€the€trust,€or€applicable€law.€€This€provision€ò òó ódid€not€apply€to€a€beneficiaryÐ ;‹ Ðwho€receives€a€pecuniary€amount€in€trust.€€Prior€Texas€law€(Texas€Probate€Code€Section€378(B)(f))€didÐ l Ðnot€differentiate€between€recipients€of€pecuniary€amounts€based€on€whether€the€amounts€are€to€beÐ ýM Ðreceived€outright€or€in€trust.€€Section€116.051(3)€adopts€the€Texas€Probate€Code€view€regarding€interestÐ Þ .  Ðon€pecuniary€amounts€by€eliminating€the€differentiation€between€recipients€of€pecuniary€amounts€based€onÐ ¿!! Ðwhether€the€amounts€are€to€be€received€outright€or€in€trust.€€Section€116.051(3)€also€provides€that€interestÐ  "ð" Ðon€pecuniary€amounts€begins€one€year€after€the€death€of€the€decedent€for€a€pecuniary€amount€payableÐ #Ñ# Ðunder€a€will€and€one€year€after€an€income€interest€ends€for€a€pecuniary€amount€payable€under€a€trust.€Ð b$²$ ÐThis€is€a€departure€from€former€Texas€Probate€Code€Section€378B(f),€which€provided€that€such€interestÐ C%“ % Ðbegan€one€year€after€the€court€grants€letters€testamentary€or€letters€of€administrationòòòòÐ $&t!& ÐÌóóóóà  àSection€116.051(2)(B)€authorizes€the€fiduciary€to€allocate€interest€on€estate€taxes€to€eitherÐ æ'6#( Ðprincipal€or€income.€€In€contrast,€former€Section€378(B)(a)€of€the€Texas€Probate€Code€required€thatÐ Ç($) Ðinterest€on€estate€taxes€be€charged€against€principal.€€The€Section€believes€that€the€flexibility€provided€forÐ ¨)ø$* Ðby€the€Un