2011 Kentucky Revised Statutes CHAPTER 386 ADMINISTRATION OF TRUSTS -- LEGAL INVESTMENTS -- UNIFORM PRINCIPAL AND INCOME ACT 386.454 Trustee's power to adjust -- Personal representative's power to adjust -- Considerations when adjusting principal and income -- Circumstances prohibiting adjustment -- Circuit Court proceeding.
KY Rev Stat § 386.454 (1996 through Reg Sess) What's This?
386.454 Trustee's power to adjust -- Personal representative's power to adjust -Considerations when adjusting principal and income -- Circumstances
prohibiting adjustment -- Circuit Court proceeding.
(1)
(2)
(3)
(4)
Notwithstanding any provision of Kentucky law to the contrary, the trustee of a trust
to which by law KRS 286.3-277 does not apply may elect to have such provisions
apply to the administration of the trust with approval of the District Court.
A trustee may adjust between principal and income to the extent the trustee
considers necessary if KRS 286.3-277 applies by law or by election made and
approved under subsection (1) of this section, the terms of the trust describe the
amount that may or shall be distributed to a beneficiary by referring to the trust's
income, the trustee determines, after applying the rules in KRS 386.452(1), that the
trustee is unable to comply with KRS 386.452(2) and the adjustment, including an
adjustment method such as an annual percentage distribution if the percentage is not
less than three percent (3%) nor more than five percent (5%) of the fair market
value of the trust assets determined annually, is approved by the District Court.
A personal representative may adjust between principal and income in the same
manner as a trustee if KRS 286.3-277 applies to the personal representative by law
or if the personal representative elects to have KRS 286.3-277 apply to the
administration of the estate, upon approval of the District Court, which approval
may be an adjustment method such as an annual percentage distribution if the
percentage is not less than three percent (3%) nor more than five percent (5%) of
the fair market value of the trust assets determined annually, and:
(a) The amount distributable to a beneficiary of the estate is determined by
reference to the income of the estate; and
(b) The personal representative determines, and after applying the rules of KRS
386.452(1), that the personal representative is unable to comply with KRS
386.452(2).
In deciding whether and to what extent to exercise the power conferred by
subsection (2) or (3) of this section, a fiduciary shall consider all factors relevant to
the trust or estate and its beneficiaries, including the following factors to the extent
they are relevant:
(a) The nature, purpose, and expected duration of the trust or estate;
(b) The intent of the settlor or testator;
(c) The identity and circumstances of the beneficiaries;
(d) The needs for liquidity, regularity of income, and preservation and
appreciation of capital;
(e) The assets held in trust or estate and:
1.
The extent to which those assets consist of financial assets, interests in
closely held enterprises, tangible and intangible personal property, or
real property;
2.
The extent to which an asset is used by a beneficiary; and
3.
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(6)
Whether an asset was purchased by the fiduciary or received from the
settlor or testator;
(f) The net amount allocated to income under the other sections of KRS 386.450
to 386.504 and the increase or decrease in the value of the principal assets,
which the fiduciary may estimate as to assets for which market values are not
readily available;
(g) Whether and to what extent the terms of the trust or will give the fiduciary the
power to invade principal or accumulate income or prohibit the fiduciary from
invading principal or accumulating income, and the extent to which the
fiduciary has exercised a power from time to time to invade principal or
accumulate income;
(h) The actual and anticipated effect of economic conditions on principal and
income and effects of inflation and deflation; and
(i) The anticipated tax consequences of an adjustment.
A fiduciary shall not make an adjustment:
(a) That diminishes the income interest in a trust that requires all of the income to
be paid at least annually to a spouse and for which an estate tax or gift tax
marital deduction would be allowed, in whole or in part, if the fiduciary did
not have the power to make the adjustment;
(b) That reduces the actuarial value of the income interest in a trust to which a
person transfers property with the intent to qualify for a gift tax exclusion;
(c) That changes the amount payable to a beneficiary as a fixed annuity or a fixed
fraction of the value of the trust assets;
(d) From any amount that is permanently set aside for charitable purposes under a
will or the terms of a trust unless both income and principal are so set aside;
(e) If possessing or exercising the power to make an adjustment causes an
individual to be treated as the owner of all or part of the trust or estate for
income tax purposes, and the individual would not be treated as the owner if
the fiduciary did not possess the power to make an adjustment;
(f) If possessing or exercising the power to make an adjustment causes all or part
of the trust or estate assets to be included for estate tax purposes in the estate
of an individual who has the power to remove a fiduciary, appoint a fiduciary,
or both, and the assets would not be included in the estate of the individual if
the fiduciary did not possess the power to make an adjustment;
(g) If the fiduciary is a beneficiary of the trust or estate; or
(h) If the fiduciary is not a beneficiary, but the adjustment would benefit the
fiduciary directly or indirectly; except that any effect on the fiduciary's
compensation shall not preclude an adjustment so long as the fiduciary's fees
are reasonable and otherwise comply with the applicable law.
If paragraph (e), (f), (g), or (h) of subsection (5) of this section applies to a fiduciary
and there is more than one (1) fiduciary, a cofiduciary to whom the provision shall
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not apply may make the adjustment unless the exercise of the power by the
remaining fiduciary or fiduciaries is not permitted by the terms of the trust.
A fiduciary may release the entire power conferred by subsection (2) or (3) of this
section or may release only the power to adjust from income to principal or the
power to adjust from principal to income if the fiduciary is uncertain about whether
possessing or exercising the power will cause a result described in paragraphs (a) to
(f) of subsection (5) of this section or paragraph (h) of subsection (5) of this section,
or if the fiduciary determines that possessing or exercising the power will or may
deprive the trust of a tax benefit or impose a tax burden not described in subsection
(5) of this section. The release may be permanent or for a specified period,
including a period measured by the life of an individual. Such release shall require
approval of the District Court. Further, with approval of the District Court, a
fiduciary may divide a trust into one (1) or more fractional shares if the division
does not change the beneficial interests.
Terms of a trust or will that limit the power of a fiduciary to make an adjustment
between principal and income do not affect the application of this section unless it
is clear from the terms of the trust or will that the terms are intended to deny the
fiduciary the power of adjustment conferred by subsection (2) or (3) of this section.
An aggrieved party may, no later than thirty (30) days from the date of the order
approving a power to adjust under subsection (2) or (3) of this section, institute an
adversary proceeding in Circuit Court pursuant to KRS 24A.120(2).
Effective: July 15, 2010
History: Amended 2010 Ky. Acts ch. 21, sec. 6, effective July 15, 2010. -- Created
2004 Ky. Acts ch. 158, sec. 3, effective January 1, 2005.
Legislative Research Commission Note (7/12/2006). 2006 Ky. Acts ch. 247 instructs
the Reviser of Statutes to adjust KRS references throughout the statutes to conform
with the 2006 renumbering of the Financial Services Code, KRS Chapter 286. Such
an adjustment has been made in this statute.
Legislative Research Commission Note (1/1/2005). In 2004 Ky. Acts ch. 158, sec. 3,
subsec. (2), a reference is made to "subsection (1) of this Act." Because it is clear
from the subject matter of ch. 158, sec. 3, subsec. (1), that the reference was intended
to be to "subsection (1) of this section" instead, this manifest clerical or
typographical error has been corrected during codification by the Reviser of Statutes
under KRS 7.136(1).
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