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2020 Colorado Revised Statutes
Title 15 - Probate, Trusts, And Fiduciaries
Article 1. Fiduciary

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Cross references: For bank and trust company fiduciaries and common trust funds, see articles 24 and 101 to 109 of title 11; for legal investments, see part 6 of article 75 of title 24 and article 60 of title 11; for investment of police officers' and firefighters' pension funds, see article 30.5 of title 31; for investments by veterans administration fiduciaries, see § 28-5-301; for investment by custodians under the "Colorado Uniform Transfers to Minors Act", see § 11-50113; for abolition of the rule against perpetuities in cases of cemetery trust and employee pension trust, see §§ 38-30-110 to 38-30-112.


PART 1 GENERAL PROVISIONS PART 2 DISTRIBUTION BY FIDUCIARIES OF EXPRESS TRUSTS PART 3 FIDUCIARY INVESTMENTS PART 4 UNIFORM PRINCIPAL AND INCOME ACT SUBPART 1 DEFINITIONS AND FIDUCIARY DUTIES

Editor's note: (1) The National Conference of Commissioners on Uniform State Laws organized the Uniform Principal and Income Act (1997) into six separate articles. In C.R.S., all six articles are combined into this part 4. References in the OFFICIAL COMMENTS to specific sections have been changed to reflect the appropriate C.R.S. citation. References in the OFFICIAL COMMENTS to the 1931 Uniform Act and the 1962 Uniform Act refer to the 1931 Uniform Principal and Income Act and to the 1962 Revised Uniform Principal and Income Act, respectively. References in the OFFICIAL COMMENTS to this act refer to the Uniform Principal and Income Act (1997) contained in this part 4.

(2) This part 4 was numbered as article 4 of chapter 57, C.R.S. 1963. The substantive provisions of this part 4 were repealed and reenacted in 2000, resulting in the addition, relocation, and elimination of sections as well as subject matter. For amendments to this part 4 prior to 2000, consult the Colorado statutory research explanatory note and the table itemizing the replacement volumes and supplements to the original volume of C.R.S. 1973 beginning on page vii in the front of this volume. Former C.R.S. section numbers are shown in editor's notes following those sections that were relocated.

Cross references: For information concerning the effective date of this subpart 1, see § 15-1-434.

Law reviews: For article, "Highlights of the 1955 Colorado Legislative Session -- Oil and Gas", see 28 Rocky Mt. L. Rev. 53 (1955); for article, "Highlights of the 1955 Colorado Legislative Session -- Trusts", see 28 Rocky Mt. L. Rev. 74 (1955); for note, "Are Capital Gains Distributions from Regulated Investment Companies Income or Principal to a Colorado

Trustee?", see 31 Rocky Mt. L. Rev. 224 (1959); for article, "The Care and Feeding of Individual

Trustees", see 39 U. Colo. L. Rev. 205 (1966); for article, "Some Accounting Problems of Colorado Trustees", see 39 U. Colo. L. Rev. 192 (1967); for article, "Fiduciary Accounting -Are the Ground Rules Clear?", see 11 Colo. Law. 1192 (1982); for article, "Marital Bequest Computations (Pecuniary Bequests)", see 13 Colo. Law. 43 (1984); for article, "Uniform State Laws of Interest to Colorado Probate Lawyers", see 14 Colo. Law. 1961 (1985); for article, "Introduction to Colorado's New Principal and Income Act", see 30 Colo. Law. 55 (March

2001); for article, "Trust Income: New Possibilities and Approaches", see 33 Colo. Law. 77 (Dec. 2004); for article, "Complexities of Pass-Through Entities Held in Trust", see 39 Colo. Law. 59 (June 2010); for article, "The Dangers of Relying on Trust Language", see 45 Colo.

Law. 55 (March 2016).

PREFATORY NOTE

This revision of the 1931 Uniform Principal and Income Act and the 1962 Revised Uniform Principal and Income Act has two purposes.

One purpose is to revise the 1931 and the 1962 Uniform Acts. Revision is needed to support the now widespread use of the revocable living trust as a will substitute, to change the rules in those Acts that experience has shown need to be changed, and to establish new rules to cover situations not provided for in the old Acts, including rules that apply to financial instruments invented since 1962.

The other purpose is to provide a means for implementing the transition to aninvestment regime based on principles embodied in the Uniform Prudent Investor Act, especially the principle of investing for total return rather than a certain level of "income" as traditionally perceived in terms of interest, dividends, and rents.

Revision of the 1931 and 1962 Uniform Acts

The prior Acts and this revision of those Acts deal with four questions affecting the rights of beneficiaries:

  1. How is income earned during theprobate of an estate to be distributed to trusts and to persons who receive outright bequests of specific property, pecuniary gifts, and theresidue?

  2. When an income interest in a trust begins (i.e., when a person who creates the trust dies or when she transfers property to a trust during life), what property is principal that will eventually go to the remainder beneficiaries and what is income?

  3. When an income interest ends, who gets the income that has been received but not distributed, or that is due but not yet collected, or that has accrued but is not yet due?

  4. After an income interest begins and before it ends, how should its receipts and disbursements be allocated to or between principal and income?

Changes in the traditional sections are of three types: new rules that deal with situations not covered by the prior Acts, clarification of provisions in the 1962 Uniform Act, and changes to rules in the prior Acts.

New rules. Issues addressed by some of the more significant new rules include:

  1. The application of the probate administration rules to revocable living trusts after the settlor's death and to other

terminating trusts. Sections 15-1-406 through 15-1-410.

  1. The payment of interest or someother amount on the delayed payment of an outright pecuniary gift that is made pursuant to a trust agreement instead of a will when the agreement or state law does not provide for such a payment. Section 15-1-406 (1)(c).

  2. The allocation of net income from partnership interests acquired by the trustee other than from a decedent (the old Acts deal only with partnership interests acquired from a decedent). Section 15-1411.

  3. An "unincorporated entity" concept has been introduced to deal with businesses operated by a trustee, including farming and livestock operations, and investment activities in rental real estate, natural resources, timber, and derivatives. Section 15-1-413.

  4. The allocation of receipts from discount obligations such as zero-coupon bonds. Section 15-1-416 (2).

  5. The allocation of net income from harvesting and selling timber between principal and income. Section 15-1-422.

  6. The allocation between principaland income of receipts from derivatives, options, and asset-backed securities. Sections 15-1-424 and 15-1-425.

  7. Disbursements made because of environmental laws. Section 15-1-427

(1)(g).

  1. Income tax obligations resultingfrom the ownership of S corporation stock and interests in partnerships. Section 15-1430.

  2. The power to make adjustmentsbetween principal and income to correct inequities caused by tax elections or peculiarities in the way the fiduciary income tax rules apply. Section 15-1-431.

Clarifications and changes in existing rules. A number of matters provided for in the prior Acts have been changed or clarified in this revision, including the following:

  1. An income beneficiary's estate will be entitled to receive only net income actually received by a trust before the beneficiary's death and not items of accrued income. Section 15-1-410.

  2. Income from a partnership is based on actual distributions from the partnership, in the same manner as corporate distributions. Section 15-1-411.

  3. Distributions from corporations and partnerships that exceed 20% of the entity's gross assets will be principal whether or not intended by the entity to be a partial liquidation. Section 15-1-411 (4)(b).

  4. Deferred compensation is dealt with in greater detail in a separate section. Section 15-1-419.

  5. The 1962 Uniform Act rule for "property subject to depletion," (patents, copyrights, royalties, and the like), whichprovides that a trustee may allocate up to 5% of the asset's inventory value to income and the balance to principal, has been replaced by a rule that allocates 90% of the amounts received to principal and the balance to income. Section 15-1-420.

  6. The percentage used to allocate amounts received from oil and gas has been changed 90% of those receipts are allocated to principal and the balance to income. Section 15-1-421.

  7. The unproductive property rule has been eliminated for trusts other than marital deduction trusts. Section 15-1-423.

  8. Charging depreciation against income is no longer mandatory, and is left to the discretion of the trustee. Section 15-1428.

Coordination with the Uniform Prudent Investor Act

The law of trust investment has been modernized. See Uniform Prudent Investor Act (1994); Restatement (Third) of Trusts: Prudent Investor Rule (1992) (hereinafter Restatement of Trusts 3d: Prudent Investor Rule). Now it is time to update the principal and income allocation rules so the two bodies of doctrine can work well together. This revision deals conservatively with the tension between modern investment theory and traditional income allocation. The starting point is to use the traditional system. If prudent investing of all the assets in a trust viewed as a portfolio and traditional allocation effectuate the intent of the settlor, then nothing need be done. The Act, however, helps the trustee who has made a prudent, modern portfolio-based investment decision that has the initial effect of skewing return from all the assets under management, viewed as a portfolio, as between income andprincipal beneficiaries. The Act gives that trustee a power to reallocate the portfolio return suitably. To leave a trustee constrained by the traditional system would inhibit the trustee's ability to fully implement modern portfolio theory.

As to modern investing see, e.g., the Preface to, terms of, and Comments to the Uniform Prudent Investor Act (1994); the discussion and reporter's note by Edward C. Halbach, Jr. in Restatement of Trusts 3d: Prudent Investor Rule; John H. Langbein,

The Uniform Prudent Investor Act and the Future of Trust Investing, 81 Iowa L. Rev. 641 (1996); Bevis Longstreth, Modern Investment Management and the Prudent Man Rule (1986); John H. Langbein & Richard A. Posner, The Revolution in Trust Investment Law, 62 A.B.A.J. 887 (1976); and Jeffrey N. Gordon, The Puzzling Persistence of the Constrained Prudent Man Rule, 62 N.Y.U. L. Rev. 52 (1987). See also R.A. Brearly, An Introduction to Risk and Return from Common Stocks (2d ed. 1983); Jonathan R. Macey, An Introduction to Modern Financial Theory (2d ed. 1998). As to the need for principal and income reform see, e.g., Joel C. Dobris, Real Return, Modern Portfolio Theory and College, University and Foundation Decisions on Annual Spending From Endowments: A Visit to the World of Spending Rules, 28 Real Prop., Prob., & Tr. J. 49 (1993); Joel C.

Dobris, The Probate World at the End of the Century: Is a New Principal and Income Act in Your Future?, 28 Real Prop., Prob., & Tr. J. 393 (1993); and Kenneth L. Hirsch, Inflation and the Law of Trusts, 18 Real Prop., Prob., & Tr. J. 601 (1983). See also, Jerold I. Horn, The Prudent Investor Rule -Impact on Drafting and Administration of Trusts, 20 ACTEC Notes 26 (Summer

1994).

PART 5 FIDUCIARY PROPERTY - DEPOSITORY NOMINEES

Editor's note: This part 5 was numbered as article 5 of chapter 57, C.R.S. 1963. The substantive provisions of this part 5 were repealed and reenacted in 1977, resulting in the addition, relocation, and elimination of sections as well as subject matter. For amendments to this part 5 prior to 1977, consult the Colorado statutory research explanatory note and the table itemizing the replacement volumes and supplements to the original volume of C.R.S. 1973 beginning on page vii in the front of this volume. Former C.R.S. section numbers are shown in editor's notes following those sections that were relocated.

Cross references: For deposits by a fiduciary, see §§ 15-1-111 and 15-1-112.

PART 6 UNIFORM FIDUCIARY SECURITY TRANSFERS ACT PART 7 FIDUCIARY INTERESTS IN ENTITIES PART 8 POWERS PART 9 DISCLAIMER OF SUCCESSION - NONTESTAMENTARY INSTRUMENTS PART 10 CHARITABLE, EDUCATIONAL, RELIGIOUS, AND BENEVOLENT TRUSTS

Cross references: For testamentary additions to trusts, see § 15-11-511.

PART 11 UNIFORM PRUDENT MANAGEMENT OF INSTITUTIONAL FUNDS ACT

Editor's note: This part 11 was numbered as article 26 of chapter 31, C.R.S. 1963, and was not amended prior to 2008. The substantive provisions of this part 11 were repealed and reenacted in 2008, resulting in the addition, relocation, and elimination of sections as well as subject matter. For the text of this part 11 prior to 2008, consult the 2007 Colorado Revised Statutes. Former C.R.S. section numbers are shown in editor's notes following those sections that were relocated. For a detailed comparison of this part 11, see the comparative tables located in the back of the index.

PART 12 LIFE ESTATE IN PROPERTY OF SURVIVING SPOUSE PART 13 UNIFORM STATUTORY FORM POWER OF ATTORNEY ACT PART 14 RESTRICTIONS ON EXERCISE OF CERTAIN FIDUCIARY POWERS PART 15 REVISED UNIFORM FIDUCIARY ACCESS TO DIGITAL ASSETS ACT
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