Indiana Code 30-2-14-31. Allocating payments to principal or income
(b) As used in this section, “payment” means a payment that a trustee may receive over a fixed number of years or during the life of one (1) or more individuals because of services rendered or property transferred to the payer in exchange for future payments, regardless of whether the trustee also has the option to receive the payment in a lump sum or other form of payment, whether the payment is made in money or other property, and whether the payment is made from the payer’s general assets or from a separate fund created by the payer. For purposes of subsection (h), the term also includes any payment from any separate fund, regardless of the reason for the payment.
Terms Used In Indiana Code 30-2-14-31
- accounting period: means a calendar year unless another twelve (12) month period is selected by a fiduciary. See Indiana Code 30-2-14-1
- Annuity: A periodic (usually annual) payment of a fixed sum of money for either the life of the recipient or for a fixed number of years. A series of payments under a contract from an insurance company, a trust company, or an individual. Annuity payments are made at regular intervals over a period of more than one full year.
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Beneficiary: A person who is entitled to receive the benefits or proceeds of a will, trust, insurance policy, retirement plan, annuity, or other contract. Source: OCC
- beneficiary: includes , in the case of:
Indiana Code 30-2-14-2
- income: means money or property that a fiduciary receives as current return from a principal asset. See Indiana Code 30-2-14-4
- Interest rate: The amount paid by a borrower to a lender in exchange for the use of the lender's money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures. Source: OCC
- Marital deduction: The deduction(s) that can be taken in the determination of gift and estate tax liabilities because of the existence of a marriage or marital relationship.
- Month: means a calendar month, unless otherwise expressed. See Indiana Code 1-1-4-5
- Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
- person: means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, government; governmental subdivision, agency, or instrumentality; public corporation, or any other legal or commercial entity. See Indiana Code 30-2-14-9
- principal: means property that is held in trust for distribution to a remainder beneficiary when the trust terminates or that will remain perpetually vested in the trustee. See Indiana Code 30-2-14-10
- Property: includes personal and real property. See Indiana Code 1-1-4-5
- Remainder: An interest in property that takes effect in the future at a specified time or after the occurrence of some event, such as the death of a life tenant.
- trustee: includes an original, additional, or successor trustee, whether or not appointed or confirmed by a court. See Indiana Code 30-2-14-13
- Trustee: A person or institution holding and administering property in trust.
(d) To the extent that a payment is characterized as interest, a dividend, or a payment made in lieu of interest or a dividend, a trustee shall allocate the payment to income. The trustee shall allocate to principal the balance of the payment and any other payment received in the same accounting period that is not characterized as interest, a dividend, or an equivalent payment.
(e) If a payment is not characterized as interest, a dividend, or an equivalent payment and is made from a separate fund, the payment shall be allocated between income and principal as follows:
(1) A trustee shall determine the internal income of each separate fund for the accounting period as if the separate fund were a trust subject to this chapter. The trustee shall allocate a payment from the separate fund to income to the extent of the internal income of the separate fund and allocate the balance of the payment to principal.
(2) If a trustee cannot determine the internal income of the separate fund but can determine the value of the separate fund, the internal income of the separate fund is deemed to equal five percent (5%) of the fund’s value, according to the most recent statement of value preceding the beginning of the accounting period. If the trustee cannot determine the internal income of the separate fund or the fund’s value, the internal income of the fund is deemed to equal the product of the interest rate and the present value of the expected future payments, as determined under section 7520 of the Internal Revenue Code, for the month preceding the accounting period for which the computation is made.
(f) If no part of a payment is characterized as interest, a dividend, or an equivalent payment, and the payment is made otherwise than from a separate fund, then the trustee shall allocate to income ten percent (10%) of any part of the payment that is required to be made during the accounting period and the balance to principal, unless no part of the payment is required to be made or the payment received is the entire amount to which the trustee is entitled, in which case the trustee shall allocate the entire payment to principal. For purposes of this subsection, a payment is not “required to be made” to the extent that it is made because the trustee exercises a right of withdrawal.
(g) Notwithstanding any other provision of this section, when a private or commercial deferred annuity is held as an asset of a charitable remainder trust, an increase in the value of the obligation over the value of the obligation at the time of the acquisition by the trust is distributable as income. For purposes of this subsection, the increase in value is available for distribution only when the trustee exercises a right of withdrawal or otherwise receives cash on account of the obligation. If the obligation is surrendered wholly or partially before annuitization, the cash available shall be attributed first to the increase. The increase is distributable to the income beneficiary who is the income beneficiary at the time the cash is received.
(h) Except as provided in subdivision (2), trusts described in subdivision (1) are subject to the following special rules regarding allocations and distributions of income provided in subdivision (3):
(1) This subsection applies to:
(A) a trust to which an election to qualify for a marital deduction under Section 2056(b)(7) of the Internal Revenue Code has been made; or
(B) a trust that qualifies for the marital deduction under Section 2056(b)(5) of the Internal Revenue Code.
(2) This subsection does not apply to a series of payments if and to the extent that the series of payments would, without the application of this subsection, qualify for the marital deduction under Section 2056(b)(7)(C) of the Internal Revenue Code.
(3) Except as provided in subdivision (2), a payment made from a separate fund to a trust described in subdivision (1) shall be allocated between income and principal in accordance with subsection (e)(1) and (e)(2) and not in accordance with subsection (d) or (f), even if part or all of the payment is characterized as interest, a dividend, or an equivalent payment, and even if the payment is the entire amount to which the trustee is entitled. The trustee shall distribute to the surviving spouse the part of the payment allocated to income. Upon request of the surviving spouse, the trustee shall demand that the person administering the separate fund distribute all of the internal income of the fund to the trust. Upon request of the surviving spouse, the trustee shall allocate principal to income to the extent the internal income of the separate fund exceeds payments from the separate fund to the trust during the accounting period.
As added by P.L.84-2002, SEC.2. Amended by P.L.143-2009, SEC.19.