(a) In this section:

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Terms Used In Alabama Code 19-3A-409

  • 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.
  • Fiduciary: A trustee, executor, or administrator.
  • following: means next after. See Alabama Code 1-1-1
  • 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. See Alabama Code 1-1-1
  • person: includes a corporation as well as a natural person. See Alabama Code 1-1-1
  • preceding: means next before. See Alabama Code 1-1-1
  • property: includes both real and personal property. See Alabama Code 1-1-1
(1) “Payment” means a payment that a fiduciary may receive over a fixed number of years or during the life of one or more individuals because of services rendered or property transferred to the payer in exchange for future payments. The term includes a payment made in money or property from the payer’s general assets or from a separate fund created by the payer. For purposes of subsections (d), (e), (f), and (g), the term also includes any payment from any separate fund, regardless of the reason for the payment.
(2) “Separate fund” includes a private or commercial annuity, an individual retirement account, and a pension, profit-sharing, stock-bonus, or stock-ownership plan.
(b) To the extent that a payment or portion thereof is characterized by other sections of this chapter as income in the hands of the payer, a fiduciary shall allocate such payment or portion thereof to income. The fiduciary shall allocate to principal the balance of the payment and any other payment received in the same accounting period that is not characterized as income to the payer by other sections of this chapter.
(c) To the extent that a payment is not allocated between income and principal pursuant to subsection (b), a fiduciary shall allocate to income ten percent (10%) of the part that is required to be made during the accounting period and the balance to principal. If no part of a payment is required to be made or if the payment received by the fiduciary is the entire amount to which the fiduciary is entitled, then the fiduciary 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 fiduciary exercises a right of withdrawal.
(d) Except as otherwise provided in subsection (e), subsections (f) and (g) apply and subsections (b) and (c) do not apply in determining the allocation of a payment made from a separate fund to:

(1) A trust to which an election to qualify for a marital deduction under Section 2056(b)(7) of the Internal Revenue Code of 1986, as amended, 26 U.S.C. § 2056(b)(7), as amended, has been made; or
(2) A trust that qualifies for the marital deduction under Section 2056(b)(5) of the Internal Revenue Code of 1986, as amended, 26 U.S.C. § 2056(b)(5), as amended.
(e) Subsections (d), (f), and (g) do not apply if and to the extent that the series of payments would, without the application of subsection (d), qualify for the marital deduction under Section 2056(b)(7)(C) of the Internal Revenue Code of 1986, as amended, 26 U.S.C. § 2056(b)(7)(C), as amended.
(f) A fiduciary shall make a reasonable effort to determine the internal income of each separate fund for the accounting period as if the separate fund were a trust subject to this chapter. Upon request of the surviving spouse, the fiduciary shall make a demand on the person administering the separate fund to distribute the internal income to the trust. The fiduciary shall allocate a payment from the separate fund to income to the extent of the internal income of the separate fund and distribute that amount to the surviving spouse. The fiduciary shall allocate the balance of the payment to principal. Upon request of the surviving spouse, the fiduciary shall allocate principal to income to the extent the internal income of the separate fund exceeds payments made from the separate fund to the trust during the accounting period.
(g) If a fiduciary cannot determine the internal income of a separate fund pursuant to subsection (f) but can determine the value of the separate fund, the internal income of the separate fund for the accounting period is deemed to equal four percent of the fund’s value, according to the most recent statement of value preceding the beginning of the accounting period. If the fiduciary can determine neither the internal income of the separate fund nor the fund’s value, the internal income of the fund for the accounting period 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 of 1986, as amended, 26 U.S.C. § 7520, as amended, for the month preceding the accounting period for which the computation is made.
(h) This section does not apply to a payment to which Section 19-3A-410 applies.
(i) If a trust holds one or more separate funds and is an express unitrust under Section 19-3A-105, or is a unitrust by reason of conversion under Section 19-3A-106 (relating to power to convert to unitrust), the following rules shall apply:

(1) Income or net income from the separate funds shall be determined as provided in the governing instrument in the case of an express unitrust under Section 19-3A-105, or the written notice referenced in Section 19-3A-106(a), the written instrument referenced in Section 19-3A-106(b), or the order of the court referenced in Section 19-3A-106(c) in the case of a trust converted to a unitrust.
(2) If subdivision (1) does not apply and the fiduciary can determine the value of the separate fund, income or net income with respect to such separate fund shall be an amount equal to the unitrust percentage multiplied by the value in the manner applied pursuant to Section 19-3A-105 or Section 19-3A-106, as the case may be.
(3) If subdivision (1) does not apply and the fiduciary cannot determine the value of the separate fund, income or net income with respect to such separate fund shall be determined in the manner provided in the foregoing provisions of this section.
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