principal and income allocation

Question 1

traditional approach

Answer 1

• life beneficiaries would be entitled to income of the trust (money earned from investments)
• trust property is income
• conveyance of trust prop= principal

Question 2

principal

Answer 2

• holder of the remainder interest would be entitled to the trust principal
• any money generated from the trust was principal

Question 3

modern approach

Answer 3

• Uniform Principal and Income Act (UPAIA)
• adopted in Tx
• trustee focus on the total return of the trust portfolio
• trustee can recharacterize and reallocate items as necessary to fulfill trust purposes

Question 4

factors for reallocation

Answer 4

• must be reasonable
• intent of the settlor and the langauge of trust instru
• nature, duration, and purpose of the trust
• identities and circumstances of the B
• anticipated effect of economic conduct
• anticipated tax consequences