Cal. Prob. Code § 16340
Allocation of Receipts
Redline — January 1, 2011 → current.View current text →
Current — January 1, 2023
As of January 1, 2011
After the decedent’s death, in the case of a decedent’s estate, or after an income interest in a trust ends, the following rules apply:
(a) If property is specifically given to a beneficiary, by will or trust, the fiduciary of the estate or of the terminating income interest shall distribute the net income and principal receipts to the beneficiary who is to receive the property, subject to the following rules:
(1) The net income and principal receipts from the specifically given property are determined by including all of the amounts the fiduciary receives or pays with respect to the property, whether the amounts accrued or became due before, on, or after the decedent’s death or an income interest in a trust ends, and by making a reasonable provision for amounts the fiduciary believes the estate or terminating income interest may become obligated to pay after the property is distributed.
(2) The fiduciary may not reduce income and principal receipts from the specifically given property on account of a payment described in Section 16370 or 16371, to the extent that the will, the trust, or Section 12002 requires payment from other property or to the extent that the fiduciary recovers the payment from a third person.
(3) A specific gift distributable under a trust shall carry with it the same benefits and burdens as a specific devise under a will, as set forth in Chapter 8 (commencing with Section 12000) of Part 10 of Division 7.
(b) A general pecuniary gift, an annuity, or a gift of maintenance distributable under a trust carries with it income and bears interest in the same manner as a general pecuniary devise, an annuity, or a gift of maintenance under a will, as set forth in Chapter 8 (commencing with Section 12000) of Part 10 of Division 7. The fiduciary shall distribute to a beneficiary who receives a pecuniary amount, whether outright or in trust, the interest or any other amount provided by the will, the trust, this subdivision, or Chapter 8 (commencing with Section 12000) of Part 10 of Division 7, from the remaining net income determined under subdivision (c) or from principal to the extent that net income is insufficient.
(c) The fiduciary shall determine the remaining net income of the decedent’s estate or terminating income interest as provided in this chapter and by doing the following:
(1) Including in net income all income from property used to discharge liabilities.
(2) Paying from income or principal, in the fiduciary’s discretion, fees of attorneys, accountants, and fiduciaries, court costs and other expenses of administration, and interest on death taxes, except that the fiduciary may pay these expenses from income of property passing to a trust for which the fiduciary claims an estate tax marital or charitable deduction only to the extent that the payment of these expenses from income will not cause the reduction or loss of the deduction.
(3) Paying from principal all other disbursements made or incurred in connection with the settlement of a decedent’s estate or the winding up of a terminating income interest, including debts, funeral expenses, disposition of remains, family allowances, and death taxes and related penalties that are apportioned to the estate or terminating income interest by the will, the trust, or Division 10 (commencing with Section 20100).
(d) After distributions required by subdivision (b), the fiduciary shall distribute the remaining net income determined under subdivision (c) in the manner provided in Section 16341 to all other beneficiaries.
(e) For purposes of this section, a reference in Chapter 8 (commencing with Section 12000) of Part 10 of Division 7 to the date of the testator’s death means the date of the settlor’s death or of the occurrence of some other event on which the distributee’s right to receive the gift depends.
(f) If a trustee has distributed a specific gift or a general pecuniary gift before January 1, 2007, the trustee may allocate income and principal as set forth in this chapter or in any other manner permissible under the law in effect at the time of the distribution. If the trustee distributes a specific gift or a general pecuniary gift after December 31, 2006, then the trustee shall allocate income and principal as provided in this chapter.
(a) The following definitions apply for purposes of this section:
(1) “Capital distribution” means an entity distribution of money that is either of the following:
(A) A return of capital.
(B) A distribution in total or partial liquidation of the entity.
(2) “Entity” means a corporation, partnership, limited liability company, regulated investment company, real estate investment trust, common trust fund, or any other organization or arrangement in which a person owns or holds an interest, whether or not the entity is a taxpayer for federal income tax purposes. “Entity” does not include any of the following:
(A) A trust or estate to which Section 16341 applies.
(B) A business or other activity to which Section 16342 applies that is not conducted by an entity described in subparagraph (A).
(C) An asset-backed security.
(D) An instrument or arrangement to which Section 16355 applies.
(3) “Entity distribution” means a payment or transfer by an entity made to a person in the person’s capacity as an owner or holder of an interest in the entity.
(b) For purposes of this section, an attribute or action of an entity includes an attribute or action of any other entity in which the entity owns or holds an interest, including an interest owned or held indirectly through another entity.
(c) Except as otherwise provided in paragraphs (2) to (4), inclusive, of subdivision (d), a fiduciary shall allocate money received in an entity distribution to income.
(d) A fiduciary shall allocate to principal all of the following:
(1) Property received in an entity distribution that is not money.
(2) Money received in an entity distribution in an exchange for part or all of the fiduciary’s interest in the entity, to the extent the entity distribution reduces the fiduciary’s interest in the entity relative to the interests of other persons that own or hold interests in the entity.
(3) Money received in an entity distribution that the fiduciary determines or estimates is a capital distribution.
(4) Money received in an entity distribution from an entity that is a regulated investment company or real estate investment trust if the money received is a capital gain dividend for federal income tax purposes.
(5) Money received in an entity distribution that is treated, for federal income purposes, comparably to the treatment described in paragraph (4).
(e) A fiduciary may determine or estimate that money received in an entity distribution is a capital distribution in any of the following ways:
(1) By relying without inquiry or investigation on a characterization of the entity distribution provided by or on behalf of the entity, except under either of the following circumstances:
(A) The fiduciary determines, on the basis of information known to the fiduciary, that the characterization is or may be incorrect.
(B) The fiduciary owns or holds more than 50 percent of the voting interest in the entity.
(2) By determining or estimating, on the basis of information known to the fiduciary or provided to the fiduciary by or on behalf of the entity, that the total amount of money and property received by the fiduciary in the entity distribution or a series of related entity distributions is, or will be, greater than 20 percent of the fair market value of the fiduciary’s interest in the entity.
(3) If neither paragraph (1) nor (2) applies, by considering the factors in subdivision (f) and the information known to the fiduciary or provided to the fiduciary by, or on behalf of, the entity.
(f) In making a determination or estimate under paragraph (3) of subdivision (e), a fiduciary may consider the following:
(1) A characterization of an entity distribution provided by or on behalf of the entity.
(2) The amount of money or property received in either of the following:
(A) The entity distribution.
(B) What the fiduciary determines is, or will be, a series of related entity distributions.
(3) The amount described in paragraph (2) compared to the amount the fiduciary determines or estimates is, during the current or preceding accounting periods, either of the following:
(A) The entity’s operating income.
(B) The proceeds of the entity’s sale or other disposition of any of the following:
(i) All or part of the business or other activity conducted by the entity.
(ii) One or more business assets that are not sold to customers in the ordinary course of the business or other activity conducted by the entity.
(iii) One or more assets other than business assets, unless the entity’s primary activity is to invest in assets to realize gain on the disposition of all or some of the assets.
(C) If the entity’s primary activity is to invest in assets to realize gain on the disposition of all or some of the assets, the gain realized on the disposition.
(D) The entity’s regular, periodic entity distributions.
(E) The amount of money the entity has accumulated.
(F) The amount of money the entity has borrowed.
(G) The amount of money the entity has received from the sources described in Sections 16346, 16349, 16350, and 16351.
(H) The amount of money the entity has received from a source not otherwise described in this paragraph.
(4) Any other factor the fiduciary determines is relevant.
(g) If, after applying subdivisions (c) to (f), inclusive, a fiduciary determines that a part of an entity distribution is a capital distribution but is in doubt about the amount of the entity distribution that is a capital distribution, the fiduciary shall allocate to principal the amount of the entity distribution that is in doubt.
(h) If a fiduciary receives additional information about the application of this section to an entity distribution before the fiduciary has paid part or all of the entity distribution to a beneficiary, the fiduciary may consider the additional information before making the payment to the beneficiary and may change a decision to make the payment to the beneficiary.
(i) If a fiduciary receives additional information about the application of this section to an entity distribution after the fiduciary has paid part or all of the entity distribution to a beneficiary, the fiduciary has no duty to change or recover the payment to the beneficiary but may consider that information in determining whether to exercise the power to adjust under Section 16327.
Official source: California Legislative Information. Reproduced from public-domain California statutes; confirm against the official source for the current text. Not legal advice.