Principal and Income Act

This act governs how a trustee or other fiduciary allocates receipts and disbursements between trust principal and income, which in turn determines what goes to the beneficiaries entitled to income and what is preserved for residuary and remainder beneficiaries. It supplies default rules for classifying common items — distributions from business entities and from other trusts or estates, rents, obligations to pay money, insurance proceeds, retirement and deferred compensation payments, and liquidating assets — together with rules for when an income interest begins and ends and how receipts are handled at a decedent's death or on termination of an interest. It also grants a trustee an equitable power to adjust between principal and income and a mechanism to convert a trust into a unitrust that distributes a set percentage of value instead of accounting income, hedged by prohibited-conversion limits, judicial supervision, reconversion and release of the power, and separate election provisions for charitable trusts.

Editorial summary generated from the text of this act. It is not part of the statute — read the sections below for the operative language.