is insubstantial, the trustee may allocate the entire amount to

129.385 is insubstantial, the trustee may allocate the entire amount to principal unless one of the circumstances described in ORS 129.215 (3) applies to the allocation. This power may be exercised by a cotrustee in the circumstances described in ORS 129.215 (4) and may be released for the reasons and in the manner described in ORS 129.215 (5). An allocation is presumed to be insubstantial if:

����� (1) The amount of the allocation would increase or decrease net income in an accounting period, as determined before the allocation, by less than 10 percent; or

����� (2) The value of the asset producing the receipt for which the allocation would be made is less than 10 percent of the total value of the trust�s assets at the beginning of the accounting period. [2003 c.279 �17]

����� 129.355 UPIA 409. Deferred compensation, annuities and similar payments. (1) In this section, the following terms have the following meanings:

����� (a) �Payment� means a payment that a trustee 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 (4), (5), (6) and (7) of this section, the term also includes any payment from any separate fund, regardless of the reason for the payment.

����� (b) �Separate fund� includes a private or commercial annuity, an individual retirement account and a pension, profit-sharing, stock-bonus or stock-ownership plan.

����� (2) Except as provided in subsection (8) of this section, 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 that portion of 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.

����� (3) Except as provided in subsection (8) of this section, if no part of a payment is characterized as interest, a dividend or an equivalent payment, and all or part of the payment is required to be made, a trustee shall allocate to income 10 percent 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 the payment received is the entire amount to which the trustee is entitled, 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.

����� (4) Except as provided in subsection (5) of this section, subsections (6) and (7) of this section apply, and subsections (2) and (3) of this section do not apply, in determining the allocation of a payment made from a separate fund to either of the following:

����� (a) A trust for which an election has been made to qualify for a marital deduction under 26 U.S.C. 2056(b)(7), as in effect on June 9, 2011; or

����� (b) A trust that qualifies for the marital deduction under 26 U.S.C. 2056(b)(5), as in effect on June 9, 2011.

����� (5) Subsections (4), (6) and (7) of this section do not apply in determining the allocation of a series of payments made from a separate fund if and to the extent that the series of payments would, without the application of subsection (4) of this section, qualify for the marital deduction under 26 U.S.C. 2056(b)(7)(C), as in effect on June 9, 2011.

����� (6) Except as provided in subsection (7) of this section, 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. Upon request of the surviving spouse, the trustee shall demand that the person administering the separate fund distribute the internal income to the trust. The trustee 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 trustee shall allocate the balance of the payment to principal. 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 made from the separate fund to the trust during the accounting period.

����� (7) If a trustee cannot determine the internal income of a separate fund but can determine the value of the separate fund, the internal income of the separate fund 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 trustee can determine neither the internal income of the separate fund nor 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 26 U.S.C. 7520, as in effect on June 9, 2011, for the month preceding the accounting period for which the computation is made.

����� (8)(a) An increase in value of the following obligations over the value of the obligations at the time of acquisition by the trust is distributable as income:

����� (A) A zero coupon security.

����� (B) A deferred annuity contract surrendered wholly or partially before annuitization.

����� (C) A life insurance contract surrendered wholly or partially before the death of the insured.

����� (D) Any other obligation for the payment of money that is payable at a future time in accordance with a fixed, variable or discretionary schedule of appreciation in excess of the price at which it was issued.

����� (b) For purposes of this subsection, the increase in value of an obligation is available for distribution only when the trustee receives cash on account of the obligation. If the obligation is surrendered or partially liquidated, the cash available must be attributed first to the increase. The increase is distributable to the income beneficiary who is the beneficiary at the time the cash is received.

����� (9) This section does not apply to a payment to which ORS 129.360 applies. [2003 c.279 �18; 2011 c.307 �1]

����� Note: Section 2, chapter 307, Oregon Laws 2011, provides:

����� Sec. 2. (1) Except as provided in subsection (2) of this section, the amendments to ORS 129.355 by section 1 of this 2011 Act apply to the determination of the allocation of payments from separate funds made on or after January 1, 2011.

����� (2) The amendments to ORS 129.355 by section 1 of this 2011 Act apply to the determination of the allocation of payments from separate funds made on or after the death of the grantor if:

����� (a) The trust established by the grantor is not funded on or before January 1, 2011; or

����� (b) The trust established by the grantor is first funded in calendar year 2011. [2011 c.307 �2]

����� 129.360 UPIA 410. Liquidating asset. (1) In this section, �liquidating asset� means an asset whose value will diminish or terminate because the asset is expected to produce receipts for a period of limited duration. The term includes a leasehold, patent, copyright, royalty right and right to receive payments during a period of more than one year under an arrangement that does not provide for the payment of interest on the unpaid balance. The term does not include a payment subject to ORS 129.355, resources subject to ORS 129.365, timber subject to ORS 129.370, an activity subject to ORS 129.380, an asset subject to ORS 129.385 or any asset for which the trustee establishes a reserve for depreciation under ORS 129.410.

����� (2) A trustee shall allocate to income 10 percent of the receipts from a liquidating asset and the balance to principal. [2003 c.279 �19]

����� 129.365 UPIA 411. Minerals, water and other natural resources. (1) To the extent that a trustee accounts for receipts from an interest in minerals or other natural resources pursuant to this section, the trustee shall allocate them as follows:

����� (a) If received as nominal delay rental or nominal annual rent on a lease, a receipt must be allocated to income.

����� (b) If received from a production payment, a receipt must be allocated to income if and to the extent that the agreement creating the production payment provides a factor for interest or its equivalent. The balance must be allocated to principal.

����� (c) If an amount received as a royalty, shut-in-well payment, take-or-pay payment, bonus or delay rental is more than nominal, 90 percent must be allocated to principal and the balance to income.

����� (d) If an amount is received from a working interest or any other interest not provided for in paragraph (a), (b) or (c) of this subsection, 90 percent of the net amount received must be allocated to principal and the balance to income.

����� (2) An amount received on account of an interest in water that is renewable must be allocated to income. If the water is not renewable, 90 percent of the amount must be allocated to principal and the balance to income.

����� (3) This chapter applies whether or not a decedent or donor was extracting minerals, water or other natural resources before the interest became subject to the trust.

����� (4) If a trust owns an interest in minerals, water or other natural resources on January 1, 2004, the trustee may allocate receipts from the interest as provided in this chapter or in the manner used by the trustee before January 1, 2004. If the trust acquires an interest in minerals, water or other natural resources after January 1, 2004, the trustee shall allocate receipts from the interest as provided in this chapter. [2003 c.279 �20]

����� 129.370 UPIA 412. Timber. (1) To the extent that a trustee accounts for receipts from the sale of timber and related products pursuant to this section, the trustee shall allocate the net receipts:

����� (a) To income to the extent that the amount of timber removed from the land does not exceed the rate of growth of the timber during the accounting periods in which a beneficiary has a mandatory income interest;

����� (b) To principal to the extent that the amount of timber removed from the land exceeds the rate of growth of the timber or the net receipts are from the sale of standing timber;

����� (c) To or between income and principal if the net receipts are from the lease of timberland or from a contract to cut timber from land owned by a trust, by determining the amount of timber removed from the land under the lease or contract and applying the rules in paragraphs (a) and (b) of this subsection; or

����� (d) To principal to the extent that advance payments, bonuses and other payments are not allocated pursuant to paragraph (a), (b) or (c) of this subsection.

����� (2) In determining net receipts to be allocated pursuant to subsection (1) of this section, a trustee shall deduct and transfer to principal a reasonable amount for depletion.

����� (3) This chapter applies whether or not a decedent or transferor was harvesting timber from the property before it became subject to the trust.

����� (4) If a trust owns an interest in timberland on January 1, 2004, the trustee may allocate net receipts from the sale of timber and related products as provided in this chapter or in the manner used by the trustee before January 1, 2004. If the trust acquires an interest in timberland after January 1, 2004, the trustee shall allocate net receipts from the sale of timber and related products as provided in this chapter. [2003 c.279 �21]

����� 129.375 UPIA 413. Property not productive of income. (1) If a marital deduction is allowed for all or part of a trust whose assets consist substantially of property that does not provide the spouse with sufficient income from or use of the trust assets, and if the amounts that the trustee transfers from principal to income under ORS 129.215 and distributes to the spouse from principal pursuant to the terms of the trust are insufficient to provide the spouse with the beneficial enjoyment required to obtain the marital deduction, the spouse may require the trustee to make property productive of income, convert property within a reasonable time or exercise the power conferred by ORS 129.215 (1). The trustee may decide which action or combination of actions to take.

����� (2) In cases not governed by subsection (1) of this section, proceeds from the sale or other disposition of an asset are principal without regard to the amount of income the asset produces during any accounting period. [2003 c.279 �22]

����� 129.380 UPIA 414. Derivatives and options. (1) In this section, �derivative� means a contract or financial instrument or a combination of contracts and financial instruments which gives a trust the right or obligation to participate in some or all changes in the price of a tangible or intangible asset or group of assets, or changes in a rate, an index of prices or rates, or other market indicator for an asset or a group of assets.

����� (2) To the extent that a trustee does not account under ORS 129.308 for transactions in derivatives, the trustee shall allocate to principal receipts from and disbursements made in connection with those transactions.

����� (3) If a trustee grants an option to buy property from the trust, whether or not the trust owns the property when the option is granted, grants an option that permits another person to sell property to the trust or acquires an option to buy property for the trust or an option to sell an asset owned by the trust, and the trustee or other owner of the asset is required to deliver the asset if the option is exercised, an amount received for granting the option must be allocated to principal. An amount paid to acquire the option must be paid from principal. A gain or loss realized upon the exercise of an option, including an option granted to a settlor of the trust for services rendered, must be allocated to principal. [2003 c.279 �23]

����� 129.385 UPIA 415. Asset-backed securities. (1) In this section, �asset-backed security� means an asset whose value is based upon the right it gives the owner to receive distributions from the proceeds of financial assets that provide collateral for the security. The term includes an asset that gives the owner the right to receive from the collateral financial assets only the interest or other current return or only the proceeds other than interest or current return. The term does not include an asset to which ORS 129.300 or 129.355 applies.

����� (2) If a trust receives a payment from interest or other current return and from other proceeds of the collateral financial assets, the trustee shall allocate to income the portion of the payment which the payer identifies as being from interest or other current return and shall allocate the balance of the payment to principal.

����� (3) If a trust receives one or more payments in exchange for the trust�s entire interest in an asset-backed security in one accounting period, the trustee shall allocate the payments to principal. If a payment is one of a series of payments that will result in the liquidation of the trust�s interest in the security over more than one accounting period, the trustee shall allocate 10 percent of the payment to income and the balance to principal. [2003 c.279 �24]

ALLOCATION OF DISBURSEMENTS DURING ADMINISTRATION OF TRUST

����� 129.400 UPIA 501. Disbursements from income. (1) A trustee shall make the following disbursements from income to the extent that they are not disbursements to which ORS 129.250 (2)(b) or (c) applies:

����� (a) Except as provided in subsection (2) of this section, one-half of the regular compensation of the trustee;

����� (b) Except as provided in subsection (2) of this section, one-half of the regular compensation of any person providing investment advisory or custodial services to the trustee;

����� (c) One-half of all expenses for accountings, judicial proceedings or other matters that involve both the income and remainder interests;

����� (d) All of the other ordinary expenses incurred in connection with the administration, management or preservation of trust property and the distribution of income, including interest, ordinary repairs, regularly recurring taxes assessed against principal and expenses of a proceeding or other matter that concerns primarily the income interest; and

����� (e) Recurring premiums on insurance covering the loss of a principal asset or the loss of income from or use of the asset.

����� (2)(a) If, in the reasonable judgment of the trustee, charging all or a part of the trustee�s regular compensation or the regular compensation of any person providing investment advisory or custodial services to the trustee to principal is impracticable because of lack of sufficient cash and readily marketable assets or inadvisable because of the nature of the principal assets, the trustee may pay all or part of the trustee�s regular compensation or the regular compensation of any person providing investment advisory or custodial services to the trustee out of income. Income of the trust is not entitled to reimbursement from principal for payments under this paragraph.

����� (b) If, in the reasonable judgment of the trustee, charging all or part of the trustee�s regular compensation or the regular compensation of any person providing investment advisory or custodial services to the trustee to income is impracticable because of the lack of sufficient income, or in order to provide increased income to the beneficiary, the trustee may pay all or part of the trustee�s regular compensation or the regular compensation of any person providing investment advisory or custodial services to the trustee out of principal.

����� (3) Notwithstanding subsection (1) of this section, during the lifetime of the settlor of a revocable trust, the trustee may charge trust expenses, including the trustee�s compensation, as directed by the settlor. [2003 c.279 �25; 2017 c.81 �1]

����� 129.405 UPIA 502. Disbursements from principal. (1) A trustee shall make the following disbursements from principal:

����� (a) The remaining portions of the disbursements described in ORS 129.400 (1)(a) to (c);

����� (b) All of the trustee�s compensation calculated on principal as a fee for acceptance, distribution or termination and disbursements made to prepare property for sale;

����� (c) Payments on the principal of a trust debt;

����� (d) Expenses of a proceeding that concerns primarily principal, including a proceeding to construe the trust or to protect the trust or its property;

����� (e) Premiums paid on a policy of insurance not described in ORS 129.400 (1)(e) of which the trust is the owner and beneficiary;

����� (f) Estate, inheritance and other transfer taxes, including penalties, apportioned to the trust; and

����� (g) Disbursements related to environmental matters, including reclamation, assessing environmental conditions, remedying and removing environmental contamination, monitoring remedial activities and the release of substances, preventing future releases of substances, collecting amounts from persons liable or potentially liable for the costs of those activities, penalties imposed under environmental laws or regulations and other payments made to comply with those laws or regulations, statutory or common law claims by third parties and defending claims based on environmental matters.

����� (2) If a principal asset is encumbered with an obligation that requires income from that asset to be paid directly to the creditor, the trustee shall transfer from principal to income an amount equal to the income paid to the creditor in reduction of the principal balance of the obligation. [2003 c.279 �26; 2017 c.81 �2]

����� 129.410 UPIA 503. Transfers from income to principal for depreciation. (1) In this section, �depreciation� means a reduction in value due to wear, tear, decay, corrosion or gradual obsolescence of a fixed asset having a useful life of more than one year.

����� (2) A trustee may transfer to principal a reasonable amount of the net cash receipts from a principal asset that is subject to depreciation, but may not transfer any amount for depreciation:

����� (a) Of that portion of real property used or available for use by a beneficiary as a residence or of tangible personal property held or made available for the personal use or enjoyment of a beneficiary;

����� (b) During the administration of a decedent�s estate; or

����� (c) Under this section if the trustee is accounting under ORS 129.308 for the business or activity in which the asset is used.

����� (3) An amount transferred to principal need not be held as a separate fund. [2003 c.279 �27]

����� 129.415 UPIA 504. Transfers from income to reimburse principal. (1) If a trustee makes or expects to make a principal disbursement described in this section, the trustee may transfer an appropriate amount from income to principal in one or more accounting periods to reimburse principal or to provide a reserve for future principal disbursements.

����� (2) Principal disbursements to which subsection (1) of this section applies include the following, but only to the extent that the trustee has not been and does not expect to be reimbursed by a third party:

����� (a) An amount chargeable to income but paid from principal because it is unusually large, including extraordinary repairs;

����� (b) A capital improvement to a principal asset, whether in the form of changes to an existing asset or the construction of a new asset, including special assessments;

����� (c) Disbursements made to prepare property for rental, including tenant allowances, leasehold improvements and broker�s commissions;

����� (d) Periodic payments on an obligation secured by a principal asset to the extent that the amount transferred from income to principal for depreciation is less than the periodic payments; and

����� (e) Disbursements described in ORS 129.405 (1)(g).

����� (3) If the asset whose ownership gives rise to the disbursements becomes subject to a successive income interest after an income interest ends, a trustee may continue to transfer amounts from income to principal as provided in subsection (1) of this section. [2003 c.279 �28]

����� 129.420 UPIA 505. Income taxes. (1) A tax required to be paid by a trustee based on receipts allocated to income must be paid from income.

����� (2) A tax required to be paid by a trustee based on receipts allocated to principal must be paid from principal, even if the tax is called an income tax by the taxing authority.

����� (3) A tax required to be paid by a trustee on the trust�s share of an entity�s taxable income must be paid:

����� (a) From income to the extent that receipts from the entity are allocated only to income;

����� (b) From principal to the extent that receipts from the entity are allocated only to principal;

����� (c) Proportionately from principal and income to the extent that receipts from the entity are allocated to both income and principal; and

����� (d) From principal to the extent that the tax exceeds the total receipts from the entity.

����� (4) After applying subsections (1) to (3) of this section, the trustee shall adjust income or principal receipts to the extent that the trust�s taxes are reduced because the trust receives a deduction for payments made to a beneficiary. [2003 c.279 �29; 2011 c.307 �3]

����� 129.425 UPIA 506. Adjustments between principal and income because of taxes. (1) A fiduciary may make adjustments between principal and income to offset the shifting of economic interests or tax benefits between income beneficiaries and remainder beneficiaries which arise from:

����� (a) Elections and decisions, other than those described in subsection (2) of this section, that the fiduciary makes from time to time regarding tax matters;

����� (b) An income tax or any other tax that is imposed upon the fiduciary or a beneficiary as a result of a transaction involving or a distribution from the estate or trust; or

����� (c) The ownership by an estate or trust of an interest in an entity whose taxable income, whether or not distributed, is includable in the taxable income of the estate, trust or a beneficiary.

����� (2) If the amount of an estate tax marital deduction or charitable contribution deduction is reduced because a fiduciary deducts an amount paid from principal for income tax purposes instead of deducting it for estate tax purposes, and as a result estate taxes paid from principal are increased and income taxes paid by an estate, trust or beneficiary are decreased, each estate, trust or beneficiary that benefits from the decrease in income tax shall reimburse the principal from which the increase in estate tax is paid. The total reimbursement must equal the increase in the estate tax to the extent that the principal used to pay the increase would have qualified for a marital deduction or charitable contribution deduction but for the payment. The proportionate share of the reimbursement for each estate, trust or beneficiary whose income taxes are reduced must be the same as its proportionate share of the total decrease in income tax. An estate or trust shall reimburse principal from income. [2003 c.279 �30]

UNIFORMITY OF APPLICATION

����� 129.450 UPIA 601. Uniformity of application and construction. In applying and construing this chapter, consideration must be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it. [2003 c.279 �31]

_______________