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HB206 INTRODUCED
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HB206
I3Y8AZ6-1
By Representative Wadsworth
RFD: Financial Services
First Read: 14-Jan-26
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I3Y8AZ6-1 12/22/2025 VSM (L)ma 2025-3763
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First Read: 14-Jan-26
SYNOPSIS:
Under existing law, a trustee can only adjust
trust receipts and disbursements between principal and
income if the terms of the trust explicitly grant the
trustee that authority.
This bill would permit trustees to adjust
receipts and disbursements between principal and income
without requiring the trust terms to authorize the
adjustments, aligning current law with the Uniform
Principal and Income Act.
This bill would also make nonsubstantive,
technical revisions to update the existing code
language to current style.
A BILL
TO BE ENTITLED
AN ACT
Relating to trusts; to amend Section 19-3A-104, Code of
Alabama 1975, to permit trustees to adjust trust receipts and
disbursements between principal and income without express
authority of the terms of the trust instrument; and to make
nonsubstantive, technical revisions to update the existing
code language to current style.
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code language to current style.
BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:
Section 1. Section 19-3A-104, Code of Alabama 1975, is
amended to read as follows:
"§19-3A-104
(a) A trustee may If the terms of the trust expressly
provide by specific reference to this section, then a trustee
may have the power to adjust receipts and disbursements
between principal and income to the extent the trustee
considers necessary if (1): (i) the trustee invests and
manages trust assets as a prudent investor; (2)(ii) the terms
of the trust describe the amount that may or must be
distributed to a beneficiary by referring to the trust's
income ,; and (3)(iii) the trustee determines, after applying
the rules in Section 19-3A-103(a), that the trustee is unable
to comply with Section 19-3A-103(b).
(b) In deciding whether and to what extent to exercise
the power conferred by subsection (a), a trustee shall
consider all factors relevant to the trust and its
beneficiaries, including, but not limited to:
(1) The nature, purpose, and expected duration of the
trust;
(2) The intent of the settlor;
(3) The identity and circumstances of the
beneficiaries;
(4) The needs for liquidity for the trust;
(5) The regularity of income to the trust;
(6) The need for preservation and appreciation of
capital;
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capital;
(7) The nature of the assets held in the trust and the
extent to which they consist of financial assets, interests in
closely held enterprises, tangible and intangible personal
property, or real property;
(8) The extent to which an asset is used by a
beneficiary;
(9) Whether an asset was purchased by the trustee or
received from the settlor;
(10) The net amount allocated to income under the other
sections of this chapter and the increase or decrease in the
value of the principal assets, which the trustee may estimate
as to assets for which market values are not readily
available;
(11) Whether and to what extent the terms of the trust
a.: (i) give the trustee the power to invade principal or
accumulate income , or b. ; or (ii) prohibit the trustee from
invading principal or accumulating income;
(12) The extent to which the trustee has exercised a
power from time to time to invade principal or accumulate
income;
(13) The actual and anticipated effect of economic
conditions, inflation, and deflation upon principal and
income; and
(14) The anticipated income and transfer tax
consequences of an adjustment.
(c) Notwithstanding the power conferred by subsection
(a), a trustee may not make an adjustment:
(1) That diminishes the income interest in a trust that
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(1) That diminishes the income interest in a trust that
requires all of the income to be paid at least annually to a
spouse and for which an estate tax or gift tax marital
deduction would be allowed, in whole or in part, if the
trustee did not have the power to make the adjustment;
(2) That reduces the actuarial value of the income
interest in a trust to which a person transfers property with
the intent to qualify the transfer for a gift tax exclusion;
(3) That changes the amount payable to a beneficiary as
a fixed annuity or a fixed fraction of the value of the trust
assets;
(4) That changes the amount that is permanently set
aside for charitable purposes under a will or the terms of a
trust, unless both income and principal are so set aside;
(5) If possessing or exercising the power to make an
adjustment causes an individual to be treated as the owner of
all or part of the trust for income tax purposes, and the
individual would not be treated as the owner if the trustee
did not possess the power to make an adjustment;
(6) If possessing or exercising the power to make an
adjustment causes all or part of the trust assets to be
included for estate tax purposes in the estate of an
individual who has the power to remove a trustee or appoint a
trustee, or both, and the assets would not be included in the
estate of the individual if the trustee did not possess the
power to make an adjustment;
(7) If the trustee is not a beneficiary, but the
adjustment would benefit the trustee directly or indirectly;
(8) If the trustee is a beneficiary of the trust; or
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(8) If the trustee is a beneficiary of the trust; or
(9) If the trust is an express unitrust under Section
19-3A-105 (relating to express unitrusts) or is a unitrust by
reason of a conversion under Section 19-3A-106 (relating to
power to convert to unitrust) .
(d) If subsection subdivision (c)(5), subsection
(c)(6), subsection (c)(7), or subsection (c)(8) applies to a
trustee and there is more than one trustee, then the
co-trustee to whom the provision does not apply may make the
adjustment, unless the exercise of the power by the remaining
trustee or trustees is not permitted by the terms of the
trust.
(e) A trustee may release the entire power conferred by
subsection (a) or may release only the power to adjust from
income to principal or the power to adjust from principal to
income if the trustee is uncertain about whether possessing or
exercising the power will cause a result described in
subsection subdivisions (c)(1) through subsection (c)(7) or if
the trustee determines that possessing or exercising the power
will or may deprive the trust of a tax benefit or impose a tax
burden not described in subsection (c). The release may be
permanent or for a specified period, including a period
measured by the life of an individual.
(f) The trustee or any beneficiary of a trust covered
by this chapter (or a trust to be created from a decedent's
estate that is covered by this chapter) (1) may seek approval
from a court of competent jurisdiction to be governed
prospectively by this section, or (2) may at any time
affirmatively elect to be governed prospectively by this
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affirmatively elect to be governed prospectively by this
section by obtaining the written consent of all of the current
income beneficiaries and the presumptive remainder
beneficiaries of the trust, and such written consent shall
conclusively bind all persons who may have any interest in the
affected trust, including all contingent remainder
beneficiaries and potential appointees of the trust. Terms of
a trust which limit the power of a trustee to make an
adjustment between principal and income do not affect the
application of this section unless it is clear from the terms
of the trust that the terms are intended to deny the trustee
the power of adjustment conferred by subsection (a). "
Section 2. This act shall become effective on October
1, 2026.
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