HB2685 ENR SUB
H. B. 2685
(By Delegates Blair, Guthrie and Walters)
[Passed April 10, 2009; in effect ninety days from passage.]
to amend and reenact §44B-4-409 of the Code of West
Virginia, 1931, as amended;
to amend and reenact §44B-5-505 of
and to amend said code by adding thereto a new
section, designated §44B-6-606
, all relating to amending the
Uniform Principal and Income Act;
complying with IRS comments
regarding allocation of IRA distributions; clarifying the
formula for calculating how much a trust needs to distribute
and how much it can use to pay taxes; and providing effective
dates of amendments.
Be it enacted by the Legislature of West Virginia:
of the Code of West Virginia, 1931, as
amended, be amended and reenacted; that §44B-5-505
of said code be
amended and reenacted; and
that said code be amended by adding
thereto a new section, designated §44B-6-606
, all to read as
ARTICLE 4. ALLOCATION OF RECEIPTS DURING ADMINISTRATION OF TRUST
PART 3--RECEIPTS NORMALLY APPORTIONED
§44B-4-409. Deferred compensation, annuities and similar payments.
(a) In this section:
(1) "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 (d), (e), (f), and (g), the term also includes any
payment from any separate fund, regardless of the reason for the
(2) "Separate fund" includes a private or commercial annuity,
an individual retirement account, and a pension, profit-sharing,
stock-bonus, or stock-ownership plan.
(b) 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 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.
(c) 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 ten
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.
(d) Except as otherwise provided in subsection (e),
subsections (f) and (g) apply, and subsections (b) and (c) do not
apply, in determining the allocation of a payment made from a
separate fund to:
(1) a trust to which an election to qualify for a marital
deduction under 26 U.S.C. § 2056(b)(7), as amended, has been made;
(2) a trust that qualifies for the marital deduction under 26
U.S.C. § 2056(b)(5), as amended.
(e) Subsections (d), (f), and (g) do not apply if and to the
extent that the series of payments would, without the application
of subsection (d), qualify for the marital deduction under 26
U.S.C. § 2056(b)(7)(C), as amended.
(f) 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.
(g) 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 amended, for the month preceding the accounting
period for which the computation is made.
(h) This section does not apply to a payment to which section
four hundred ten of this article applies.
ARTICLE 5. ALLOCATION OF DISBURSEMENTS DURING ADMINISTRATION OF
§44B-5-505. Income taxes.
(a) A tax required to be paid by a trustee based on receipts
allocated to income must be paid from income.
(b) 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.
(c) A tax required to be paid by a trustee on the trust's
share of an entity's taxable income must be paid:
(1) from income to the extent that receipts from the entity
are allocated only to income;
(2) from principal to the extent that receipts from the entity
are allocated only to principal;
(3) proportionately from principal and income to the extent
that receipts from the entity are allocated to both income and
(4) from principal to the extent that the tax exceeds the
total receipts from the entity.
(d) After applying subsections (a) through (c), 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.
ARTICLE 6. MISCELLANEOUS PROVISIONS.
§44B-6-606. Transitional Matters.
Section four hundred nine, article four of this chapter, as
amended during the regular session of the 2009 Legislature, applies
to a trust described in subsection (d) of section four hundred
nine, article four of this chapter on and after the following dates:
(1) If the trust is not funded as of the effective date of the
amendments to this chapter enacted during the regular session of
the two thousand nine legislature, the date of the decedent's
(2) If the trust is initially funded in the calendar year
beginning the first day of January, two thousand nine, the date of
the decedent's death.
(3) If the trust is not described in paragraph (1) or (2), the
first day of January, two thousand nine