H. B. 2685
(By Delegates Blair, Guthrie and Walters)
[Introduced February 19, 2009; referred to the Committee
on the Judiciary then Finance.]
A BILL 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 section,
, all relating to amending the Uniform
Principal and Income Act;
compliance with IRS comments
regarding allocation of IRA distributions; clarify the formula
for calculating how much a trust needs to distribute and how
much it can use to pay taxes; and effective dates of
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, "payment":
(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, including:. 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 payment.
(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,
or a dividend, or a payment made in lieu of interest or a dividend,
a trustee shall allocate it 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.
If, to obtain an estate tax marital deduction for a trust,
a trustee must allocate more of a payment to income than provided
for by this section, the trustee shall allocate to income the
additional amount necessary to obtain the marital deduction. 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 [act]. 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.
(e)(h) This section does not apply to payments a payment to
which Section 410 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:
(A) receipts from the entity are allocated only to principal;
(B) the trust's share of the entity's taxable income exceeds
the total receipts described in paragraphs (1) and (2)(A).(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.
For purposes of this section, receipts allocated to
principal or income must be reduced by the amount distributed to a
beneficiary from principal or income for which the trust receives
a deduction in calculating the tax. 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 none, article four of this chapter on and after the
(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),
first day of January, two thousand nine
Note: This bill was recommended for introduction and passage
by the Commission on Interstate Cooperation. The bill includes
amendments to the Uniform Principal and Income Act approved by
the National Conference of Commissioners of Uniform State Laws
bring the UPIA into compliance with IRS comments regarding
allocation of IRA distributions in Section 409. Additionally, the
changes clarify the formula for calculating how much a trust
needs to distribute and how much it can use to pay taxes.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that
would be added.