HB-5154, As Passed House, May 15, 2012
November 8, 2011, Introduced by Reps. Walsh, Crawford, Haveman, Lyons, Heise and Johnson and referred to the Committee on Tax Policy.
A bill to amend 2004 PA 159, entitled
"Uniform principal and income act,"
by amending sections 409 and 505 (MCL 555.809 and 555.905) and by
adding section 606.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
409. (1) As used in this section:
(a) "Payment" means a payment that a trustee may receive over
a fixed number of years or during the life of 1 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
fund created by the payer.
, including For purposes of
subsections (4) to (7), payment 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, or a pension, profit-sharing,
stock-bonus, or stock-ownership plan.
(2) To the extent that a payment is characterized as interest,
a dividend, or a
payment made in lieu of interest or a dividend,
trustee shall allocate
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) 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% 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 (5), subsections (6) and (7)
apply, and subsections (2) and (3) do not apply, in determining the
allocation of a payment made from a separate fund to either of the
(a) A trust to which an election to qualify for a marital
deduction under section 2056(b)(7) of the internal revenue code of
1986, 26 USC 2056, has been made.
(b) A trust that qualifies for the marital deduction under
section 2056(b)(5) of the internal revenue code of 1986, 26 USC
(5) Subsections (4), (6), and (7) do not apply if and to the
extent that the series of payments would, without the application
of subsection (4), qualify for the marital deduction under section
2056(b)(7)(C) of the internal revenue code of 1986, 26 USC 2056.
(6) 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.
(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 3.5% 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 section 7520 of the
internal revenue code of 1986, 26 USC 7520, for the month preceding
the accounting period for which the computation is made.
This section does not apply to payments
section 410 applies.
Sec. 505. (1) A tax required to be paid by a trustee based on
receipts allocated to income shall be paid from income.
(2) A tax required to be paid by a trustee based on receipts
allocated to principal shall 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
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.
From principal to the extent that
: ( i ) Receipts Receipts from the entity are
allocated only to
( ii ) The trust's share of the entity's taxable income
total receipts described in subdivision (a) and subparagraph ( i ).
(c) Proportionately from principal and income to the extent
that receipts from the entity are allocated to both income and
(d) 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 (1) to
(3), 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.
Sec. 606. Section 409 applies to a trust described in section
409(4) on and after the following dates:
(a) If the trust is not funded as of the effective date of the
amendatory act that added this section, the date of the decedent's
(b) If the trust is initially funded beginning January 1 of
the calendar year in which the amendatory act that added this
section takes effect, the date of the decedent's death.
(c) If the trust is not described in subdivision (a) or (b),
January 1 of the calendar year in which the amendatory act that
added this section takes effect.