WHOSE MONEY IS IT ANYWAY? MAKING CENTS OF THE CALIFORNIA UNIFORM PRINCIPAL AND INCOME ACT

By Kristen E. Caverly, Esq., Lisa B. Roper, Esq. and Stephen D. Blea, Esq.*

MCLE Article

I. INTRODUCTION

Many fiduciaries, even professionals, conflate taxable income with fiduciary income or otherwise do not account correctly for fiduciary income and principal receipts and expenditures. Correctly accounting for income and principal is important in determining the interests of different classes of beneficiaries, determining distributions, accurately evaluating asset performance in the context of a particular trust administration, documenting an exercise of discretion, and providing a transparent picture of the trust asset performance in the fiduciary’s accounting. As important, planning in light of a trust’s asset mix can avoid drafting trust terms which are bound to create litigation, or which do not accomplish the trustor’s goals. Estate planners and trust administrators should pay attention to the mix of assets in a trust and the goals of the trustor for income distributions and perhaps consider whether a unitrust or fractional interest would better accomplish the trustor’s goals and limit litigation.