Power of Adjustment

  1. Law
  2. Georgia Code
  3. Wills, Trusts, and Administration of Estates
  4. Trusts
  5. Trust Investments
  6. Power of Adjustment and Unitrusts
  7. Power of Adjustment

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  1. Subject to subsections (c) and (f) of this Code section, a trustee may adjust between principal and income by allocating an amount of income to principal or an amount of principal to income to the extent the trustee considers appropriate if:
    1. The governing trust instrument describes what may or shall be distributed to a beneficiary by referring to the trust's income; and
    2. The trustee determines, after applying the rules in Code Section 53-12-360, that the trustee is unable to comply with Code Section 53-12-247.
  2. In deciding whether and to what extent to exercise the power conferred by subsection (a) of this Code section, a trustee may consider, among other things:
    1. The size of the trust;
    2. The nature and estimated duration of the trust;
    3. The liquidity and distribution requirements of the trust;
    4. The needs for regular distributions and preservation and appreciation of capital;
    5. The expected tax consequences of an adjustment;
    6. The net amount allocated to income under 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;
    7. The assets held in the trust; the extent to which they consist of financial assets, interests in closely held enterprises, and tangible and intangible personal property or real property; the extent to which an asset is used by a beneficiary; and whether an asset was purchased by the trustee or received from the settlor or testator;
    8. To the extent reasonably known to the trustee, the needs of the beneficiaries for present and future distributions authorized or required by the governing trust instrument;
    9. Whether and to what extent the governing trust instrument gives the trustee the power to invade principal or accumulate income or prohibits the trustee from invading principal or accumulating income, and the extent to which the trustee has exercised a power from time to time to invade principal or accumulate income;
    10. The intent of the settlor or testator; and
    11. The actual and anticipated effect of economic conditions on principal and income and effects of inflation and deflation on the trust.
  3. A trustee shall not make an adjustment under this Code section:
    1. If the adjustment would change the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets;
    2. If the adjustment is from trust funds which are permanently set aside for charitable purposes under the governing trust instrument and for which a federal charitable, estate, or gift tax deduction has been taken, unless both income and principal are so set aside;
    3. If:
      1. Possessing or exercising the power to make an adjustment would cause an individual to be treated as the owner of all or part of the trust for federal income tax purposes; and
      2. The individual would not be treated as the owner if the trustee did not possess the power to make an adjustment;
    4. If:
      1. Possessing or exercising the power to make an adjustment would cause all or part of the trust assets to be subject to federal estate, gift, or generation-skipping transfer tax with respect to an individual; and
      2. The assets would not be subject to federal estate, gift, or generation-skipping tax with respect to the individual if the trustee did not possess the power to make an adjustment;
    5. If the trustee is a beneficiary of the trust; or
    6. If the trust has been converted under Code Section 53-12-362.
  4. If paragraph (3), (4), or (5) of subsection (c) of this Code section applies to a trustee and there is more than one trustee, a cotrustee to whom the provision does not apply may make the adjustment unless the exercise of the power by the remaining trustee is prohibited by the governing trust instrument.
    1. If paragraph (2) of this subsection applies, a trustee may release:
      1. The entire power conferred by subsection (a) of this Code section;
      2. The power to adjust from income to principal; or
      3. The power to adjust from principal to income.
    2. A release under paragraph (1) of this subsection shall be permissible if:
      1. The trustee is uncertain about whether possessing or exercising the power will cause a result described in paragraphs (1) through (6) of subsection (c) of this Code section; or
      2. 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) of this Code section.
    3. The release may be permanent or for a specified period, including a period measured by the life of an individual.
  6. A governing trust instrument which limits the power of a trustee to make an adjustment between principal and income shall not affect the application of this Code section unless it is clear from the governing trust instrument that it is intended to deny the trustee the power of adjustment conferred by subsection (a) of this Code section.

(Code 1981, §53-12-361, enacted by Ga. L. 2010, p. 579, § 1/SB 131; Ga. L. 2011, p. 752, § 53/HB 142.)

The 2011 amendment, effective May 13, 2011, part of an Act to revise, modernize, and correct the Code, in subsection (c), deleted "if" at the end of the introductory language and substituted "If the adjustment" for "The adjustment" at the beginning of paragraphs (c)(1) and (c)(2).


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