Bill > HB206

This bill amends the Alabama Principal and Income Act, specifically Section 19-3A-104, to grant trustees more flexibility in managing trust assets by allowing them to adjust between principal and income under certain conditions. Previously, a trustee needed explicit authorization in the trust document to make such adjustments, but this bill simplifies that by permitting a trustee to make these adjustments if they manage assets prudently, the trust specifies distributions based on income, and the trustee determines they cannot comply with other distribution rules. The bill also outlines numerous factors a trustee must consider when deciding to make an adjustment, such as the trust's purpose, beneficiaries' needs, and the nature of trust assets, while also establishing specific limitations to prevent certain tax consequences or to protect specific types of trust arrangements like marital deduction trusts or charitable trusts. Additionally, it clarifies that trust terms limiting a trustee's power to adjust will only apply if the intent to deny this power is clear, and it allows trustees to release this adjustment power if they are uncertain about its implications or tax effects. This change aims to provide trustees with better tools to balance the interests of income beneficiaries and remainder beneficiaries, especially in fluctuating economic conditions, and will take effect on October 1, 2026.

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