This section applies to certain trusts that pay an annual unitrust amount of 3% to 5% of trust assets.
This section shall apply to a trust that, by its governing instrument, requires or permits the distribution, at least annually, of a unitrust amount equal to a fixed percentage of not less than three percent (3%) nor more than five percent (5%) per year of the fair market value of the trust's assets, valued at least annually, such trust to be referred to in this section as an “express total return unitrust”. The unitrust amount for an express total return unitrust may be determined by reference to the fair market value of the trust's assets in one (1) year or more than one (1) year. Distribution of such a fixed percentage unitrust amount is considered a distribution of all of the income of the express total return unitrust. An express total return unitrust may or may not provide a mechanism for changing the unitrust percentage similar to the mechanism provided under § 35-6-108, based upon the factors noted therein, and may or may not provide for a conversion from a unitrust to an income trust and/or a reconversion of an income trust to a unitrust similar to the mechanism under § 35-6-108. If an express total return unitrust does not specifically or by reference to § 35-6-108 deny a power to change the unitrust percentage or to convert to an income trust, then the trustee shall have such power and the express total return unitrust shall be deemed to be a “total return unitrust” within the meaning of § 35-6-108 for purposes of applying § 35-6-108 to the trust. The distribution of a fixed percentage of not less than three percent (3%) nor more than five percent (5%) reasonably apportions the total return of an express total return unitrust. The trust instrument may grant discretion to the trustee to adopt a consistent practice of treating capital gains as part of the unitrust distribution, to the extent that the unitrust distribution exceeds the net accounting income, or it may specify the ordering of such classes of income. Unless the terms of the trust specifically provide otherwise, a distribution of the unitrust amount from an express total return unitrust shall be considered to have been made from the following sources in order of priority: From net accounting income determined as if the trust were not a unitrust; From ordinary income not allocable to net accounting income; After calculating the trust's capital gain net income as described in 26 U.S.C. § 1222(9), from net realized short-term capital gain as described in 26 U.S.C. § 1222(5) and then from net realized long-term capital gain described in 26 U.S.C. § 1222(7); and From the principal of the trust. The trust instrument may provide that assets: For which a fair market value cannot be readily ascertained shall be valued using such valuation methods as are deemed reasonable and appropriate; and Used by a trust beneficiary, such as a residence property or tangible personal property, may be excluded from the net fair market value for computing the unitrust amount. In this section, “Internal Revenue Code” refers to the Internal Revenue Code of 1986 (U.S.C. title 26), and any references to a section thereof shall include any successor, substituted, or amended section of the Internal Revenue Code.