The Florida Senate

738.01  Definitions.

738.02  Duty of trustee for receipts and expenditures.

738.03  Income; principal; charges.

738.04  When right to income arises; apportionment of income.

738.05  Income earned during administration of a decedent's estate.

738.06  Corporate distributions.

738.07  Bond premium and discount.

738.08  Business and farming operations.

738.09  Disposition of natural resources.

738.10  Removal of timber, water, soil, or sod.

738.11  Other property subject to depletion.

738.12  Underproductive property.

738.13  Charges against income and principal.

738.14  Expenses; nontrust estates.

738.15  Application of this chapter.

738.01  Definitions.--As used in this chapter:

(1)  "Income beneficiary" means the person to whom income is presently payable or for whom it is accumulated for distribution as income.

(2)  "Inventory value" means the cost of property purchased by the trustee and the market value of other property at the time it became subject to the trust.

(3)  "Remainderman" means the person entitled to principal, including income that has been accumulated and added to principal.

History.--s. 1, ch. 74-106; s. 13, ch. 75-221; s. 2, ch. 77-254.

Note.--Created from former s. 690.02.

738.02  Duty of trustee for receipts and expenditures.--

(1)  A trust shall be administered with due regard to the respective interests of income beneficiaries and remaindermen. A trust is so administered with respect to the allocation of receipts and expenditures if a receipt is credited, or an expenditure is charged, to income or principal, or partly to each:

(a)  In accordance with the terms of the trust instrument, notwithstanding contrary provisions of this chapter;

(b)  In accordance with the provisions of this chapter, in the absence of any contrary terms of the trust instrument; or

(c)  If neither of the preceding rules of administration is applicable, in accordance with what is reasonable and equitable in view of:

1.  The interests of those entitled to income as well as of those entitled to principal, and

2.  The manner in which persons of ordinary prudence would act in the management of the property of another.

(2)  If the trust instrument gives the trustee discretion in crediting a receipt or charging an expenditure to income or principal, or partly to each, no inference of imprudence or partiality arises from the fact that the trustee has made an allocation contrary to a provision of this chapter.

History.--s. 1, ch. 74-106; s. 13, ch. 75-221; s. 1051, ch. 97-102.

738.03  Income; principal; charges.--

(1)  "Income" is the return in money or property derived from the use of principal, including return received as:

(a)  Rent of real or personal property, including sums received for cancellation or renewal of a lease.

(b)  Interest on money lent, including sums received as consideration for the privilege of prepayment of principal, except as provided in s. 738.07(1) on bond premium and bond discount.

(c)  Income earned during administration of a decedent's estate as provided in s. 738.05.

(d)  Corporate distributions as provided in s. 738.06.

(e)  Accrued increment on bonds or other obligations issued at discount as provided in s. 738.07(2).

(f)  Receipts from business and farming operations, as provided in s. 738.08.

(g)  Receipts from disposition of natural resources, as provided in ss. 738.09 and 738.10.

(h)  Receipts from other principal subject to depletion, as provided in s. 738.11.

(i)  Receipts from disposition of underproductive property as provided in s. 738.12.

(2)  "Principal" is the property that has been set aside by the owner or the person legally empowered so that it is held in trust eventually to be delivered to a remainderman, while the return or use of the principal is in the meantime taken or received by, or held for accumulation for, an income beneficiary. "Principal" includes:

(a)  Consideration received by the trustee on the sale or other transfer of principal, on repayment of a loan, or as a refund, replacement, or change in the form of principal.

(b)  Proceeds of property taken in eminent domain proceedings.

(c)  Proceeds of insurance upon property forming part of the principal, except proceeds of insurance upon a separate interest of an income beneficiary.

(d)  Stock dividends, receipts on liquidation of a corporation, and other corporate distributions as provided in s. 738.06.

(e)  Receipts from the disposition of corporate securities as provided in s. 738.07.

(f)  Royalties and other receipts from disposition of natural resources as provided in ss. 738.09 and 738.10.

(g)  Receipts from other principal subject to depletion, as provided in s. 738.11.

(h)  Any profit resulting from any change in the form of principal, except as provided in s. 738.12 on underproductive property.

(i)  Receipts from disposition of underproductive property, as provided in s. 738.12.

(j)  Any allowances for depreciation established under ss. 738.08 and 738.13(1)(b).

(3)  After determining income and principal in accordance with the trust instrument or this chapter, the trustee shall charge expenses and other charges to income or principal as provided in s. 738.13.

History.--s. 1, ch. 74-106; s. 14, ch. 75-221; s. 3, ch. 77-254.

Note.--Created from former s. 690.04.

738.04  When right to income arises; apportionment of income.--

(1)  An income beneficiary is entitled to income from the date specified in the trust instrument or, if none is specified, from the date an asset becomes subject to the trust. In the case of an asset becoming subject to a trust by reason of a will, it becomes subject to the trust at the date of the death of the testator even though there is an intervening period of administration of the testator's estate.

(2)  In the administration of a decedent's estate or upon an asset becoming subject to a trust by reason of a will:

(a)  Receipts due but not paid at the date of death of the testator are principal.

(b)  Receipts in the form of periodic payments, including rent, interest, or annuities, except as provided in paragraph (c) and other than corporate distributions to stockholders, distributions from mutual funds, and dividends from savings banks and savings and loan associations, not due at the date of the death of the testator shall be treated as accruing from day to day. That part of the receipt accruing before the date of death is principal and the balance is income.

(c)  Anything contained in this subsection to the contrary notwithstanding, proceeds from a qualified pension or profit-sharing plan, including, but not limited to, corporate plans, partnership and individual self-employment retirement plans, and individual retirement accounts, as those terms are used in the Internal Revenue Code of the United States as from time to time amended, which are received or paid in installments or annuity payments shall be principal, except to the extent of interest or other income earned on such proceeds after the death of the testator.

(3)  In all other cases, any receipt from an income-producing asset is income even though the receipt was earned or accrued in whole or in part before the date when the asset became subject to the trust.

(4)  On termination of an income interest, the income beneficiary whose interest is terminated, or his or her estate, is entitled to:

(a)  Income undistributed on the date of termination.

(b)  Income due but not paid to the trustee on the date of termination.

(c)  Income in the form of periodic payments, including rent, interest, or annuities, other than corporate distributions to stockholders, distributions from mutual funds, and dividends from savings banks and savings and loan associations, not due on the date of termination, accrued from day to day.

(5)  Corporate distributions to stockholders, distributions from mutual funds, and dividends from savings banks and savings and loan associations shall be treated as due on the day fixed by the corporation for determination of stockholders of record entitled to distribution or, if no date is fixed, on the date of declaration of the distribution by the corporation.

History.--s. 1, ch. 74-106; s. 14, ch. 75-221; s. 1, ch. 77-254; s. 276, ch. 79-400; s. 1052, ch. 97-102.

Note.--Created from former s. 690.05.

738.05  Income earned during administration of a decedent's estate.--

(1)  Unless the will otherwise provides, and subject to subsection (2), all expenses incurred in connection with the settlement of a decedent's estate, including debts, funeral expenses, estate and other death taxes, family allowances, fees of attorneys and personal representatives, and court costs shall be charged against the principal of the estate.

(2)  Unless the will otherwise provides, income from the assets of a decedent's estate after the death of the testator and before distribution, including income from property used to discharge liabilities, shall be determined in accordance with the rules applicable to a trustee under this chapter and distributed as follows:

(a)  To specific devisees, the income from the property bequeathed or devised to them respectively, including an appropriate portion of interest accrued since the death of the testator, and less taxes, the cost of ordinary repairs, other expenses of management and operation of the property, and taxes imposed on income, excluding taxes on capital gains, that accrue during the period of administration.

(b)  To all other devisees, except devisees of pecuniary bequests not in trust, the balance of the income, including interest accrued since the death of the testator, and less the balance of taxes, the cost of ordinary repairs, other expenses of management and operation of all property from which the estate is entitled to income, and taxes imposed on income, excluding taxes on capital gains, that accrue during the period of administration, in proportion to their respective interests in the undistributed assets of the estate computed at times of distribution on the basis of inventory value.

(3)  Income received by a trustee under paragraph (2)(b) shall be treated as income of the trust.

(4)  Unless the will otherwise provides, interest and penalties attributable to estate and other death taxes may be charged against either the principal or income of the estate in the sole discretion of the personal representative.

History.--s. 1, ch. 74-106; s. 14, ch. 75-221; s. 1, ch. 79-343.

738.06  Corporate distributions.--

(1)  Corporate distributions of shares of the distributing corporation, including distributions in the form of a stock split or stock dividend, are principal. A right to subscribe to shares or other securities issued by the distributing corporation accruing to stockholders on account of their stock ownership and the proceeds of any sale of the right are principal.

(2)  Except to the extent that the corporation indicates that some part of a corporate distribution is a settlement of preferred or guaranteed dividends accrued since the trustee became a stockholder or is, instead, a settlement of an ordinary cash dividend, a corporate distribution is principal if the distribution is pursuant to:

(a)  A call of shares.

(b)  A merger, consolidation, reorganization, or other plan by which assets of the corporation are acquired by another corporation.

(c)  A total or partial liquidation of the corporation, including any distribution which the corporation indicates is a distribution in total or partial liquidation.

(d)  Any distribution of assets pursuant to a judgment or final administrative order by a governmental agency ordering distribution of the particular assets.

(3)  Distributions made from ordinary income by a regulated investment company, or by a trust qualifying and electing to be taxed under federal law as a real estate investment trust, are income. All other distributions made by the company or trust, including distributions from capital gains, depreciation, or depletion, whether in the form of cash, an option to take new stock or cash, or an option to purchase additional shares, are principal.

(4)  Except as provided in subsections (1), (2), and (3), all corporate distributions are income, including:

(a)  Cash dividends.

(b)  Distributions of, or rights to subscribe to, shares or securities or obligations of corporations other than the distributing corporation and the proceeds of the rights or property distributions.

Except as provided in subsections (2) and (3), if the distributing corporation gives a stockholder an option to receive a distribution either in cash or in its own shares, the distribution chosen is income.

(5)  The trustee may rely upon any statement of the distributing corporation about any fact relevant under any provision of this chapter concerning the source or character of dividends or distributions of corporate assets.

History.--s. 1, ch. 74-106; s. 14, ch. 75-221; s. 230, ch. 77-104; s. 4, ch. 77-254; s. 277, ch. 79-400; s. 1, ch. 88-232.

Note.--Created from former s. 690.06.

738.07  Bond premium and discount.--

(1)  Bonds or other obligations for the payment of money are principal at their inventory value. No provision shall be made for amortization of bond premiums or for accumulation for discount. The proceeds of sale, redemption, or other disposition of the bonds or obligations are principal.

(2)  The increment in value of a bond or other obligation for the payment of money bearing no stated interest but payable at a future time in excess of the price at which it was issued or purchased, if purchased after issuance, is distributable as income. If the increment in value accrues and becomes payable pursuant to a fixed schedule of appreciation, it may be distributed to the beneficiary who was the income beneficiary at the time of increment from the first principal cash available or, if none is available, when the increment is realized by sale, redemption, or other disposition. When unrealized increment is distributed as income but out of principal, the principal shall be reimbursed for the increment when realized.

History.--s. 1, ch. 74-106; s. 14, ch. 75-221; s. 5, ch. 77-254; s. 278, ch. 79-400.

Note.--Created from former s. 690.07.

738.08  Business and farming operations.--

(1)  If a trustee uses any part of the principal in the continuance of a business of which the settlor was a sole proprietor or a partner, the net profits of the business, computed in accordance with accounting principles for a comparable business, are income. If a loss results in any fiscal or calendar year, the loss falls on principal and shall not be carried into any other fiscal or calendar year for purposes of calculating net income.

(2)  Generally accepted accounting principles shall be used to determine income from an agricultural or farming operation, including the raising of animals or the operation of a nursery.

History.--s. 1, ch. 74-106; s. 15, ch. 75-221.

Note.--Created from former ss. 690.08, 690.09.

738.09  Disposition of natural resources.--

(1)  If any part of the principal consists of a right to receive royalties, overriding or limited royalties, working interests, production payments, net profit interests, or other interests in minerals or other natural resources in, on, or under land, the receipts from taking the natural resources from the land shall be allocated as follows:

(a)  If received as rent on a lease or extension payments on a lease, the receipts are income.

(b)  If received from a production payment, the receipts are income to the extent of any factor for interest or its equivalent provided in the governing instrument. The fraction of the balance of the receipts that the unrecovered cost of the production payment bears to the balance owed on the production payment, exclusive of any factor for interest or its equivalent, shall be allocated to principal. The receipts not allocated to principal are income.

(c)  If received as a royalty, overriding or limited royalty, or bonus, or from a working, net profit, or any other interest in minerals or other natural resources, receipts not provided for in the preceding paragraphs shall be apportioned on a yearly basis in accordance with this paragraph, whether or not any natural resource was being taken from the land at the time the trust was established. There shall be added to principal as an allowance for depletion the part of the gross receipts that is allowed to the trust as a deduction for depletion in computing taxable income for federal income tax purposes. The balance of the gross receipts is income after payment of all direct and indirect expenses.

(2)  If a trustee on January 1, 1976, held an asset of depletable property of a type specified in this section, the trustee shall allocate receipts from the property in the manner used before January 1, 1976, but for all depletable property acquired after January 1, 1976, by an existing or new trust, the method of allocation provided herein shall be used.

(3)  This section does not apply to timber, water, soil, sod, dirt, turf, or mosses.

History.--s. 1, ch. 74-106; s. 16, ch. 75-221; s. 1053, ch. 97-102.

Note.--Created from former s. 690.10.

738.10  Removal of timber, water, soil, or sod.--If any part of the principal consists of land from which merchantable timber, water, soil, sod, dirt, turf, or mosses may be removed, the receipts from taking the item from the land shall be allocated in accordance with s. 738.02(1)(c).

History.--s. 1, ch. 74-106; s. 16, ch. 75-221.

738.11  Other property subject to depletion.--Except as provided in ss. 738.09 and 738.10, if the principal consists of property subject to depletion, including leaseholds, patents, copyrights, royalty rights, and rights to receive payments on a contract for deferred compensation, receipts from the property not in excess of 5 percent per year of its inventory value are income and the balance is principal.

History.--s. 1, ch. 74-106; s. 16, ch. 75-221.

Note.--Created from former s. 690.11.

738.12  Underproductive property.--

(1)(a)  If the total principal of a trust does not in any year yield a net income of at least 3 percent of its market value (including as income the value of any beneficial use of the property by the income beneficiary), the trustee shall pay to the income beneficiary an amount equal to the excess of 3 percent of the value of the principal, based upon the market value at the beginning of the calendar year, over the trust income paid to the income beneficiary in that year. This amount shall be paid to the income beneficiary using the first principal cash available.

(b)  In the event of a termination or initiation of a trust, or the termination of a beneficial income interest of a trust, for a period of less than 12 months, the amount to be paid to the income beneficiary shall be prorated proportionately with the length of the time of his or her interest in the trust and in accordance with s. 738.03.

(c)  For purposes of this subsection, a beneficiary is considered to be an income beneficiary only if the trust instrument is irrevocable and requires that the net income from the trust be paid to the beneficiary. Payment under this subsection may not be made to a beneficiary who may receive trust income only in the discretion of the trustee.

(2)  Upon the sale of the property the income beneficiary shall not be entitled to any portion of the proceeds of sale, except that any amount determined in subsection (1) that remains unpaid at the time of sale shall be paid therefrom.

History.--s. 1, ch. 74-106; s. 16, ch. 75-221; s. 6, ch. 77-254; s. 17, ch. 93-257; s. 1054, ch. 97-102; s. 10, ch. 97-240.

Note.--Created from former s. 690.12.

738.13  Charges against income and principal.--

(1)  The following charges shall be made against income:

(a)  Ordinary expenses incurred in connection with the administration, management, or preservation of the trust property, including regularly recurring taxes assessed against any part of the principal; water rates; premiums on insurance taken upon the interests of the income beneficiary, remainderman, or trustee; interest paid by the trustee, except interest or penalties on estate or other death taxes; and ordinary repairs.

(b)  Only when specifically required by the instrument, a reasonable allowance for depreciation on property subject to depreciation under accounting principles, but no allowance shall be made for depreciation of that part of any real property used by a beneficiary as a residence or for depreciation of any property held by the trustee on January 1, 1976, for which the trustee is not then making an allowance for depreciation.

(c)  One-half of court costs, attorney's fees, and fees on periodic judicial accounting, unless the court directs otherwise.

(d)  Court costs, attorney's fees, and other fees on other accountings or judicial proceedings if the matter primarily concerns the income interest, unless the court directs otherwise.

(e)  One-half of the trustee's regular compensation, whether based on a percentage of principal or income, and all expenses reasonably incurred for current management of principal and application of income.

(f)  Any tax levied upon receipts defined as income under this chapter or the trust instrument and payable by the trustee.

(2)  If charges against income are of unusual amount, the trustee may charge them over a reasonable period of time, by means of reserves or other reasonable means, and withhold from distribution sufficient sums to regularize distributions.

(3)  The following charges shall be made against principal:

(a)  Trustee's compensation not chargeable to income under paragraphs (1)(d) and (e), special compensation of trustees, expenses reasonably incurred in connection with principal, court costs and attorney's fees primarily concerning matters of principal, and trustee's compensation computed on principal as an acceptance, distribution, or termination fee.

(b)  Charges not provided for in subsection (1), including the cost of investing and reinvesting principal; the payments on principal of an indebtedness, including a mortgage amortized by periodic payments of principal; expenses for preparation of property for rental or sale; and, unless the court directs otherwise, expenses incurred in maintaining or defending any action to construe the trust, protect it or the property, or assure the title of any trust property.

(c)  Extraordinary repairs or expenses incurred in making a capital improvement to principal, including special assessments; but a trustee may establish an allowance for depreciation out of income to the extent permitted by paragraph (1)(b) and by s. 738.08.

(d)  Any tax levied upon profit, gain, or other receipts allocated to principal, notwithstanding denomination of the tax as an income tax by the taxing authority.

(e)  If an estate or inheritance tax is levied in respect of a trust in which both an income beneficiary and a remainderman have an interest, any amount apportioned to the trust, other than penalties and interest thereon, even though the income beneficiary also has rights in the principal. Unless otherwise provided in the trust instrument, any interest or penalties attributable to such estate or inheritance taxes and paid by the trust shall be charged against either the income or principal of the trust in the sole discretion of the trustee.

(4)  Regularly recurring charges payable from income shall be apportioned to the same extent and in the same manner that income is apportioned under s. 738.04.

History.--s. 1, ch. 74-106; s. 18, ch. 75-221; s. 2, ch. 79-343.

Note.--Created from former s. 690.13.

738.14  Expenses; nontrust estates.--

(1)  The provisions of s. 738.13, so far as applicable, and excepting those dealing with costs of, or assessments for, improvements to property, shall govern the apportionment of expenses between tenants and remaindermen when no trust has been created, subject to any agreement of the parties or specific direction of the taxing or other statutes, but when either tenant or remainderman has incurred an expense for the benefit of his or her own estate without the consent or agreement of the other, he or she shall pay such expense in full.

(2)  Subject to the exceptions stated in subsection (1), the cost of, or special taxes or assessments for, an improvement representing an addition of value to property forming part of the principal shall be paid by the tenant when the improvement is not reasonably expected to outlast the estate of the tenant. In all other cases a part only shall be paid by the tenant, while the remainder shall be paid by the remainderman. The part payable by the tenant shall be ascertained by taking that percentage of the total that is found by dividing the present value of the tenant's estate by the present value of an estate of the same form as that of the tenant except that it is limited for a period corresponding to the reasonably expected duration of the improvement. The computation of present values of the estates shall be made on the expectancy basis set forth in the official mortality tables, and no other evidence of duration or expectancy shall be considered.

History.--s. 1, ch. 74-106; s. 18, ch. 75-221; s. 1, ch. 77-174; s. 1055, ch. 97-102.

Note.--Created from former s. 690.14.

738.15  Application of this chapter.--Except as provided in the trust instrument, the will, or this chapter, this chapter shall apply to any receipt or expense received or incurred after January 1, 1976, by any trust or decedent's estate, whether established before or after January 1, 1976, and whether the asset involved was acquired by the trustee or personal representative before or after January 1, 1976.

History.--s. 1, ch. 74-106; s. 18, ch. 75-221.

Note.--Created from former s. 690.03.