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Delaware Laws | Title 12 Decedents' Estates and Fiduciary Relations
Subchapter IV. Allocation of Receipts During Administration of Trust

(77 Del. Laws, c. 99, Sec. 1.) (7662)

Sec. 61-414. Derivatives and options. (7663)(Text)

(a) In this section, "derivative" means a contract or financial instrument or a combination of contracts and financial instruments which gives a trust the right or obligation to participate in some or all changes in the price of a tangible or intangible asset or group of assets, or changes in a rate, an index of prices or rates, or other market indicator for an asset or a group of assets. (7664)

(b) To the extent that a trustee does not account under Sec. 61-403 of this title for transactions in derivatives, the trustee shall allocate to principal receipts from and disbursements made in connection with those transactions. (7665)

(c) If a trustee grants an option to buy property from the trust, whether or not the trust owns the property when the option is granted, grants an option that permits another person to sell property to the trust, or acquires an option to buy property for the trust or an option to sell an asset owned by the trust, and the trustee or other owner of the asset is required to deliver the asset if the option is exercised, an amount received for granting the option must be allocated to principal. An amount paid to acquire the option must be paid from principal. A gain or loss realized upon the exercise of an option, including an option granted to a settlor of the trust for services rendered, must be allocated to principal. (7666)

(77 Del. Laws, c. 99, Sec. 1.) (7667)

Sec. 61-415. Asset-backed securities. (7668)(Text)

(a) In this section, "asset-backed security" means an asset whose value is based upon the right it gives the owner to receive distributions from the proceeds of financial assets that provide collateral for the security. The term includes an asset that gives the owner the right to receive from the collateral financial assets only the interest or other current return or only the proceeds other than interest or current return. The term does not include an asset to which Sec. 61-401 or Sec. 61-409 of this title applies. (7669)

(b) If a trust receives a payment from interest or other current return and from other proceeds of the collateral financial assets, the trustee shall allocate to income the portion of the payment which the payer identifies as being from interest or other current return and shall allocate the balance of the payment to principal. (7670)

(c) If a trust receives 1 or more payments in exchange for the trust's entire interest in an asset-backed security in 1 accounting period, the trustee shall allocate the payments to principal. If a payment is one of a series of payments that will result in the liquidation of the trust's interest in the security over more than one accounting period, the trustee shall allocate 5 percent of the payment to income and the balance to principal. (7671)

(77 Del. Laws, c. 99, Sec. 1.) (7672)

(a) In this section, "entity" means a corporation, partnership, limited liability company, regulated investment company, real estate investment trust, common trust fund, statutory trust or any other organization in which a trustee has an interest other than a trust or estate to which Sec. 61-402 of this title applies, a business or activity to which Sec. 61-403 of this title applies, or an asset-backed security to which Sec. 61-415 of this title applies. (7673)

(b) Except as otherwise provided in this section, a trustee shall allocate to income money received from an entity. (7674)

(c) A trustee shall allocate the following receipts from an entity to principal: (7675)

(1) Property other than money; provided that if a trustee receives an option to receive a distribution in the form of money or in the form of property and elects to receive the distribution in the form of property, such distribution shall be deemed to be a distribution of money; (7676)

(2) Money received in one distribution or a series of related distributions in exchange for part or all of a trust's interest in the entity; (7677)

(3) Money received in total or partial liquidation of the entity; and (7678)

(4) Money received from an entity that is a regulated investment company or a real estate investment trust if the money distributed is a capital gain dividend for federal income tax purposes. (7679)

(d) Money is received in partial liquidation: (7680)

(1) Subject to subsection (f) of this section, to the extent that the entity, at or near the time of a distribution, indicates that it is a distribution in partial liquidation; or (7681)

(2) If the total amount of money and property received in a distribution or series of related distributions is greater than 20 percent of the entity's gross assets, as shown by the entity's year-end financial statements immediately preceding the initial receipt. (7682)

(e) Money is not received in partial liquidation, nor may it be taken into account under paragraph (d)(2) of this section, to the extent that it does not exceed the amount of income tax that a trustee or beneficiary must pay on taxable income of the entity that distributes the money. (7683)

(f) A trustee may rely upon a statement made by an entity about the source or character of a distribution if the statement is made at or near the time of distribution by the entity's board of directors or other person or group of persons authorized to exercise powers to pay money or transfer property comparable to those of a corporation's board of directors. (7684)

(77 Del. Laws, c. 99, Sec. 1.) (7685)

A trustee shall allocate to income an amount received as a distribution of income from a trust or an estate in which the trust has an interest other than a purchased interest, and shall allocate to principal an amount received as a distribution of principal from such a trust or estate. If a trustee purchases an interest in a trust that is an investment entity, or a decedent or donor transfers an interest in such a trust to a trustee, Sec. 61-401 or Sec. 61-415 of this title applies to a receipt from the trust. (7686)

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