The Trust Principal and Income Act is a set of statutes in several jurisdictions, including Texas, that provide guidelines on how to allocate income and principal among beneficiaries of a trust.
This act is essential for trustees to determine what constitutes income (such as interest, dividends, and rental income) and what constitutes principal (such as the original assets placed in the trust and any appreciation in value). Clear rules are established to ensure that beneficiaries receive their fair share according to the trust’s terms.
In Texas, the Trust Principal and Income Act is codified in the Texas Trust Code and focuses primarily on the duties of trustees in the management of trust assets. For example, the act states that a trustee must allocate receipts and disbursements between income and principal according to the trust document, or in the absence of specific instructions, according to statutory provisions.
An example of this would be if a trust holds a rental property. The rental income generated would typically be classified as income, while any proceeds from the sale of the property would be treated as principal. This distinction is critical because it affects how much money beneficiaries receive, particularly in cases where beneficiaries are entitled to only income during their lifetime, with the principal passing to others upon their death.
By adhering to the Trust Principal and Income Act, trustees in Houston and throughout Texas can ensure compliance with legal standards and the trust’s intentions, ultimately promoting fairness and transparency among beneficiaries.
« Back to Glossary Index