Vermont § 3376 - Adjustments between principal and income because of taxes

§ 3376. Adjustments between principal and income because of taxes

• (a) A fiduciary may make adjustments between principal and income to offset the shifting
  of economic interests or tax benefits between income beneficiaries and remainder beneficiaries
  which arise from: (1) elections and decisions, other than those described in subsection (b) of this section,
  that the fiduciary makes from time to time regarding tax matters; (2) an income tax or any other tax that is imposed upon the fiduciary or a beneficiary
  as a result of a transaction involving or a distribution from the estate or trust;
  or (3) subject to subsection (b) of this section, the ownership by an estate or trust of
  an interest in an entity whose taxable income, whether or not distributed, is includable
  in the taxable income of the estate, trust, or a beneficiary. (b) A trustee shall make an adjustment from principal to income to compensate an income
  beneficiary for taxes paid or payable by the income beneficiary in respect of the
  taxable income of an entity that is taxable to the income beneficiary but that is
  distributed to the trustee and allocated to principal. (c) If the amount of an estate tax marital deduction or charitable contribution deduction
  is reduced because a fiduciary deducts an amount paid from principal for income tax
  purposes instead of deducting it for estate tax purposes, and as a result estate taxes
  paid from principal are increased and income taxes paid by an estate, trust, or beneficiary
  are decreased, each estate, trust, or beneficiary that benefits from the decrease
  in income tax shall reimburse the principal from which the increase in estate tax
  is paid. The total reimbursement shall equal the increase in the estate tax to the
  extent that the principal used to pay the increase would have qualified for a marital
  deduction or charitable contribution deduction but for the payment. The proportionate
  share of the reimbursement for each estate, trust, or beneficiary whose income taxes
  are reduced shall be the same as its proportionate share of the total decrease in
  income tax. An estate or trust shall reimburse principal from income. (Added 2011, No. 114 (Adj. Sess.), § 1.)