(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
that arise from:
(1) Elections and decisions, other than those described in subsection (b), 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;
(3) 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) If the amount of an estate tax marital deduction or charitable contributions deduction
is reduced because a fiduciary deducts an amount that is 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 contributions 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.
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