Uniform Principal & Income Act

Repeals the revised uniform principal and income act (chapter
557, HRS) and establishes a new uniform principal and income act.

THE SENATE                              S.B. NO.           2536
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The Hawaii Revised Statutes is amended by adding
 2 a new chapter to be appropriately designated and to read as
 3 follows:
 4                             "CHAPTER
 6                             ARTICLE 1
 8       -101  Short title.  This chapter may be cited as the
 9 Uniform Principal and Income Act.
10       -102  Definitions.  In this chapter, unless the context
11 otherwise requires:
12      "Accounting period" means a calendar year unless another
13 twelve-month period is selected by a fiduciary.  The term
14 includes a portion of a calendar year or other twelve-month
15 period that begins when an income interest begins, or ends when
16 an income interest ends.
17      "Beneficiary" includes, in the case of a decedent's estate,
18 an heir and devisee and, in the case of a trust, an income
19 beneficiary and a remainder beneficiary.

Page 2                                                     
                                     S.B. NO.           2536

 1      "Fiduciary" means a personal representative or a trustee.
 2 The term includes an executor, administrator, successor personal
 3 representative, special administrator, and a person performing
 4 substantially the same function.
 5      "Income" means money or property a fiduciary receives as the
 6 current return from a principal asset.  The term includes a
 7 portion of the receipts from a sale, exchange, or liquidation of
 8 a principal asset, to the extent provided in article 4.
 9      "Income beneficiary" means a person to whom a trust's net
10 income is or may be payable.
11      "Income interest" means an income beneficiary's right to
12 receive all or part of the net income, whether the terms of the
13 trust require it to be distributed or authorize it to be
14 distributed in the trustee's discretion.
15      "Mandatory income interest" means an income beneficiary's
16 right to receive net income that the terms of the trust require
17 the fiduciary to distribute.
18      "Net income" means the total receipts allocated to income
19 during an accounting period minus the disbursements made from
20 income during the period.  In this definition, receipts and
21 disbursements include items transferred to or from income during
22 the period under this chapter.
23      "Person" means an individual, corporation, business trust,

Page 3                                                     
                                     S.B. NO.           2536

 1 estate, trust, partnership, limited liability company,
 2 association, joint venture, or any other legal or commercial
 3 entity.  The term does not include a government or governmental
 4 subdivision, agency, or instrumentality.
 5      "Principal" means property held in trust for distribution to
 6 a remainder beneficiary when the trust terminates.
 7      "Remainder beneficiary" means a person, including another
 8 trust, entitled to receive principal when an income interest
 9 ends.
10      "Terms of a trust" means the manifestation of the intent of
11 a settlor or decedent with respect to the trust, expressed in a
12 manner that admits of its proof in a judicial proceeding, whether
13 by written or spoken words or by conduct.
14      "Trustee" includes an original, additional, or successor
15 trustee, whether or not appointed or confirmed by a court.
16       -103  Fiduciary duties; general principles.(a)  In
17 allocating receipts and disbursements to or between principal and
18 income, and in any matter within the scope of articles 2 and 3, a
19 fiduciary:
20      (1)  Shall administer a trust or estate in accordance with
21           the terms of the trust or the will, even if there is a
22           different provision in this chapter;
23      (2)  May administer a trust or estate by the exercise of a

Page 4                                                     
                                     S.B. NO.           2536

 1           discretionary power of administration given to the
 2           fiduciary by the terms of the trust or the will, even
 3           if the exercise of the power produces a result
 4           different from a result required or permitted by this
 5           chapter, and no inference that the fiduciary has
 6           improperly exercised the discretion arises from the
 7           fact that the fiduciary has made an alteration contrary
 8           to the provisions of this chapter;
 9      (3)  Shall administer a trust or estate in accordance with
10           this chapter if the terms of the trust or the will do
11           not contain a different provision or do not give the
12           fiduciary a discretionary power of administration; and
13      (4)  Shall add a receipt or charge a disbursement to
14           principal to the extent that the terms of the trust and
15           this chapter do not provide a rule for allocating the
16           receipt or disbursement to or between principal and
17           income.
18      (b)  In exercising the power to adjust granted by section
19    -104(a), or a discretionary power of administration regarding
20 a matter within the scope of this chapter, whether granted by the
21 terms of a trust, a will, or this chapter, a fiduciary shall
22 administer a trust or estate impartially, based on what is fair
23 and reasonable to all of the beneficiaries, except to the extent

Page 5                                                     
                                     S.B. NO.           2536

 1 that the terms of the trust or the will clearly manifest an
 2 intention that the fiduciary shall or may favor one or more of
 3 the beneficiaries.  The exercise of discretion in accordance with
 4 this chapter is presumed to be fair and reasonable to all of the
 5 beneficiaries.
 6         -104  Trustee's power to adjust.(a)  Subject to
 7 subsection    -104(b), a trustee may adjust between principal and
 8 income to the extent the trustee considers necessary if all of
 9 the following conditions are satisfied:
10      (1)  The trustee invests and manages trust assets as a
11           prudent investor;
12      (2)  The terms of the trust describe the amount that may or
13           must be distributed to a beneficiary by referring to
14           the trust's income; and
15      (3)  The trustee determines, after applying the rules in
16           section    -103(a), and considering any power the
17           trustee may have under the trust to invade principal or
18           accumulate income, either of the following conditions
19           exits:
20           (A)  The trustee is unable to administer a trust or
21                estate impartially based on what is fair and
22                reasonable to all beneficiaries if no clear
23                intention to favor one or more beneficiaries is

Page 6                                                     
                                     S.B. NO.           2536

 1                manifested in the will or trust; or
 2           (B)  In the case of a will or trust that clearly
 3                manifests an intent to favor one or more
 4                beneficiaries, the trustee is unable to favor such
 5                beneficiaries without diminishing the rights of
 6                other beneficiaries.
 7      (b)  In deciding whether and to what extent to exercise the
 8 power conferred by subsection (a), a trustee shall consider all
 9 of the factors relevant to the trust and its beneficiaries,
10 including the following factors to the extent they are relevant:
11      (1)  The nature, purpose, and expected duration of the
12           trust;
13      (2)  The intent of the settlor;
14      (3)  The identity and circumstances of the beneficiaries;
15      (4)  The needs for liquidity, regularity of income, and
16           preservation and appreciation of capital;
17      (5)  The assets held in the trust; the extent to which they
18           consist of financial assets, interests in closely held
19           enterprises, tangible and intangible personal property,
20           or real property; the extent to which an asset is used
21           by a beneficiary; and whether an asset was purchased by
22           the trustee or received from the settlor;
23      (6)  The net amount allocated to income under the other

Page 7                                                     
                                     S.B. NO.           2536

 1           sections of this chapter and the increase or decrease
 2           in the value of the principal assets, which the trustee
 3           may estimate as to assets for which market values are
 4           not readily available;
 5      (7)  Whether and to what extent the terms of the trust give
 6           the trustee the power to invade principal or accumulate
 7           income or prohibit the trustee from invading principal
 8           or accumulating income, and the extent to which the
 9           trustee has exercised a power from time to time to
10           invade principal or accumulate income;
11      (8)  The actual and anticipated effect of economic
12           conditions on principal and income and effects of
13           inflation and deflation; and
14      (9)  The anticipated tax consequences of an adjustment.
15      (c)  A trustee may not make an adjustment:
16      (1)  That diminishes the income interest in a trust that
17           requires all of the income to be paid at least annually
18           to a surviving spouse and for which an estate tax or
19           gift tax marital deduction would be allowed, in whole
20           or in part, if the trustee did not have the power to
21           make the adjustment;
22      (2)  That reduces the actuarial value of the income interest
23           in a trust to which a person transfers property with

Page 8                                                     
                                     S.B. NO.           2536

 1           the intent to qualify for a gift tax exclusion;
 2      (3)  That changes the amount payable to a beneficiary as a
 3           fixed annuity or a fixed fraction of the value of the
 4           trust's assets;
 5      (4)  From any amount that is permanently set aside for
 6           charitable purposes under a will or the terms of a
 7           trust unless both income and principal are so set
 8           aside; provided that a trustee may transfer income to
 9           principal only upon a court order;
10      (5)  If possessing or exercising the power to make an
11           adjustment may cause an individual to be treated as the
12           owner of all or part of the trust for income tax
13           purposes, and the trustee would not be treated as the
14           owner if the individual did not possess the power to
15           make an adjustment;
16      (6)  If possessing or exercising the power to make an
17           adjustment causes all or part of the trust assets to be
18           included for estate tax purposes in the estate of an
19           individual who has the power to remove a trustee or
20           appoint a trustee, or both, and the assets would not be
21           included in the estate of the individual if the trustee
22           did not have the power to make an adjustment; or
23      (7)  If the trustee is a beneficiary of the trust.

Page 9                                                     
                                     S.B. NO.           2536

 1      (d)  If subsection (c)(5), (6), (7), or (8) applies to a
 2 trustee and there is more than one trustee, a co-trustee to whom
 3 the provision does not apply may make the adjustment unless the
 4 exercise of the power by the remaining trustee or trustees is
 5 clearly not permitted by the terms of the trust.
 6      (e)  A trustee may release the entire power conferred by
 7 subsection (a) or may release only the power to adjust from
 8 income to principal or the power to adjust from principal to
 9 income if the trustee is uncertain about whether possessing or
10 exercising the power will cause a result described in subsection
11 (c)(1) through (6) or (8) or if the trustee determines that
12 possessing or exercising the power will or may deprive the trust
13 of a tax benefit or impose a tax burden not described in
14 subsection (c).  The release may be permanent or for a specified
15 period, including a period measured by the life of an individual.
16      (f)  Terms of a trust that limit the power of a trustee to
17 make an adjustment between principal and income are not contrary
18 to this section unless it is clear from the terms of the trust
19 that the terms are intended to deny the trustee the power of
20 adjustment conferred by subsection (a).
21      (g)  Nothing in this section or in this chapter is intended
22 to create or imply a duty to make an adjustment, and the trustee
23 is not liable for not considering whether to make an adjustment

Page 10                                                    
                                     S.B. NO.           2536

 1 or for choosing not to make an adjustment.
 2         -105  Notice of proposed action.(a)  A trustee may
 3 give a notice of proposed action regarding a matter governed by
 4 the chapter as provided in this section.  For the purpose of this
 5 section, a proposed action includes a course of action and a
 6 decision not to take action.
 7      (b)  The trustee shall mail notice of the proposed action to
 8 all adult beneficiaries who are receiving, or are entitled to
 9 receive, income under this trust or to receive a distribution of
10 principal if the trust were terminated at the time the notice is
11 given.
12      (c)  Notice of proposed action need not be given to any
13 person who consents in writing to the proposed action.  The
14 consent may be executed at any time before or after the proposed
15 action is taken.
16      (d)  The notice of proposed action shall state that it is
17 given pursuant to this section and shall state all of the
18 following:
19      (1)  The name and mailing address of the trustee;
20      (2)  The name and telephone number of a person who may be
21           contacted for additional information;
22      (3)  A description of the action proposed to be taken and an
23           explanation of the reasons for the action;

Page 11                                                    
                                     S.B. NO.           2536

 1      (4)  The time within which objections to the proposed action
 2           can be made, which shall be at least thirty days from
 3           the mailing of the notice of proposed action; and
 4      (5)  The date on or after which the proposed action may be
 5           taken or is effective.
 6      (e)  A beneficiary may object to the proposed action by
 7 mailing a written objection to the trustee at the address stated
 8 in the notice of proposed action within the time period specified
 9 in the notice of proposed action.
10      (f)  A trustee is not liable to a beneficiary for an action
11 regarding a matter governed by this chapter if the trustee does
12 not receive a written objection to the proposed action from the
13 beneficiary within the applicable period and the other
14 requirements of this section are satisfied.  If no beneficiary
15 entitle to notice objects under this section, the trustee is not
16 liable to any current or future beneficiary with respect to the
17 proposed action.
18      (g)  If the trustee receives a written objection within the
19 applicable period, either the trustee or a beneficiary may
20 petition the court to have the proposed action taken as proposed,
21 taken with modifications, or denied.  In the proceeding, a
22 beneficiary objecting to the proposed action has the burden of
23 proving that the trustee's proposed action should not be taken.

Page 12                                                    
                                     S.B. NO.           2536

 1 A beneficiary who has not objected is not estopped from opposing
 2 the proposed action in the proceeding.  If the trustee decides
 3 not to implement the proposed action, the trustee shall notify
 4 the beneficiaries of the decision not to take the action and the
 5 reasons for the decision, and the trustee's decision not to
 6 implement the proposed action does not itself give rise to
 7 liability to any current or future beneficiary.  A beneficiary
 8 may petition the court to have the action taken, and has the
 9 burden of proving that it should be taken.
10         -106  Proceedings regarding trustee's power to adjust.
11 In a proceeding with respect to a trustee's exercise or
12 nonexercise of the power to make an adjustment under section
13    -104, the sole remedy is to direct, deny, or revise an
14 adjustment between principal and income.
15                             ARTICLE 2
17         -201  Determination and distribution of net income.
18 After a decedent dies, in the case of an estate, or after an
19 income interest in a trust ends, the following rules apply:
20      (1)  A fiduciary of an estate or a terminating income
21           interest shall determine the amount of net income and
22           net principal receipts received from property
23           specifically given to a beneficiary under the rules in

Page 13                                                    
                                     S.B. NO.           2536

 1           articles 3 through 5 which apply to trustees and the
 2           rules in paragraph (5).  The fiduciary shall distribute
 3           the net income and net principal receipts to the
 4           beneficiary who is to receive the specific property.
 5      (2)  A fiduciary shall determine the remaining net income of
 6           a decedent's estate or a terminating income interest
 7           under the rules in articles 3 through 5 which apply to
 8           trustees and by:
 9           (A)  Including in net income all income from property
10                used to discharge liabilities;
11           (B)  Paying from income or principal, in the
12                fiduciary's discretion, fees of attorneys,
13                accountants, and fiduciaries; court costs and
14                other expenses of administration; and interest on
15                death taxes, but the fiduciary may pay those
16                expenses from income of property passing to a
17                trust for which the fiduciary claims an estate tax
18                marital or charitable deduction only to the extent
19                that the payment of those expenses from income
20                will not cause the loss of the deduction; and
21           (C)  Paying from principal all other disbursements made
22                or incurred in connection with the settlement of a
23                decedent's estate or the winding up of a

Page 14                                                    
                                     S.B. NO.           2536

 1                terminating income interest, including debts,
 2                funeral expenses, disposition of remains, family
 3                allowances, and death taxes and related penalties
 4                that are apportioned to the estate or terminating
 5                income interest by the will, the terms of the
 6                trust, or applicable law.
 7      (3)  A fiduciary shall distribute to a beneficiary who
 8           receives a pecuniary amount outright the interest or
 9           any other amount, provided by the will, the terms of
10           the trust, or applicable law, from net income
11           determined under paragraph (2) or from principal to the
12           extent that net income is insufficient.  If a
13           beneficiary is to receive a pecuniary amount outright
14           from a trust after an income interest ends and no
15           interest or other amount is provided for by the terms
16           of the trust or applicable law, the fiduciary shall
17           distribute the interest or other amount to which the
18           beneficiary would be entitled under applicable law if
19           the pecuniary amount were required to be paid under a
20           will.
21      (4)  A fiduciary shall distribute the net income remaining
22           after distributions required by paragraph (3) in the
23           manner described in section    -202 to all other

Page 15                                                    
                                     S.B. NO.           2536

 1           beneficiaries, including a beneficiary who receives a
 2           pecuniary amount in trust, even if the beneficiary
 3           holds an unqualified power to withdraw assets from the
 4           trust or other presently exercisable general power of
 5           appointment over the trust.
 6      (5)  A fiduciary may not reduce principal or income receipts
 7           from property described in paragraph (1) because of a
 8           payment described in section    -501 or    -502 to the
 9           extent that the will, the terms of the trust, or
10           applicable law requires the fiduciary to make the
11           payment from assets other than the property or to the
12           extent that the fiduciary recovers or expects to
13           recover the payment from a third party.  The property's
14           net income and principal receipts are determined by
15           including all of the amounts the fiduciary receives or
16           pays with respect to the property, whether those
17           amounts accrued or became due before, on, or after the
18           date of a decedent's death or an income interest's
19           terminating event, and by making a reasonable provision
20           for amounts that the fiduciary believes the estate or
21           terminating income interest may become obligated to pay
22           after the property is distributed.
23         -202  Distribution to residuary and remainder



Page 16                                                    
                                     S.B. NO.           2536

 1 beneficiaries.(a)  Each beneficiary described in section
 2    -201(4) is entitled to receive a portion of the net income
 3 equal to the beneficiary's fractional interest in undistributed
 4 principal assets, using values as of the distribution date.  If a
 5 fiduciary makes more than one distribution of assets to
 6 beneficiaries to whom this section applies, each beneficiary,
 7 including one who does not receive part of the distribution, is
 8 entitled, as of each distribution date, to the net income the
 9 fiduciary has received after the date of death or terminating
10 event or earlier distribution date but has not distributed as of
11 the current distribution date.
12      (b)  In determining a beneficiary's share of net income, the
13 following rules apply:
14      (1)  The beneficiary is entitled to receive a portion of the
15           net income equal to the beneficiary's fractional
16           interest in the undistributed principal assets
17           immediately before the distribution date, including
18           assets that later may be sold to meet principal
19           obligations;
20      (2)  The beneficiary's fractional interest in the
21           undistributed principal assets must be calculated
22           without regard to property specifically given to a
23           beneficiary and property required to pay pecuniary

Page 17                                                    
                                     S.B. NO.           2536

 1           amounts not in trust;
 2      (3)  The beneficiary's fractional interest in the
 3           undistributed principal assets must be calculated on
 4           the basis of the aggregate value of those assets as of
 5           the distribution date without reducing the value by any
 6           unpaid principal obligation; and
 7      (4)  The distribution date for purposes of this section may
 8           be the date as of which the fiduciary calculates the
 9           value of the assets if that date is reasonably near the
10           date on which assets are actually distributed.
11      (c)  The rules in this section apply to net gain or loss
12 realized after the date of death or terminating event or earlier
13 distribution date from the disposition of a principal asset if
14 this section applies to the income from the asset.
15      (d)  If a fiduciary does not distribute all of the collected
16 but undistributed net income or gain to each person as of a
17 distribution date, the fiduciary shall maintain appropriate
18 records showing the interest of each beneficiary in that net
19 income or gain.
20                             ARTICLE 3
22         -301  When right to income begins and ends.(a)  An
23 income beneficiary is entitled to net income from the date on

Page 18                                                    
                                     S.B. NO.           2536

 1 which the income interest begins.  An income interest begins on
 2 the date specified in the terms of the trust or, if no date is
 3 specified, on the date an asset becomes subject to a trust or
 4 successive income interest.
 5      (b)  An asset becomes subject to a trust:
 6      (1)  On the date it is transferred to the trust in the case
 7           of an asset that is transferred to a trust during the
 8           transferor's life;
 9      (2)  On the date of a testator's death in the case of an
10           asset that becomes subject to a trust by reason of a
11           will, even if there is an intervening period of
12           administration of the testator's estate; or
13      (3)  On the date of an individual's death in the case of an
14           asset that is transferred to a fiduciary by a third
15           party because of the individual's death.
16      (c)  An asset becomes subject to a successive income
17 interest on the day after the preceding income interest ends, as
18 determined under subsection (d), even if there is an intervening
19 period of administration to wind up the preceding income
20 interest.
21      (d)  An income interest ends on the day before an income
22 beneficiary dies or another terminating event occurs.  For
23 purposes of this chapter, an income interest also ends on the

Page 19                                                    
                                     S.B. NO.           2536

 1 last day of a period during which there is no beneficiary to whom
 2 a trustee may distribute income.
 3         -302  Apportionment of receipts and disbursements when
 4 decedent dies or income interest begins.(a)  An income receipt
 5 or disbursement other than one to which section    -201(1)
 6 applies must be allocated to principal if its due date occurs
 7 before a decedent dies in the case of an estate or before an
 8 income interest begins in the case of a trust or successive
 9 income interest.
10      (b)  An income receipt or disbursement must be allocated to
11 income if its due date occurs on or after the date on which a
12 decedent dies or an income interest begins and it is a periodic
13 due date.  An income receipt or disbursement must be treated as
14 accruing from day to day if its due date is not periodic or it
15 has no due date.  The portion of the receipt or disbursement
16 accruing before the date on which a decedent dies or an income
17 interest begins must be allocated to principal and the balance
18 must be allocated to income.
19      (c)  An item of income or an obligation is due on the date
20 on which the payor is required to make a payment.  If there is no
21 stated payment date, there is no due date for the purposes of
22 this chapter.  Distributions to shareholders or other owners from
23 an entity to which section    -401 applies are deemed to be due

Page 20                                                    
                                     S.B. NO.           2536

 1 on the date fixed by the entity for determining who is entitled
 2 to receive the distribution or, if no date is fixed, on the
 3 declaration date for the distribution.  A due date is periodic
 4 for receipts or disbursements that shall be paid at regular
 5 intervals under a lease or an obligation to pay interest or if an
 6 entity customarily makes distributions at regular intervals.             
 7         -303  Apportionment when income interest ends.(a)  In
 8 this section, "undistributed income" means net income received
 9 before the date on which an income interest ends.  The term does
10 not include an item of income or expense that is due or accrued
11 or net income that has been added or is required to be added to
12 principal pursuant to the terms of the trust.
13      (b)  When a mandatory income interest ends, the trustee
14 shall pay to a mandatory income beneficiary who survives that
15 date, or the estate of a deceased mandatory income beneficiary
16 whose death causes the interest to end, the beneficiary's share
17 of the undistributed income that is not disposed of pursuant to
18 the terms of the trust unless the beneficiary has an unqualified
19 power to revoke more than five per cent of the trust immediately
20 before the income interest ends.  In the latter case, the
21 undistributed income from the portion of the trust that may be
22 revoked shall be added to principal.
23      (c)  When a trustee's obligation to pay a fixed annuity or a

Page 21                                                    
                                     S.B. NO.           2536

 1 fixed fraction of the value of the trust's assets ends, the
 2 trustee shall prorate the final payment if and to the extent
 3 required by applicable law to accomplish a purpose of the trust
 4 or its settlor relating to income, gift, estate, or other tax
 5 requirements.
 6                             ARTICLE 4
 8                  PART I.  RECEIPTS FROM ENTITIES
 9         -401  Character of receipts.(a)  In this section,
10 "entity" means a corporation, partnership, joint venture, limited
11 liability company, regulated investment company, real estate
12 investment trust, common trust fund, and any other organization
13 in which a trustee has an interest other than a trust or estate
14 to which section    -402 applies or a business or activity to
15 which section    -403 applies, or an asset backed security to
16 which section    -415 applies.
17      (b)  Except as otherwise provided in this section, money
18 received by a trustee from an entity must be allocated to income.
19      (c)  Receipts from an entity which must be allocated to
20 principal include:
21      (1)  Property other than money;
22      (2)  Money received in one distribution or a series of
23           related distributions in exchange for part or all of a

Page 22                                                    
                                     S.B. NO.           2536

 1           trust's interest in the entity;
 2      (3)  Money received in total or partial liquidation of the
 3           entity; and
 4      (4)  Money received from an entity that is a regulated
 5           investment company or a real estate investment trust if
 6           the money distributed is a capital gain dividend for
 7           federal income tax purposes.
 8      (d)  Money is received in partial liquidation:
 9      (1)  To the extent that the entity, at or near the time of a
10           distribution, indicates that it is a distribution in
11           partial liquidation; or
12      (2)  If the total amount of money or property received in a
13           distribution or series of related distributions is
14           greater than twenty per cent of the entity's gross
15           assets, as shown by the entity's year-end financial
16           statements immediately preceding the initial receipt.
17      (e)  Money is not received in partial liquidation, nor shall
18 it be taken into account under subsection (d)(2), to the extent
19 that it does not exceed the amount of income tax that a trustee
20 or beneficiary is required to pay on taxable income of the entity
21 that distributes the money.
22      (f)  A trustee may rely upon a statement made by an entity
23 about the source or character of a distribution if the statement

Page 23                                                    
                                     S.B. NO.           2536

 1 is made at or near the time of distribution by the entity's board
 2 of directors or other person or group of persons authorized to
 3 exercise powers to pay money or transfer property comparable to
 4 those of a corporation's board of directors.
 5         -402  Distribution from trust or estate.  Subject to the
 6 terms of a recipient trust, an amount received as a distribution
 7 of income from a trust or an estate in which the trust has an
 8 interest other than a purchased interest must be allocated to
 9 income.  An amount received as a distribution of principal from
10 such a trust or estate must be allocated to principal.  If a
11 trustee purchases an interest in a trust that is an investment
12 entity, or a decedent or donor transfers an interest in such a
13 trust to a trustee, section    -401 or    -415 applies to a
14 receipt from the trust.
15         -403  Business and other activities conducted by
16 trustee.(a)  If a trustee who conducts a business or other
17 activity determines that it is in the best interest of all the
18 beneficiaries to account separately for the business or activity
19 instead of accounting for it as part of the trust's general
20 accounting records, the trustee may maintain separate accounting
21 records for its transactions, whether or not its assets are
22 segregated from other trust assets.
23      (b)  A trustee who accounts separately for a business or

Page 24                                                    
                                     S.B. NO.           2536

 1 other activity may determine the extent to which its net cash
 2 receipts must be retained for working capital, the acquisition or
 3 replacement of fixed assets, or other reasonably foreseeable
 4 needs of the business or activity, and the extent to which the
 5 remaining net cash receipts are accounted for as principal or
 6 income in the trust's general accounting records.  If a trustee
 7 sells assets of the business or other activity, other than in the
 8 ordinary course of the business or activity, the trustee shall
 9 account for the net amount received as principal in the trust's
10 general accounting records to the extent the trustee determines
11 that the amount received is no longer required in the conduct of
12 the business.
13      (c)  Activities for which the trustee may maintain separate
14 accounting records include:
15      (1)  Retail, manufacturing, service, and other traditional
16           business activities;
17      (2)  Farming;
18      (3)  Raising and selling livestock and other animals;
19      (4)  Management of rental properties;
20      (5)  Extraction of minerals and other natural resources;
21      (6)  Timber operations; and
22      (7)  Activities to which section    -415 applies.

Page 25                                                    
                                     S.B. NO.           2536

 1         -404  Principal receipts.  The following must be
 2 allocated to principal:
 3      (1)  To the extent not allocated to income under this
 4           chapter, assets received from a:
 5           (A)  Transferor during the transferor's lifetime;
 6           (B)  Decedent's estate;
 7           (C)  Trust with a terminating income interest; or
 8           (D)  Payor pursuant to a contract naming the trust or
 9                its trustee as beneficiary;
10      (2)  Money or other property received from the sale,
11           exchange, liquidation, or change in form of a principal
12           asset, including realized profit, subject to this
13           article;
14      (3)  Amounts recovered from third parties to reimburse the
15           trust because of disbursements described in section
16              -502(a)(7) or for other reasons to the extent not
17           based on the loss of income;
18      (4)  Proceeds of property taken by eminent domain, but a
19           separate award made for the loss of income with respect
20           to an accounting period during which a current income
21           beneficiary had a mandatory income interest shall be
22           classified as income;
23      (5)  Net income received in an accounting period during

Page 26                                                    
                                     S.B. NO.           2536

 1           which there is no beneficiary to whom a trustee may or
 2           must distribute income; and
 3      (6)  Other receipts as provided in part III.
 4         -405  Rental property.  To the extent that a trustee
 5 accounts for receipts from rental property pursuant to this
 6 section, an amount received as rent of real or personal property,
 7 including an amount received for cancellation or renewal of a
 8 lease, must be allocated to income.  An amount received as a
 9 refundable deposit, including a security deposit or a deposit
10 that is to be applied as rent for future periods, must be added
11 to principal and held subject to the terms of the lease and is
12 not available for distribution to a beneficiary until the
13 trustee's contractual obligations have been satisfied with
14 respect to that amount.
15         -406  Obligation to pay money.(a)  An amount received
16 as interest, whether determined at a fixed, variable, or floating
17 rate, on an obligation to pay money to the trustee, including an
18 amount received as consideration for prepaying principal, must be
19 allocated to income without any provision for amortization of
20 premium.
21      (b)  An amount received from the sale, redemption, or other
22 disposition of an obligation to pay money to the trustee more
23 than one year after it is purchased or acquired by the trustee,

Page 27                                                    
                                     S.B. NO.           2536

 1 including an obligation whose purchase price or value when it is
 2 acquired is less than its value at maturity, must be allocated to
 3 principal.  If the obligation matures within one year after it is
 4 purchased or acquired by the trustee, an amount received in
 5 excess of its purchase price or its value when acquired by the
 6 trust must be allocated to income.
 7      (c)  This section does not apply to obligations to which
 8 sections    -409 through    -412,    -414, and    -415 apply.
 9         -407  Insurance policies and similar contracts.(a)
10 Except as provided in subsection    -407(b), proceeds from a life
11 insurance policy or other contract whose beneficiary is the trust
12 or its trustee, including a contract that insures the trust or
13 its trustee against loss for the damage or destruction of, or
14 loss of title to, a principal asset must be allocated to
15 principal.  The trustee shall allocate dividends on an insurance
16 policy to income if the premiums on the policy are paid from
17 income, and to principal if the premiums are paid from principal.
18 This section does not apply to a contract to which section
19    -409 applies.
20      (b)  Insurance proceeds must be allocated to income if they
21 are from a policy that insures the trustee against the loss of
22 occupancy or other use by an income beneficiary, the loss of
23 income, or, subject to section    -403, the loss of profits from

Page 28                                                    
                                     S.B. NO.           2536

 1 a business.
 3         -408  Insubstantial allocations not required.  If a
 4 trustee determines that an allocation between principal and
 5 income required by sections    -409 through    -412 or section
 6    -425 is insubstantial, the trustee may allocate the entire
 7 amount to principal if one of the circumstances described in
 8 section    -104(c) does not apply to such an allocation.  This
 9 power may be exercised by a cotrustee in the circumstances
10 described in section    -104(d), and it may be released for the
11 reasons and in the manner described in section    -104(e).  An
12 allocation is presumed to be insubstantial if:
13      (1)  The amount of the allocation would increase or decrease
14           an accounting period's net income, as determined before
15           the allocation, by less than ten per cent; or
16      (2)  The value of the asset producing the receipt for which
17           the allocation would be made is less than ten per cent
18           of the total value of the trust's assets at the
19           beginning of the accounting period.
20         -409  Deferred compensation, annuities, and similar
21 payments.(a)  This section applies to payments that a trustee
22 may receive over a fixed number of years or during the life of
23 one or more individuals because of services rendered or property

Page 29                                                    
                                     S.B. NO.           2536

 1 transferred to the payor in exchange for future payments.  The
 2 payments include those made in money or property from the payor's
 3 general assets or from a separate fund created by the payor,
 4 including a private or commercial annuity, an individual
 5 retirement account, and a pension, profit sharing, stock bonus,
 6 or stock ownership plan.  This section does not apply to payments
 7 to which section    -410 applies.
 8      (b)  To the extent that a payment is characterized as
 9 interest or a dividend or a payment made in lieu of interest or a
10 dividend, it must be allocated to income.  The balance of the
11 payment and any other payment received in the same accounting
12 period that is not characterized as interest, a dividend, or an
13 equivalent payment, must be allocated to principal.
14      (c)  If no part of a payment is characterized as interest, a
15 dividend, or an equivalent payment, and all or part of the
16 payment is required to be made, a trustee shall allocate to
17 income ten per cent of the part that is required to be made
18 during the accounting period and the balance to principal.  If no
19 part of a payment is required to be made or the payment received
20 is the entire amount to which the trustee is entitled, the entire
21 payment must be allocated to principal.  For purposes of this
22 subsection, a payment is not "required to be made" to the extent
23 that it is made because the trustee exercises a right of

Page 30                                                    
                                     S.B. NO.           2536

 1 withdrawal.
 2      (d)  If, to obtain an estate tax marital deduction for a
 3 trust, a trustee must allocate more of a payment to income than
 4 provided for by this section, the trustee shall allocate to
 5 income the additional amount necessary to obtain the marital
 6 deduction.
 7         -410  Liquidating asset.(a)  In this section,
 8 "liquidating asset" means an asset whose value will diminish or
 9 terminate because the asset is expected to produce receipts for a
10 period of limited duration.  The term includes leaseholds,
11 patents, trademarks, copyrights, royalty rights, and rights to
12 receive payments during a period of more than one year under an
13 arrangement that does not provide for the payment of interest on
14 the unpaid balance.  The term does not include deferred
15 compensation that is subject to section    -409, natural
16 resources that are subject to section    -411, timber that is
17 subject to section    -412, an activity that is subject to
18 section    -414, an asset subject to section    -415, or any
19 asset for which the trustee establishes a reserve for
20 depreciation under section    -503.
21      (b)  A trustee shall allocate to income ten per cent of the
22 receipts from a liquidating asset and the balance to principal.
23         -411  Minerals, water, and other natural resources.(a)

Page 31                                                    
                                     S.B. NO.           2536

 1 Receipts from an interest in minerals or other natural resources
 2 must be allocated as follows:
 3      (1)  If received as nominal delay rental or nominal annual
 4           rent on a lease, a receipt must be allocated to income.
 5      (2)  If received from a production payment, a receipt must
 6           be allocated to income if and to the extent that the
 7           agreement creating the production payment provides a
 8           factor for interest or its equivalent.  The balance
 9           must be allocated to principal.
10      (3)  If an amount received as a royalty, bonus, or delay
11           rental is more than nominal, ninety per cent must be
12           allocated to principal and the balance to income.
13      (4)  If an amount is received from a working interest or any
14           other interest not provided for in paragraph (1), (2),
15           or (3), ninety per cent of the net amount received must
16           be allocated to principal and the balance to income.
17      (b)  An amount received on account of an interest in water
18 that is renewable must be allocated to income.  If the water is
19 not renewable, ninety per cent of the amount must be allocated to
20 principal and the balance to income.
21      (c)  This chapter applies without regard to whether a
22 decedent or donor was extracting minerals, water, or other
23 natural resources before the interest became subject to the

Page 32                                                    
                                     S.B. NO.           2536

 1 trust.
 2      (d)  If a trust owns an interest in minerals, water, or
 3 other natural resources on the effective date of this chapter,
 4 the trustee may allocate receipts from the interest as provided
 5 in this section or in the manner used by the trustee before the
 6 effective date of this chapter.  If the trust acquires an
 7 interest in minerals, water, or other natural resources after the
 8 effective date of this chapter, the trustee shall allocate
 9 receipts from the interest as provided in this section.
10         -412  Timber.(a)  A trustee may account for net
11 receipts from the sale of timber and related products under
12 subsection (b) or section    -408 or, if the trustee determines
13 that net receipts are insubstantial, may allocate the net
14 receipts to principal.  The presumptions in section    -408 apply
15 in determining whether net receipts are insubstantial.  If a
16 trust owns more than one block of timber land, the trustee may
17 use different methods to account for net receipts from different
18 blocks.
19      (b)  If a trustee does not account under section    -408 for
20 net receipts from the sale of timber and related products or
21 allocate the net receipts to principal because they are
22 insubstantial, the trustee shall allocate the net receipts:
23      (1)  To income to the extent that the amount of timber

Page 33                                                    
                                     S.B. NO.           2536

 1           removed from the land does not exceed the rate of
 2           growth of the block as a whole during the accounting
 3           periods in which a beneficiary has a mandatory income
 4           interest;
 5      (2)  To principal to the extent that the amount of timber
 6           removed from the land exceeds the block's rate of
 7           growth or the net receipts are from the sale of
 8           standing timber;
 9      (3)  To or between income and principal if the net receipts
10           are from the lease of timberland or from a contract to
11           cut timber from land owned by a trust, by determining
12           the amount of timber removed from the land under the
13           lease or contract and applying the rules in paragraphs
14           (1) and (2); or
15      (4)  To principal to the extent that advance payments,
16           bonuses, and other payments are not allocated pursuant
17           to paragraph (1), (2), or (3).
18      (c)  In determining the net receipts from the sale of
19 timber, a trustee shall deduct and transfer to principal a
20 reasonable amount for depletion.
21      (d)  This chapter applies regardless of whether a decedent
22 or transferor was harvesting timber from the property before it
23 became subject to the trust.

Page 34                                                    
                                     S.B. NO.           2536

 1      (e)  If a trust owns an interest in timberland on the
 2 effective date of this chapter, the trustee may allocate net
 3 receipts from the sale of timber and related products as provided
 4 in this section or in the manner used by the trustee before the
 5 effective date of this chapter.  If the trust acquires an
 6 interest in timberland after the effective date of this chapter,
 7 the trustee shall allocate net receipts from the sale of timber
 8 and related products as provided in this section.
 9         -413  Property not productive of income.(a)  If a
10 marital deduction is allowed for all or part of a trust whose
11 assets consist substantially of property that does not provide
12 the surviving spouse with sufficient income from or use of the
13 trust assets, and if the amounts that the trustee transfers from
14 principal to income under section    -104 and distributes to the
15 spouse from principal pursuant to the terms of the trust are
16 insufficient to provide the spouse with the beneficial enjoyment
17 required to obtain the marital deduction, the spouse may require
18 the trustee to make property productive of income, convert
19 property within a reasonable time, or exercise the power
20 conferred by section    -104(a).  The trustee may decide which
21 action or combination of actions to take.
22      (b)  In all other cases, proceeds from the sale or other
23 disposition of an asset are principal without regard to the

Page 35                                                    
                                     S.B. NO.           2536

 1 amount of income the asset produces during any accounting period.
 2         -414  Derivatives and options.(a)  In this section,
 3 "derivative" means a contract or financial instrument or a
 4 combination of contracts and financial instruments which gives a
 5 trust the right or obligation to participate in some or all
 6 changes in the price of a tangible or intangible asset or group
 7 of assets, or changes in a rate, an index of prices or rates, or
 8 other market indicator for an asset or a group of assets.
 9      (b)  To the extent that a trustee does not account under
10 section    -403 for transactions in derivatives, receipts from
11 and disbursement made in connection with those transactions must
12 be allocated to principal.
13      (c)  If a trustee grants an option to buy property from the
14 trust, whether or not the trust owns the property when the option
15 is granted, grants an option that permits another person to sell
16 property to the trust, or acquires an option to buy property for
17 the trust or an option to sell an asset owned by the trust, and
18 the trustee or other owner of the asset is required to deliver
19 the asset if the option is exercised, an amount received for
20 granting the option must be allocated to principal, and an amount
21 paid to acquire the option must be paid from principal.  A gain
22 or loss realized upon the exercise of an option, including an
23 option granted to a settlor of the trust for services rendered,

Page 36                                                    
                                     S.B. NO.           2536

 1 must be allocated to principal.
 2         -415  Asset-backed securities.(a)  In this section,
 3 "asset-backed security" means an asset whose value is based upon
 4 the right it gives the owner to receive distributions from the
 5 proceeds of financial assets that provide collateral for the
 6 security.  The term includes an asset that gives the owner the
 7 right to receive only the interest or other current return from
 8 the collateral financial assets or only the proceeds from the
 9 capital investment in the collateral financial assets.  It does
10 not include an asset to which section    -401 or    -409 apply.
11      (b)  If a trust receives a payment from the interest or
12 other current return and the capital investment of the collateral
13 financial assets, the trustee shall allocate to income the
14 portion of a payment that the payor identifies as being from the
15 interest or other current return, and shall allocate the balance
16 of the payment to principal.
17      (c)  If a trust receives one or more payments in exchange
18 for the trust's entire interest in an asset-backed security in
19 one accounting period, the trustee shall allocate the payments to
20 principal.  If a payment is one of a series of payments that will
21 result in the liquidation of the trust's interest in the security
22 over more than one accounting period, the trustee shall allocate
23 ten per cent of the payment to income and the balance to

Page 37                                                    
                                     S.B. NO.           2536

 1 principal.
 2                             ARTICLE 5
 4         -501  Disbursements from income.  Unless otherwise
 5 governed by statutory fees or unless the instrument provides for
 6 it, a trustee shall make the following disbursements from income
 7 to the extent that they are not disbursements to which section
 8    -201(2)(B) or (C) applies:
 9      (1)  One-half of the regular compensation of the trustee and
10           of any person providing investment advisory or
11           custodial services to the trustee;
12      (2)  One-half of all expenses for accountings, judicial
13           proceedings, or other matters that involve both the
14           income and remainder interests;
15      (3)  All of the other ordinary expenses incurred in
16           connection with the administration, management, or
17           preservation of trust property and the distribution of
18           income, including interest, ordinary repairs, regularly
19           recurring taxes assessed against principal, and
20           expenses of a proceeding or other matter that concerns
21           primarily the income interest; and
22      (4)  Recurring premiums on insurance covering the loss of a
23           principal asset or the loss of income from or use of

Page 38                                                    
                                     S.B. NO.           2536

 1           the asset.
 2         -502  Disbursements from principal.(a)  Unless
 3 otherwise governed by statutory fees or unless the instrument
 4 provides for it, a trustee shall make the following disbursements
 5 from principal:
 6      (1)  The remaining one-half of the disbursements described
 7           in section    -501(1) and (2);
 8      (2)  All of the trustee's compensation calculated on
 9           principal as an acceptance, distribution, or
10           termination fee, and disbursements made to prepare
11           property for sale;
12      (3)  Payments on the principal of a trust debt;
13      (4)  Expenses of a proceeding that concerns primarily
14           principal, including a proceeding to construe the trust
15           or to protect the trust or its property;
16      (5)  Insurance premiums paid on a policy not described in
17           section    -501(4) of which the trust is the owner and
18           beneficiary;
19      (6)  Estate, inheritance, and other transfer taxes,
20           including penalties, apportioned to the trust; and
21      (7)  Disbursements related to environmental matters,
22           including reclamation, assessing environmental
23           conditions, remedying and removing environmental

Page 39                                                    
                                     S.B. NO.           2536

 1           contamination, monitoring remedial activities and the
 2           release of substances, preventing future releases of
 3           substances, collecting amounts from persons liable or
 4           potentially liable for the costs of those activities,
 5           penalties imposed under environmental laws or
 6           regulations and other payments made to comply with
 7           those laws or regulations, statutory or common law
 8           claims by third parties, and defending claims based on
 9           environmental matters.
10      (b)  If a principal asset is encumbered with an obligation
11 that requires income from that asset to be paid directly to the
12 creditor, the trustee shall transfer from principal to income an
13 amount equal to the income paid to the creditor in reduction of
14 the obligation's principal balance.
15         -503  Transfers from income to principal for
16 depreciation.(a)  In this section, "depreciation" means a
17 reduction in value of a fixed asset having a useful life of more
18 than one year, due to wear, tear, decay, corrosion, or gradual
19 obsolescence.
20      (b)  A trustee may transfer to principal a reasonable amount
21 of the net cash receipts from a principal asset that is subject
22 to depreciation, but a transfer may not be made for depreciation:
23      (1)  Of that portion of real property used or available for

Page 40                                                    
                                     S.B. NO.           2536

 1           use by a beneficiary as a residence or of tangible
 2           personal property held or made available for the
 3           personal use or enjoyment of a beneficiary;
 4      (2)  During the administration of a decedent's estate; or
 5      (3)  Under this section if the trustee is accounting under
 6           section    -403 for the business or activity in which
 7           the asset is used.
 8      (c)  An amount transferred to principal need not be held as
 9 a separate fund.
10         -504  Transfers from income to reimburse principal.(a)
11 If a trustee makes or expects to make a principal disbursement
12 described in this section, the trustee may transfer an
13 appropriate amount from income to principal in one or more
14 accounting periods to reimburse principal or to provide a reserve
15 for future principal disbursements.
16      (b)  Principal disbursements to which subsection (a) applies
17 include the following, but only to the extent that the trustee
18 has not been and does not expect to be reimbursed by a third
19 party:
20      (1)  An amount chargeable to income but paid from principal
21           because it is unusually large, including extraordinary
22           repairs;
23      (2)  A capital improvement to a principal asset, whether in

Page 41                                                    
                                     S.B. NO.           2536

 1           the form of changes to an existing asset or the
 2           construction of a new asset, including special
 3           assessments;
 4      (3)  Disbursements made to prepare property for rental,
 5           including tenant allowances leasehold improvements and
 6           broker's commissions;
 7      (4)  Periodic payments on an obligation secured by a
 8           principal asset to the extent that the amount
 9           transferred from income to principal for depreciation
10           is less than the periodic payments; and
11      (5)  Disbursements described in section    -502(a)(7).
12      (c)  If the asset whose ownership gives rise to the
13 disbursements becomes subject to a successive income interest
14 after an income interest ends, a trustee may continue to transfer
15 amounts from income to principal as provided in subsection (a).
16         -505  Income taxes.(a)  A tax required to be paid by a
17 trustee based on receipts allocated to income must be paid from
18 income.
19      (b)  A tax required to be paid by a trustee based on
20 receipts allocated to principal must be paid from principal, even
21 if the tax is called an income tax by the taxing authority.
22      (c)  A tax required to be paid by a trustee on the trust's
23 share of an entity's taxable income must be paid proportionately:

Page 42                                                    
                                     S.B. NO.           2536

 1      (1)  From income to the extent that receipts from the entity
 2           are allocated to income; and
 3      (2)  From principal to the extent that:
 4           (A)  Receipts from the entity are allocated to
 5                principal; and
 6           (B)  The trust's share of the entity's taxable income
 7                exceeds the total receipts in paragraphs (1) and
 8                (2)(A).
 9      (d)  For purposes of this section, receipts allocated to
10 principal or income shall be reduced by the amount distributed to
11 a beneficiary from principal or income for which the trust
12 receives a deduction in calculating the tax.
13         -506  Adjustments between principal and income because
14 of taxes.(a)  A fiduciary may make adjustments between
15 principal and income to offset the shifting of economic interests
16 or tax benefits between income beneficiaries and remainder
17 beneficiaries which arise from:
18      (1)  Elections and decisions, other than those described in
19           subsection (b), that the fiduciary makes from time to
20           time regarding tax matters;
21      (2)  An income tax or any other tax that is imposed upon the
22           fiduciary or a beneficiary as a result of a transaction
23           involving or a distribution from the estate or trust;

Page 43                                                    
                                     S.B. NO.           2536

 1           or
 2      (3)  The ownership by an estate or trust of an interest in
 3           an entity whose taxable income, whether or not
 4           distributed, is includable in the taxable income of the
 5           estate, trust, or a beneficiary.
 6      (b)  If the amount of an estate tax marital deduction or
 7 charitable contributions deduction is reduced because a fiduciary
 8 deducts an amount that is paid from principal for income tax
 9 purposes instead of deducting it for estate tax purposes, and as
10 a result estate taxes paid from principal are increased and
11 income taxes paid by an estate, trust, or beneficiary are
12 decreased, each estate, trust, or beneficiary that benefits from
13 the decrease in income tax shall reimburse the principal from
14 which the increase in estate tax is paid.  The total
15 reimbursement shall equal the increase in the estate tax to the
16 extent that the principal used to pay the increase would have
17 qualified for a marital deduction or charitable contributions
18 deduction but for the payment.  The proportionate share of the
19 reimbursement for each estate, trust, or beneficiary whose income
20 taxes are reduced shall be the same as its proportionate share of
21 the total decrease in income tax.  An estate or trust shall
22 reimburse principal from income."
23      SECTION 2.  Section 554A-3, Hawaii Revised Statutes, is

Page 44                                                    
                                     S.B. NO.           2536

 1 amended by amending subsection (c) to read as follows:
 2      "(c)  A trustee has the power, subject to subsections (a)
 3 and (b):
 4      (1)  To collect, hold, and retain trust assets received from
 5           a trustor until, in the judgment of the trustee,
 6           disposition of the assets should be made;
 7      (2)  To receive additions to the assets of the trust;
 8      (3)  To continue or participate in the operation of any
 9           business or other enterprise, and to effect
10           incorporation, dissolution, or other change in the form
11           of the organization of the business or enterprise;
12      (4)  To invest and reinvest trust assets in accordance with
13           the provisions of the trust or as provided by law;
14      (5)  To deposit trust funds in a bank;
15      (6)  To acquire or dispose of an asset, for cash or on
16           credit, at public or private sale; and to manage,
17           develop, improve, exchange, partition, change the
18           character of, or abandon a trust asset or any interest
19           therein; and to encumber, mortgage, or pledge a trust
20           asset for a term within or extending beyond the term of
21           the trust, in connection with the exercise of any power
22           vested in the trustee;
23      (7)  To make ordinary or extraordinary repairs or

Page 45                                                    
                                     S.B. NO.           2536

 1           alterations in buildings or other structures, to
 2           demolish any improvements, to raze existing or erect
 3           new party walls or buildings;
 4      (8)  To subdivide, develop, or dedicate land to public use;
 5           or to make or obtain the vacation of plats and adjust
 6           boundaries; or to adjust differences in valuation on
 7           exchange or partition by giving or receiving
 8           consideration; or to dedicate easements to public use
 9           without consideration;
10      (9)  To enter for any purpose into a lease as lessor or
11           lessee with or without option to purchase or renew for
12           a term within or extending beyond the term of the
13           trust;
14     (10)  To enter into a lease or arrangement for exploration
15           and removal of minerals or other natural resources or
16           enter into a pooling or unitization agreement;
17     (11)  To grant an option involving disposition of a trust
18           asset, or to take an option for the acquisition of any
19           asset;
20     (12)  To vote a security, in person or by general or limited
21           proxy;
22     (13)  To pay calls, assessments, and any other sums
23           chargeable or accruing against or on account of

Page 46                                                    
                                     S.B. NO.           2536

 1           securities;
 2     (14)  To sell or exercise stock subscription or conversion
 3           rights; to consent, directly or through a committee or
 4           other agent, to the reorganization, consolidation,
 5           merger, dissolution, or liquidation of a corporation or
 6           other business enterprise;
 7     (15)  To hold a security in the name of a nominee or in other
 8           form without disclosure of the trust, so that title to
 9           the security may pass by delivery, but the trustee is
10           liable for any act of the nominee in connection with
11           the stock so held;
12     (16)  To insure the assets of the trust against damage or
13           loss, and the trustee against liability with respect to
14           third persons;
15     (17)  To borrow money to be repaid from trust assets or
16           otherwise; to advance money for the protection of the
17           trust, and for all expenses, losses, and liabilities
18           sustained in the administration of the trust or because
19           of the holding or ownership of any trust assets, for
20           which advances with any interest the trustee has a lien
21           on the trust assets as against the beneficiary;
22     (18)  To pay or contest any claim; to settle a claim by or
23           against the trust by compromise, arbitration, or

Page 47                                                    
                                     S.B. NO.           2536

 1           otherwise; and to release, in whole or in part, any
 2           claim belonging to the trust to the extent that the
 3           claim is uncollectible;
 4     (19)  To pay taxes, assessments, compensation of the trustee,
 5           and other expenses incurred in the collection, care,
 6           administration, and protection of the trust;
 7     (20)  To allocate items of income or expense to either trust
 8           income or principal, as provided by chapter [557, the
 9           Revised]    , the Uniform Principal and Income Act,
10           including creation of reserves out of income for
11           depreciation, obsolescence, or amortization, or for
12           depletion in mineral or timber properties;
13     (21)  To pay any sum distributable to a beneficiary under
14           legal disability, without liability to the trustee, by
15           paying the sum to the beneficiary or by paying the sum
16           for the use of the beneficiary either to a legal
17           representative appointed by the court, or if none, to a
18           relative;
19     (22)  To effect distribution of money and property (that may
20           be made in kind on a pro rata or non-pro rata basis),
21           in divided or undivided interests, and to adjust
22           resulting differences in valuation;
23     (23)  To employ persons, including attorneys, auditors,

Page 48                                                    
                                     S.B. NO.           2536

 1           investment advisors, or agents, even if they are
 2           associated with the trustee, to advise or assist the
 3           trustee in performance of the trustee's administrative
 4           duties; to act without independent investigation upon
 5           their recommendations; and instead of acting
 6           personally, to employ one or more agents to perform any
 7           act of administration, whether or not discretionary;
 8     (24)  To prosecute or defend actions, claims, or proceedings
 9           for the protection of trust assets and of the trustee
10           in the performance of trustee duties; and
11     (25)  To execute and deliver all instruments which will
12           accomplish or facilitate the exercise of the powers
13           vested in the trustee."
14      SECTION 3.  Chapter 557, Hawaii Revised Statutes, is
15 repealed.
16      SECTION 4.  This Act applies to every trust or decedent's
17 estate as of the beginning of an accounting period of the trust
18 or estate following the effective date of this Act except as
19 otherwise expressly provided in the will or terms of the trust or
20 in this Act.
21      SECTION 5.  Statutory material to be repealed is bracketed.
22 New statutory material is underscored.

Page 49                                                    
                                     S.B. NO.           2536

 1      SECTION 6.  This Act shall take effect on July 1, 2000.
 3                              INTRODUCED BY:______________________