Colorado Code
Part 4 - Uniform Principal and Income Act
§ 15-1-427. Disbursements From Principal

Source: L. 2000: Entire part R&RE, p. 1145, § 1, effective July 1, 2001.
Editor's note: This section is similar to former § 15-1-415 as it existed prior to 2001.
Environmental expenses. All environmental expenses are payable from principal, subject to the power of the trustee to transfer funds to principal from income under Section 15-1-429. However, the Drafting Committee decided that it was not necessary to broaden this provision to cover other expenditures made under compulsion of governmental authority. See generally the annotation at 43 A.L.R.4th 1012 (Duty as Between Life Tenant and Remainderman with Respect to Cost of Improvements or Repairs Made Under Compulsion of Governmental Authority).
Environmental expenses paid by a trust are to be paid from principal under Section 15-1-502 (1)(g) on the assumption that they will usually be extraordinary in nature. Environmental expenses might be paid from income if the trustee is carrying on a business that uses or sells toxic substances, in which case environmental cleanup costs would be a normal cost of doing business and would be accounted for under Section 15-1-413. In accounting under that Section, environmental costs will be a factor in determining how much of the net receipts from the business is trust income. Paying all other environmental expenses from principal is consistent with this Act's approach regarding receipts -- when a receipt is not clearly a current return on a principal asset, it should be added to principal because over time both the income and remainder beneficiaries benefit from this treatment. Here, allocating payments required by environmental laws to principal imposes the detriment of those payments over time on both the income and remainder beneficiaries.
Under Sections 15-1-429 (1) and 15-1-429 (2)(e), a trustee who makes or expects to make a principal disbursement for an environmental expense described in Section 15-1-427 (1)(g) is authorized to transfer an appropriate amount from income to principal to reimburse principal for disbursements made or to provide a reserve for future principal disbursements.
The first part of Section 15-1-427 (1)(g) is based upon the definition of an "environmental remediation trust" in Treas. Reg. § 301.7701-4(e)(as amended in 1996). This is not because the Act applies to an environmental remediation trust, but because the definition is a useful and thoroughly vetted description of the kinds of expenses that a trustee owning contaminated property might incur. Expenses incurred to comply with environmental laws include the cost of environmental consultants, administrative proceedings and burdens of every kind imposed as the result of an administrative or judicial proceeding, even though the burden is not formally characterized as a penalty.
Title proceedings. Disbursements that are made to protect a trust's property, referred to in Section 15-1-427 (1)(d), include an "action to assure title" that is mentioned in Section 13(c)(2) of the 1962 Uniform Act.
Insurance premiums. Insurance premiums referred to in Section 15-1-427 (1)(e) include title insurance premiums. They also include premiums on life insurance policies owned by the trust, which represent the trust's periodic investment in the insurance policy. There is no provision in the 1962 Uniform Act for life insurance premiums.
Taxes. Generation-skipping transfer taxes are payable from principal under subsection (1)(f).

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