Trusts; amend Uniform Principal and Income Act, permit trustee to adjust between principal and income

Trustees gain flexibility over trust payouts

Beginning October 1, 2026, Alabama trustees can shift receipts and expenses between trust income and principal—the trust’s underlying assets. This can increase or decrease money available to beneficiaries; the law sets no payment amount. The power applies when payouts are based on income, assets are managed under prudent investor standards, and standard allocation rules prevent compliance with required duties. Trustees do not need express permission in the trust document or beneficiary consent, but clear trust terms denying the power control. Trustees must weigh the trust’s purpose, the creator’s intent, beneficiaries’ circumstances, cash needs, income stability, and capital preservation and growth. They must also consider asset types, uses and sources, income allocations, value changes, limits and past practices on using principal or saving income, economic conditions, inflation, and tax effects. Adjustments cannot diminish protected spousal income interests, reduce income interests protected by gift-tax exclusions, or change fixed annuities or fixed shares. Charitable set-asides cannot change unless both income and principal are dedicated to charity. Adjustments cannot trigger specified income-tax ownership or estate-tax inclusion, benefit the trustee, or apply to trusts paying under unitrust rules. A co-trustee free of the listed tax or personal-benefit conflicts can act unless trust terms restrict that authority. Trustees can give up all or either direction of this power permanently or for a set period, including life. This option applies when prohibited results are uncertain or tax benefits or burdens are at risk.