Michigan Laws 555.904 – Principal disbursement; transfer of amount to provide reserve
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(1) If a trustee makes or expects to make a principal disbursement described in this section, the trustee may transfer an appropriate amount from income to principal in 1 or more accounting periods to reimburse principal or to provide a reserve for future principal disbursements.
(2) Principal disbursements to which subsection (1) applies include the following, but only to the extent that the trustee has not been and does not expect to be reimbursed by a third party:
Terms Used In Michigan Laws 555.904
- Income: means money or property that a fiduciary receives as current return from a principal asset. See Michigan Laws 555.502
- Income interest: means the right of an income beneficiary to receive all or part of net income, whether the terms of the trust require it to be distributed or authorize it to be distributed in the trustee's discretion. See Michigan Laws 555.502
- Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
- Principal: means property held in trust for distribution to a remainder beneficiary when the trust terminates. See Michigan Laws 555.502
- Trustee: A person or institution holding and administering property in trust.
- Trustee: includes an original, additional, or successor trustee, whether or not appointed or confirmed by a court. See Michigan Laws 555.502
(a) An amount chargeable to income but paid from principal because it is unusually large, including extraordinary repairs.
(b) A capital improvement to a principal asset, whether in the form of changes to an existing asset or the construction of a new asset, including special assessments.
(c) Disbursements made to prepare property for rental, including tenant allowances, leasehold improvements, and broker’s commissions.
(d) Periodic payments on an obligation secured by a principal asset to the extent that the amount transferred from income to principal for depreciation is less than the periodic payments.
(e) Disbursements described in section 502(1)(g).
(3) If the asset whose ownership gives rise to the disbursements becomes subject to a successive income interest after an income interest ends, a trustee may continue to transfer amounts from income to principal as provided in subsection (1).