House Bill 206 Alabama 2026 Session

Summary

Primary Sponsor

Tim WadsworthRepresentative

Republican

Session

2026 Regular Session

Title

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

Summary

HB206 would allow Alabama trustees to adjust between principal and income without requiring explicit trust terms, aligning state law with the Uniform Principal and Income Act.

What This Bill Does

If enacted, the bill lets a trustee adjust the balance between principal and income as needed, without requiring the trust document to expressly authorize each adjustment. Trustees would still consider factors like the trust’s purpose, liquidity needs, beneficiary interests, asset types, and tax consequences when deciding how to adjust. The bill includes safeguards and options, such as the ability to release the power, elect to be governed by this section prospectively, and to handle adjustments through co-trustees when applicable.

Who It Affects

• Trustees (and co-trustees) who manage trusts: gain the authority to shift amounts between principal and income without explicit language in the trust instrument, subject to specified guardrails.
• Beneficiaries (income and remainder beneficiaries): could see changes in distributions and the value of trust assets due to adjustments, with protections intended to limit negative tax impacts and preserve beneficiary interests.

Key Provisions

• Permits a trustee to adjust receipts and disbursements between principal and income without requiring express authorization in the trust instrument, aligning with the Uniform Principal and Income Act.
• Requires the trustee to consider a broad set of factors when exercising the power, including trust nature and duration, settlor intent, beneficiary needs, liquidity needs, income regularity, preservation of capital, asset types, and tax consequences.
• Imposes restrictions to protect tax and beneficiary interests (e.g., limits on reductions that could affect marital or estate tax treatment, actuarial value, fixed annuities, charitable set-asides, or beneficiary status for tax purposes).
• If there are multiple trustees, the non-applicable co-trustee may perform the adjustment unless the trust terms prohibit it; the terms can also restrict the exercise of the power.
• Allows governing the section prospectively through court approval or unanimous written consent of all current income beneficiaries and presumptive remainder beneficiaries, to bind future interests.
• Effective date: the act becomes effective on October 1, 2026.

AI-generated summary using openai/gpt-5-nano on Feb 11, 2026. May contain errors — refer to the official bill text for accuracy.

Subjects

Property & Estates