Senate Bill 178 Alabama 2026 Session

Summary

Primary Sponsor

Will BarfootSenator

Republican

Session

2026 Regular Session

Title

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

Summary

SB178 would allow Alabama trustees to adjust the principal-versus-income split of trust receipts without explicit trust terms, aligning with the Uniform Principal and Income Act.

What This Bill Does

It would let a trustee adjust receipts and disbursements between principal and income if the trust terms reference this section and the trustee meets conditions, including prudent investing and distribution terms described by the trust, plus a determination that compliance with existing rules is not possible. The trustee must consider a broad set of factors before acting, such as the trust's purpose, beneficiaries' needs, liquidity, asset types, and tax consequences. The bill also imposes safeguards, allows release of the power under certain circumstances, and provides pathways for court approval or beneficiary consent, with an effective date of October 1, 2026.

Who It Affects

• Trustees and co-trustees who manage trusts and would gain a broader power to shift amounts between principal and income under certain conditions.
• Beneficiaries of trusts (including current income beneficiaries and presumptive remainder beneficiaries) who may see changes in when and how much income or principal they receive, and potential tax implications.

Key Provisions

• Adds a power for a trustee to adjust receipts and disbursements between principal and income as long as terms reference this section and the trustee meets conditions (prudent investor; distribution terms describe amounts; and determination that compliance with other sections is not possible).
• Requires the trustee to weigh 14 factors before exercising the power, including trust purpose, settlor intent, beneficiary needs, liquidity needs, income regularity, capital preservation, asset types, asset use by beneficiaries, source of assets, net income allocation and asset value changes, prior use of powers, and tax/transfer consequences.
• Prohibits adjustments that would diminish mandatory income for a spouse, reduce actuarial value for gift-tax exclusions, alter fixed payments, reduce charitable set-asides, or create tax or estate effects not described in the act.
• If there are multiple trustees, a co-trustee not subject to certain restrictions may make the adjustment if allowed by the trust terms.
• Allows a trustee to release all or part of the power, permanently or for a period, to avoid uncertain tax consequences or other effects.
• Provides options for prospective governance by court approval or by consent of all current income beneficiaries and presumptive remainder beneficiaries to be governed by this section.
• Effective date: October 1, 2026.

AI-generated summary using openai/gpt-5-nano on Feb 12, 2026. May contain errors — refer to the official bill text for accuracy.

Subjects

Property & Estates