HB222 Summary

• Amends Alabama Principal and Income Act (Sections 19-3A-409 and 19-3A-505) to clarify allocation rules for payments from separate funds like annuities, retirement accounts, and pension plans between trust principal and income.

• Expands the definition of "payment" to include any payment from a separate fund for subsections (d), (e), (f), and (g) of Section 19-3A-409, regardless of the reason for payment.

• For trusts qualifying for federal marital deductions under Internal Revenue Code Section 2056(b)(7) or 2056(b)(5), fiduciaries must determine and distribute the internal income of separate funds to the surviving spouse upon request.

• Establishes fallback methods for calculating internal income when actual amounts cannot be determined: 4 percent of fund value, or the product of the Section 7520 interest rate and expected future payment present value.

• Modifies tax allocation rules in Section 19-3A-505 to apportion fiduciary taxes proportionately based on whether receipts from entities are allocated to income, principal, or both.

• Establishes transition rules through new Section 19-3A-607, with the amendments applying based on trust funding dates ranging from the decedent's death to January 1, 2013.

• Act becomes effective January 1, 2013.