CT HB05281

Repeals and replaces Section 45a-542q governing allocation of payments from separate funds (annuities, IRAs, pension plans) between trust income and principal, effective October 1, 2010.

Defines "payment" to include distributions from separate funds and establishes allocation rules: payments characterized as interest or dividends go to income; required payments have 10 percent allocated to income and balance to principal; optional payments go entirely to principal.

Provides special allocation rules for trusts qualifying for marital deduction under Internal Revenue Code Sections 2056(b)(5) and 2056(b)(7), requiring trustees to determine and distribute the internal income of separate funds to surviving spouses.

Establishes default calculation methods for internal income of separate funds when actual income cannot be determined: 4 percent of fund value or an amount based on IRS Section 7520 interest rates and present value calculations.

Repeals and replaces Section 45a-542bb to clarify how trust taxes are paid: from income for income-based taxes, from principal for principal-based taxes, and proportionately for entity-level taxable income based on allocation of receipts.