Drawing the Line Between Principal and Income
Trust accounting requires a clear dividing line. When someone dies or a new income interest begins, the trustee needs to know which receipts and disbursements belong to principal and which belong to income. This statute draws that line at the due date of each item.
A trustee shall allocate an income receipt or disbursement other than one to which section 14-7405, paragraph 1 applies to principal if its due date occurs before a decedent dies in the case of an estate or before an income interest begins in the case of a trust or successive income interest.
A.R.S. § 14-7408(A)If the due date falls before death or before the income interest starts, the item goes to principal. If it falls on or after that date and the payment is periodic, it goes to income. The logic is practical. Income earned before the transition belongs to whoever held the interest at that time.
Handling Items Without a Fixed Due Date
Not every receipt or payment comes on a fixed schedule. When an item has no periodic due date, the statute treats it as accruing day by day. The trustee splits the amount in proportion. The portion that accrued before the triggering event goes to principal. The portion that accrued afterward goes to income.
An income receipt or disbursement must be treated as accruing from day to day if its due date is not periodic or it has no due date. The portion of the receipt or disbursement accruing before the date on which a decedent dies or an income interest begins must be allocated to principal and the balance must be allocated to income.
A.R.S. § 14-7408(B)For distributions from business entities, the due date is the record date set by the entity. If no record date was set, the declaration date applies. These rules give trustees a concrete framework for handling the transition period without guesswork.