Six Categories of Principal Receipts
Trust accounting draws a clear line between income and principal. Income goes to current beneficiaries. The trust preserves principal for remainder beneficiaries.
This statute defines which receipts belong on the principal side. Knowing these categories helps families see what stays in the trust.
A trustee shall allocate to principal: 1. To the extent not allocated to income under this article, assets received from a transferor during the transferor's lifetime, a decedent's estate, a trust with a terminating income interest or a payer under a contract naming the trust or its trustee as beneficiary.
A.R.S. § 14-7413(1)The first group covers original funding and similar transfers. When someone adds assets to a trust or the trust receives assets from an estate, those go to principal.
This includes real estate, investment accounts, and other property. These receipts form the capital base the trust was built to hold.
Sales, Payments, and Special Cases
Money from selling or exchanging a principal asset also stays in principal. This includes any capital gain from those deals.
If the trust recovers money from a third party to pay back trust expenses, those amounts go to principal too. The exception is when the recovery makes up for lost income.
Eminent domain awards follow a similar pattern. The main award for property the government takes goes to principal.
Any separate award for lost income during a period when a beneficiary had a required interest goes to income instead.
The statute also covers one unusual case. If the trust earns net income when no beneficiary can receive it, that income joins principal. This keeps the trust's books clean.