Trust law is best fine-tuned judicially though application of general principles to given situations. See Heydon, Does statutory reform stultify trusts law analysis?, 6 Tr. Q. Rev., Issue 3, at 28 (2008). Codification “deadens and stultifies” that process. Id. Still, “[t]he silent waters of equity run deep—often too deep for legislation to obstruct.” Id.

Take, for example, the challenges of sorting income from principal when it comes to entrusted liquidating assets. There are four principal and income acts: (1) Uniform Principal and Income Act 1931 (the “1931 Act”), (2) Uniform Principal and Income Act 1962 (the “1962 Act”), (3) Uniform Principal and Income Act (1997) (the “1997 Act”), and Uniform Fiduciary Income and Principal Act (2018) (the “2018 Act”). The 1997 Act, specifically §410(a), defines a “liquidating asset” as “an asset whose value will diminish or terminate because the asset is expected to produce receipts for a period of limited duration.” Examples of liquidating assets are leaseholds, patents, copyrights, and royalty rights. The 1997 Act broke new ground by providing that ten percent of a liquidating asset receipt is allocated to income, and the balance to principal. See its § 410(b). The 1962 Act had allocated receipts from “property subject to depletion” to income in an amount “not in excess of 5%” of the asset’s inventory value,” with the balance of each year’s receipts being added to principal. The 1931 Act had had a similar 5-percent rule that applied when the trustee was under a duty to change the form of the investment. The 2018 Act , specifically § 410, “restores a variation of the…[pre-1997…] annuity approach, with the range of 3 to 5 percent of the value of the asset consistent with other provisions in the act, and retains the 10-percent-of-the-receipt rule for cases where the fiduciary cannot determine the value of the asset.” See the comment to § 410 of the 2018 Act.

Or take nonmonetary receipts from entrusted entities. The 1962 Act contains an “unwieldly” catalogue of types of property that would be principal if distributed by a corporation. The 2018 Act, specifically §401(d)(1), discards the catalogue and replaces it with a general principle that has an equity flavor to it. The accompanying official commentary explains that the catalogue became “unwieldy” in a section that applied to both corporations and other entities: “By stating that the distribution of any property other than money is generally allocated to principal, subsection (d)(1) embraces all of the items enumerated in Section 6 of 1962 Act as well as any other form of nonmonetary distribution not specifically mentioned in that act.”

It would seem self-evident that “a system of judge-made law resting on principles of stare decisis has a degree of stability; but it teems with life, and is inherently capable of change in light of experience,” that legislation, on the other hand, is inherently inflexible and unstable. See Heydon, supra. Certainly the seemingly endless succession of trust principal and income acts would not suggest otherwise. For a general discussion of principal-income apportionment issues in the trust context see Loring and Rounds: A Trustee’s Handbook (2020) §6.2.4.3, which section, with revisions, is reproduced in its entirety in the appendix immediately below.