Section 11-2.4. Optional unitrust provision

(a) Unless the terms of the trust provide otherwise, the net income of
  any  trust  to which this section applies shall mean the unitrust amount
  as determined hereunder.
    (b) Unitrust amount.
    (1) For the first year of the trust as a unitrust, including  a  short
  year  if  applicable,  the  "unitrust amount" for the year shall mean an
  amount equal to four percent of the net fair market values of the assets
  held in the trust at the beginning of the  first  business  day  of  the
  current valuation year.
    (2)  For  the  second year of a trust as a unitrust, including a first
  short year if applicable, the "unitrust amount" for the year shall  mean
  an  amount equal to four percent multiplied by a fraction, the numerator
  of which shall be the sum of (A) the  net  fair  market  values  of  the
  assets  held  in the trust at the beginning of the first business day of
  the current valuation year and (B) the net fair  market  values  of  the
  assets  held  in the trust at the beginning of the first business day of
  the prior valuation year, and the denominator of which shall be two.
    (3) Commencing with the third year of a trust as a unitrust, including
  a first short year if applicable, the "unitrust amount"  for  a  current
  valuation  year  of the trust shall mean an amount equal to four percent
  multiplied by a fraction, the numerator of which shall be the sum of (A)
  the net fair market values of the  assets  held  in  the  trust  at  the
  beginning  of  the  first business day of the current valuation year and
  (B) the net fair market values of the assets held in the  trust  at  the
  beginning  of  the  first business day of each prior valuation year, and
  the denominator of which shall be three.
    (4) The unitrust amount for the current valuation year as computed  in
  accordance  with  subparagraph  (b)(1),  (2)  or  (3),  as  adjusted  in
  accordance with this subparagraph, shall be proportionately reduced  for
  any  corpus  distributions to beneficiaries mandated by the terms of the
  trust, in whole or in part (other than  distributions  of  the  unitrust
  amount),  and  shall be proportionately increased for the receipt, other
  than a receipt that represents a return on investment, of any additional
  corpus into the trust within a current valuation year.
    (5) For purposes of clause (b)(2)(B), the net fair  market  values  of
  the  assets held in the trust at the beginning of the first business day
  of a prior valuation year shall be adjusted to reflect any distributions
  to beneficiaries mandated by the terms of the trust, in whole or in part
  (other than distributions of the unitrust amount),  or  receipts  (other
  than  receipts  that represent a return on investment) of any additional
  principal into the trust, which have occurred after  the  first  day  of
  such  prior  valuation  year  and  by  the close of the first day of the
  current valuation year, as if the distribution or receipt  had  occurred
  on the first day of such prior valuation year.
    (6)  In  the  case  of  a  short  year,  the trustee shall prorate the
  unitrust amount  on  a  daily  basis.  The  trustee  shall  prorate  any
  adjustment under subparagraph (b)(4) on a daily basis.
    (7)  In  the  case  where  the  unitrust  amount  has been incorrectly
  determined either in a current valuation year or in  a  prior  valuation
  year,  then  within  a  reasonable  time (not to exceed eighteen months)
  after the error was  made,  the  trustee  shall  make  any  non-material
  adjustments   and   pay   to  the  underpaid  beneficiary  (in  case  of
  non-material  underpayment)  or  shall   recover   from   the   overpaid
  beneficiary (in case of non-material overpayment) an amount equal to the
  difference  between  the unitrust amount properly payable and any amount
  actually paid for any completed valuation year of the  trust  and  shall
  properly  adjust  the  unitrust amount for the current valuation year if

  affected non-materially by prior incorrect determination of  a  unitrust
  amount. A material correction shall require approval of the surrogate if
  applied for by the trustee or an interested party.
    (c) Other definitions and special rules. For purposes of this section:
    (1) A "current beneficiary" is a person to whom the income (within the
  meaning of this section or otherwise) of the trust is payable, or in the
  discretion  of  the trustee may be paid, in whole or in part, during the
  current valuation year.
    (2) The term "current valuation year" shall mean the year of the trust
  for which the unitrust amount is being determined.
    (3) The term "prior valuation year" shall mean each of the  two  years
  of the trust immediately preceding the current valuation year.
    (4)  The term "year" means a calendar year. A "short year" constitutes
  a portion of a calendar year  that  begins  when  the  interest  of  the
  current  beneficiary  or  class  of current beneficiaries begins or ends
  when the interest  of  the  current  beneficiary  or  class  of  current
  beneficiaries ends.
    (5)  "Net  fair market value" shall mean the fair market value of each
  asset comprising the trust reduced by  the  fair  market  value  of  any
  outstanding interest-bearing obligations of the trust, whether allocable
  to  a  specific asset or otherwise. Fair market value of an asset may be
  determined by any appropriate technique adopted and consistently applied
  by the trustee, and such techniques may include, but are not limited to,
  use of the asset's value at  the  close  of  business  on  the  previous
  business  day,  and notwithstanding that such day may be in a prior year
  or be a day on which the trust was not subject to this section.
    (6) In determining the sum of the net fair market values of the assets
  held in the trust for purposes of subparagraphs (b)(1), (2) and (3), and
  in determining whether an adjustment  is  required  in  accordance  with
  subparagraph  (b)(4)  or  (5), there shall not be taken into account the
  value:
    (A) of any residential property  or  any  tangible  personal  property
  that,  as  of  the  beginning  of  the first business day of the current
  valuation year, one or more current beneficiaries of the trust  have  or
  had  the right to occupy, or have or had the right to possess or control
  (other than in his or her capacity as  a  trustee  of  the  trust),  and
  instead  the  right  of  occupancy or the right to possession or control
  shall be  deemed  to  be  the  unitrust  amount  with  respect  to  such
  residential  property  or  such  tangible  personal  property; provided,
  however, that the unitrust amount shall be adjusted in  accordance  with
  subparagraphs  (b) (4) and (5) for partial distributions from or receipt
  into the  trust  of  such  residential  property  or  tangible  personal
  property during the current valuation year.
    (B) of any asset specifically given to a beneficiary and the return on
  investment  on  such  property,  which  return  on  investment  shall be
  distributable to such beneficiary.
    (C) of any assets while held in a testator's estate.
    (D) of (i) amounts paid or distributed to the trust  by  a  decedent's
  estate,  another  trust  or another payor, as income pursuant to article
  11-A attributable to an asset or amount due to the trust  for  a  period
  prior  to its payment or distribution to the trust, unless and except to
  the extent that the unitrust trustee, having  the  power  to  accumulate
  income,  shall  have  determined  to  accumulate  and add such income to
  principal, and such unaccumulated net income shall be  distributable  to
  the  beneficiaries  of the trust; or (ii) any amount paid or distributed
  by such decedent's estate, other  trust  or  other  payor,  directly  to
  beneficiaries of the trust in satisfaction of their ultimate entitlement
  to such income.

    (7) In determining the net fair market value of each asset held in the
  trust  pursuant to subparagraphs (b)(1), (2) and (3), the trustee shall,
  not less often than annually, determine the fair market  value  of  each
  asset  of  the  trust  that consists primarily of real property or other
  property  that is not traded on a regular basis in an active market, and
  all such determinations shall, if made reasonably and in good faith,  be
  conclusive  on  all  persons interested in the trust. Such determination
  shall be conclusively presumed to have been made reasonably and in  good
  faith  unless proven otherwise in a proceeding commenced by or on behalf
  of a person interested in the trust within three years after  the  close
  of the year in which the determination is made.
    (8) The term "trustee" does not include a personal representative.
    (9) The term "trust" does not include an estate.
    (d) Commencement of current beneficiary's interest.
    (1)  The  interest  of  a  current  beneficiary  or  class  of current
  beneficiaries in the unitrust amount begins on the date  on  which  this
  section becomes applicable to the trust pursuant to clause (e)(4)(A), or
  if  later  the  date  assets first become subject to the trust. An asset
  becomes subject to a trust:
    (A) on the date it is transferred to the trust in the case of an asset
  that is transferred to a trust during the transferor's life;
    (B) on the date it is transferred to the trust in the case of an asset
  that is transferred to a testamentary trust created under a will;
    (C) on the date of an individual's death in the case of an asset  that
  is transferred to a trust by a third party by reason of the individual's
  death;
    (D)  on  the date of an individual's death in the case of a trust that
  owns life insurance on the individual's life; or
    (E) on the date a revocable trust becomes irrevocable in the  case  of
  assets then held in the trust.
    (2)  A  trust  which  continues in existence for the benefit of one or
  more new current beneficiaries or class of  current  beneficiaries  upon
  the  termination  of the interests of all prior current beneficiaries or
  classes of prior current beneficiaries, shall be  deemed  to  be  a  new
  trust,  and,  for  purposes  of  clauses  (e)(1)(B)  and  (e)(4)(A)  and
  subparagraph (d)(1), assets shall be deemed to first become  subject  to
  the trust on the date of the termination of such interests.
    (e) Trusts to which section applies.
    (1) This section shall apply to any trust if:
    (A) the governing instrument provides that this section shall apply to
  such trust, or
    (B)  (i)  with respect to a trust in existence prior to January first,
  two thousand two, on or before December thirty-first, two thousand five,
  the trustee, with the consent by or on behalf of all persons  interested
  in  the  trust  or  in  his,  her or its discretion, elects to have this
  section apply to such trust, or
    (ii) with respect to a trust not in existence prior to January  first,
  two  thousand  two, on or before the last day of the second full year of
  the trust beginning after assets first become subject to the trust,  the
  trustee,  with  the consent by or on behalf of all persons interested in
  the trust or in his, her or its discretion, elects to have this  section
  apply to such trust.
    (iii)  An  election in accordance with this subparagraph shall be made
  by an instrument,  executed  and  acknowledged,  and  delivered  to  the
  creator  of  the  trust,  if  he  or  she is then living, to all persons
  interested in the trust or to their representatives and to the court, if
  any, having jurisdiction over the trust.

    (2) (A) The court having jurisdiction of a trust to which this section
  otherwise would  apply  by  reason  of  subparagraph  (e)(1)  or  clause
  (e)(2)(B),  upon  the  petition of the trustee or any beneficiary of the
  trust and upon notice to all persons interested in the trust, may direct
  that  article  11-A shall apply to the trust and that this section shall
  not apply to the trust; and
    (B) At any time, the court having jurisdiction of  a  trust  to  which
  this section otherwise would not apply, upon the petition of the trustee
  or  any  beneficiary  of  the  trust  and  upon  notice  to  all persons
  interested in the trust, may direct that this section shall apply to the
  trust and that article 11-A shall not apply to the trust.
    (3) For  the  purposes  of  this  section,  the  phrase  "all  persons
  interested in the trust" shall mean all the persons upon whom service of
  process would be required in a proceeding for the judicial settlement of
  the  account  of  the trustee, taking into account section three hundred
  fifteen  of  the  surrogate's  court  procedure  act.  Where  a   person
  interested  in  the  trust  has  the  same  interest as a person under a
  disability, it shall not be necessary to obtain the consent of or notify
  the person under a disability.
    (4) (A) This section shall apply to a  trust  with  respect  to  which
  there is:
    (i)  a direction in the governing instrument in accordance with clause
  (e)(1)(A), as of the date provided for in such governing instrument,  or
  if there is no provision then as of the day on which assets first become
  subject to the trust;
    (ii)  an  election in accordance with clause (e)(1)(B), as of the date
  specified in the election, which may be any day within the year in which
  the election is made or the first day of the year commencing  after  the
  election is made; or a
    (iii)  court  decision rendered in accordance with clause (e)(2)(B) as
  of the date specified by the court in its decision;
    Provided, however, that if later than any date  set  by  this  clause,
  this  section  shall  not  apply  to  the trust until January first, two
  thousand two.
    (B) If this section applied to a trust with respect to which  a  court
  decision  is  rendered in accordance with clause (e)(2)(A), this section
  shall cease to apply to such trust and article 11-A shall apply  to  the
  trust  as  of  the first day of the year beginning after the decision of
  the court becomes final, unless  the  court  in  its  decision  provides
  otherwise.
    (5)  In  the  determination  of  whether  article 11-A or this section
  should apply to a trust:
    (A) All of the factors relevant to the trust  and  its  beneficiaries,
  including  the  following factors to the extent they are relevant, shall
  be considered:
    (i) the nature, purpose, and expected duration of the trust;
    (ii) the intent of the creator of the trust;
    (iii) the identity and circumstances of the beneficiaries;
    (iv) the needs for liquidity, regularity of payment, and  preservation
  and appreciation of capital;
    (v)  the assets held in the trust; the extent to which they consist of
  financial assets, interests in closely held  enterprises,  tangible  and
  intangible  personal  property, or real property; the extent to which an
  asset is used by a beneficiary; and whether an asset  was  purchased  by
  the trustee or received from the creator of the trust.
    (B)  In  any proceeding brought pursuant to subparagraph (e)(2), there
  shall be a rebuttable presumption that this section should apply to  the
  trust.

    (f)  Trusts  to which this section shall not apply. This section shall
  not apply to a trust if:
    (1)  the  governing instrument provides in substance that this section
  shall not apply;
    (2) the trust is a pooled income fund described in  section  642(c)(5)
  of the United States internal revenue code of 1986;
    (3)  the trust is a charitable remainder annuity trust or a charitable
  remainder unitrust  described  in  section  664  of  the  United  States
  internal revenue code of 1986; or
    (4)  the  trust  is  an  irrevocable lifetime trust which provides for
  income to be  paid  for  the  life  of  a  grantor,  and  possessing  or
  exercising  the  power to make this section apply would cause any public
  benefit program to consider additional amounts of principal or income to
  be an available resource or  available  income,  and  the  principal  or
  income  or  both  would  in  each  case  not  be considered an available
  resource or income, if there was no power to make  this  section  apply,
  if,  based upon the facts and circumstances surrounding the formation of
  such trust, it can reasonably be concluded that the primary purpose  for
  the  establishment  of  the trust was to ensure that the trust principal
  would not be treated as an available resource  for  the  purposes  of  a
  governmental assistance program.