Legal Definitions - Uniform Principal and Interest Act

The Uniform Principal and Interest Act, also known as the Uniform Principal and Income Act, is a law that most states have adopted. It allows trustees to make adjustments that were not previously allowed. For example, a trustee could distribute principal to income beneficiaries if it were necessary to carry out the purpose of the trust.

Here is an example of how Vermont’s Uniform Principal and Income Act works:

Let's say a trust has $100,000 in principal and the trust agreement requires the trustee to pay the income to the beneficiary each year. However, the trust also requires the trustee to maintain the principal for the beneficiary's future use. If the trust earns $5,000 in interest in a year, the trustee can distribute that $5,000 to the beneficiary as income. But if the trust loses $5,000 in principal due to a bad investment, the trustee can take $5,000 from the income and add it to the principal to maintain the $100,000 for the beneficiary's future use.

This example illustrates how the Uniform Principal and Income Act allows trustees to adjust the distribution of principal and income to carry out the purpose of the trust.