RECEIPTS NORMALLY APPORTIONED

Iowa Code tit. XV, ch. 637, subch. IV, pt. 3

in effect

Iowa Code § 637.420 Insubstantial allocations not required.

637.420. Insubstantial allocations not required. 1. If a trustee determines that an allocation between principal and income required by sections 637.421 through 637.424 or section 637.427 is insubstantial, the trustee may allocate the entire receipt to principal. 2. An allocation is presumed to be insubstantial if either of the following would be true if an allocation was made: a. The amount of the allocation would increase or decrease an accounting period’s net income, as determined before the allocation, by less than ten percent. b. The value of the asset producing the receipt for which the allocation would be made is less than ten percent of the total value of the trust’s assets at the beginning of the accounting period. 99 Acts, ch 124, §16

Iowa Code § 637.421 Deferred compensation, annuities, and similar payments.

637.421. Deferred compensation, annuities, and similar payments. 1. For purposes of this section, the following definitions shall apply: a. “Payments” means a payment that a trustee may receive over a fixed number of years or during the life of one or more individuals because of services rendered or property transferred to the payor in exchange for future payments. “Payments” include those made in money or property from the payor’s general assets or from a separate fund created by the payor. For purposes of subsections 4, 5, 6, and 7, “payments” also includes any payment from a separate fund regardless of the reason for the payment. b. “Separate fund” includes a private or commercial annuity, an individual retirement account, and a pension, profit sharing, stock bonus, or stock ownership plan. 2. To the extent that a payment is characterized as interest, a dividend or a payment made in lieu of interest or a dividend, a trustee shall allocate the payment to income. The trustee shall allocate to principal the balance of the payment and any other payment received in the same accounting period that is not characterized as interest, a dividend, or an equivalent payment. 3. If no part of a payment is characterized as interest, a dividend, or an equivalent payment, and all or part of the payment is required to be made, a trustee shall allocate to income ten percent of the part that is required to be made during the accounting period and the balance to principal. If no part of a payment is required to be made or the payment received is the entire amount to which the trustee is entitled, the trustee shall allocate the entire payment to principal. For purposes of this subsection, a payment is not required to be made to the extent that the payment is made because the trustee exercises a right of withdrawal. 4. Except as otherwise provided in subsection 5, subsections 6 and 7 apply, and subsections 2 and 3 do not apply in determining the allocation of a payment made from a separate fund to any of the following: a. A trust to which an election to qualify for a marital deduction had been made under section 2056(b)(7) of the Internal Revenue Code of 1986, as amended. b. A trust that qualifies for a marital deduction under section 2056(b)(5) of the Internal Revenue Code of 1986, as amended. 5. Subsections 4, 6, and 7 do not apply if and to the extent that the series of payments would, without the application of subsection 4, qualify for a marital deduction under section 2056(b)(7)(c) of the Internal Revenue Code of 1986, as amended. 6. A trustee shall determine the internal income of each separate fund for the accounting period as if the separate fund were a trust subject to this chapter. Upon request of the surviving spouse, the trustee shall demand that the person administering the separate fund distribute such internal income to the trust. The trustee shall allocate a payment from the separate fund to income to the extent of the internal income of the separate fund and distribute that amount to the surviving spouse. The trustee shall allocate the balance to principal. Upon request of the surviving spouse, the trustee shall allocate principal to income to the extent the internal income of the separate fund exceeds payments made from the separate fund to the trust during the accounting period. 7. If a trustee cannot determine the internal income of a separate fund but can determine the value of the separate fund, the internal income of the separate fund is deemed to equal four percent of the value of the fund according to the most recent statement of the value prior to the beginning of the accounting period. If the trustee is unable to determine the internal income of the separate fund and the fund’s value, the internal income of the fund is deemed to equal the product of the interest rate and the present value of the expected future payments as determined pursuant to section 7520 of the Internal Revenue Code of 1986, as amended. 8. This section does not apply to a payment made under section 637.422. 99 Acts, ch 124, §17; 2009 Acts, ch 52, §12, 14; 2009 Acts, ch 179, §46

Iowa Code § 637.422 Liquidating asset.

637.422. Liquidating asset. 1. In this section, “liquidating asset” means an asset whose value will diminish or terminate because the asset is expected to produce receipts for a period of limited duration. The term includes leaseholds, patents, trademarks, copyrights, royalty rights, and rights to receive payments during a period of more than one year under an arrangement that does not provide for the payment of interest on the unpaid balance. The term does not include deferred compensation that is subject to section 637.421, natural resources that are subject to section 637.423, timber that is subject to section 637.424, an activity that is subject to section 637.426, or any asset for which the trustee establishes a reserve for depreciation under section 637.503. 2. A trustee shall allocate to income ten percent of the receipts from a liquidating asset and the balance to principal. 99 Acts, ch 124, §18

Iowa Code § 637.423 Minerals, water, and other natural resources.

637.423. Minerals, water, and other natural resources. 1. Receipts from an interest in minerals or other natural resources must be allocated according to the type of payment, as follows: a. If received as nominal delay rental or annual rent on a lease, a receipt must be allocated to income. b. If received from a production payment, a receipt must be allocated to income to the extent that the agreement creating the production payment provides a factor for interest or its equivalent. The balance must be allocated to principal. c. If an amount received as a royalty, bonus, or delay rental is more than nominal, ninety percent must be allocated to principal and the balance to income. d. If an amount is received from a working interest or any other interest not provided for in paragraph “a”, “b”, or “c”, ninety percent of the net amount received must be allocated to principal and the balance to income. 2. An amount received on account of an interest in water that is renewable must be allocated to income. If the water is not renewable, ninety percent of the amount must be allocated to principal and the balance to income. 3. This chapter applies without regard to whether a decedent or donor was extracting minerals, water, or other natural resources before the interest became subject to the trust. 4. If a trust owns an interest in minerals, water, or other natural resources on or before July 1, 2000, the trustee may allocate receipts from the interest as provided in this section or in the manner used by the trustee before July 1, 2000. If the trust acquires an interest in minerals, water, or other natural resources after July 1, 2000, the trustee shall allocate receipts from the interest as provided in this section. 99 Acts, ch 124, §19; 2000 Acts, ch 1154, §39

Iowa Code § 637.424 Timber.

637.424. Timber. 1. A trustee may account for net receipts from the sale of timber and related products under subsection 2 or section 637.403 or, if the trustee determines that net receipts are insubstantial, may allocate the net receipts to principal. The presumptions in section 637.420 apply in determining whether net receipts are insubstantial. If a trust owns more than one block of timberland, the trustee may use different methods to account for net receipts from different blocks. 2. If a trustee does not account under section 637.403 for net receipts from the sale of timber and related products or allocate the net receipts to principal because they are insubstantial, the trustee shall allocate the net receipts according to one of the following rules: a. Allocate the net receipts to income to the extent that the amount of timber removed from the land does not exceed the rate of growth of the block as a whole during the accounting periods in which a beneficiary has a mandatory income interest. b. Allocate the net receipts to principal to the extent that the amount of timber removed from the land exceeds the block’s rate of growth or the net receipts are from the sale of standing timber. c. Allocate the net receipts to or between income and principal if the net receipts are from the lease of timberland or from a contract to cut timber from land owned by a trust, by determining the amount of timber removed from the land under the lease or contract and applying the rules in paragraphs “a” and “b”. d. Allocate the net receipts to principal to the extent that advance payments, bonuses, and other payments are not allocated pursuant to paragraph “a”, “b”, or “c”. 3. In determining the net receipts from the sale of timber, a trustee shall deduct and transfer to principal a reasonable amount for depletion. 4. This chapter applies regardless of whether a decedent or transferor was harvesting timber from the property before it became subject to the trust. 5. If a trust owns an interest in timberland on or before July 1, 2000, the trustee may allocate net receipts from the sale of timber and related products as provided in this section or in the manner used by the trustee before July 1, 2000. If the trust acquires an interest in timberland after July 1, 2000, the trustee shall allocate net receipts from the sale of timber and related products as provided in this section. 99 Acts, ch 124, §20; 2000 Acts, ch 1154, §40

Iowa Code § 637.425 Property not productive of income.

637.425. Property not productive of income. 1. If a marital deduction is allowed for all or part of a trust whose assets consist substantially of property that does not provide the surviving spouse with sufficient income from or use of the trust assets, the spouse may require the trustee to make property productive of income or convert property within a reasonable time. The trustee may decide which action or combination of actions to take. 2. In all other cases, proceeds from the sale or other disposition of an asset are principal without regard to the amount of income the asset produces during any accounting period. 99 Acts, ch 124, §21

Iowa Code § 637.426 Derivatives and options.

637.426. Derivatives and options. 1. For purposes of this section, “derivative” means a contract or financial instrument or a combination of contracts and financial instruments which gives a trust the right or obligation to participate in some or all changes in the price of a tangible or intangible asset or group of assets, or changes in a rate, an index of prices or rates, or other market indicator for an asset or a group of assets. 2. To the extent that a trustee does not account under section 637.403 for transactions in derivatives, receipts from and disbursements made in connection with those transactions must be allocated to principal. 3. If a trustee grants an option to buy property from the trust, whether or not the trust owns the property when the option is granted, grants an option that permits another person to sell property to the trust, or acquires an option to buy property for the trust or an option to sell an asset owned by the trust, and the trustee or other owner of the asset is required to deliver the asset if the option is exercised, an amount received for granting the option must be allocated to principal, and an amount paid to acquire the option must be paid from principal. A gain or loss realized upon the exercise of an option, including an option granted to a settlor of the trust for services rendered, must be allocated to principal. 99 Acts, ch 124, §22

Iowa Code § 637.427 Asset-backed securities.

637.427. Asset-backed securities. 1. For purposes of this section, “asset-backed security” means an asset whose value is based upon the right it gives the owner to receive distributions from the proceeds of financial assets that provide collateral for the security. The term includes an asset that gives the owner the right to receive only the interest or other current return from the collateral financial assets or only the proceeds from the capital investment in the collateral financial assets. It does not include an asset to which section 637.401 or 637.421 applies. 2. If a trust receives a payment from the interest or other current return and the capital investment of the collateral financial assets, the trustee shall allocate to income the portion of a payment that the payor identifies as being from the interest or other current return, and shall allocate the balance of the payment to principal. 3. If a trust receives one or more payments in exchange for the trust’s entire interest in an asset-backed security in one accounting period, the trustee shall allocate the payments to principal. If a payment is one of a series of payments that will result in the liquidation of the trust’s interest in the security over more than one accounting period, the trustee shall allocate ten percent of the payment to income and the balance to principal. 99 Acts, ch 124, §23

Source: Iowa Legislature (legis.iowa.gov)URL: https://www.legis.iowa.gov/law/iowaCode/sections?codeChapter=637&year=2026Fetched: 10/20/2026