KRS 386.500: Adjustments between principal and income because of taxes.

(1) A fiduciary may, with District Court approval, make adjustments between principal

and income to offset the shifting of economic interests or tax benefits between

income beneficiaries and remainder beneficiaries which arise from:

(a) Elections and decisions , other than those described in subsection (2) of this

section, that the fiduciary makes from time to time regarding tax matters;

(b) An income tax or any other tax that is imposed upon the fiduciary or a

beneficiary as a result of a transaction involving, or a distribution from, the

estate or trust; or

(c) The ownership by an estate or trust of an interest in an entity whose taxable

income, whether or not distributed, is includable in the taxable income of the

estate, trust, or a beneficiary.

(2) If the amount of an estate tax marital deduction or charitable contribution deduction

is reduced because a fiduciary deducts an amount paid from principal for income

tax purposes instead of deducting it for estate tax purposes and, as a result, estate

taxes paid from principal are increased and income taxes paid by an estate, trust, or

beneficiary are decreased, each estate, trust, or beneficiary that benefits from the

decrease in income tax shall reimburse the principal from which the increase in

estate tax is paid . The total reimbursement shall equal the increase in the estate tax

to the extent that the principal used to pay the increase would have qualified for a

marital deduction or charitable contribution deduction but for the payment. The

proportionate share of the reimbursement for each estate, trust, or beneficiary whose

income taxes are reduced shall be the same as its proportionate share of the total

decrease in income tax. An estate or trust shall reimburse principal from income.