Idaho Principal and Income Rules for Trusts and Estates

Part of my Idaho Trusts Overview.

By Ronald W. Brilliant, Attorney at Law · Licensed in Idaho, Nevada & California · Last reviewed: September 2026 against the Idaho Code (Titles 15 and 68) as posted by the Idaho Legislature (July 1, 2026)

In This TopicIdaho TrustsTopic 6 of 14: Principal and Income

Many trusts pay “income” to one person, such as a surviving spouse, and later give what is left, the “principal,” to someone else, such as the children. Idaho’s Uniform Principal and Income Act, in Chapter 10 of Title 68, sets the default rules for deciding which receipts and expenses belong to income and which belong to principal (Idaho Code §§ 68-10-101, 68-10-103).

These rules matter to trustees and personal representatives, and to beneficiaries on both sides of a trust. The Act applies to every trust or decedent’s estate existing on its effective date, except as the will, the terms of the trust, or the Act itself expressly provides otherwise (Idaho Code § 68-10-605).

Key Terms

Term	Meaning under Idaho law
Fiduciary	A personal representative or a trustee, including an executor, administrator, successor personal representative, special administrator, and a person performing substantially the same function (Idaho Code § 68-10-102(3)).
Income	Money or property a fiduciary receives as current return from a principal asset, plus part of sale or liquidation receipts to the extent Part 4 of the Act provides (§ 68-10-102(4)).
Principal	Property held in trust for distribution to a remainder beneficiary when the trust terminates (§ 68-10-102(10)).
Income beneficiary	A person to whom net income of a trust is or may be payable (§ 68-10-102(5)).
Remainder beneficiary	A person entitled to receive principal when an income interest ends (§ 68-10-102(11)).
Mandatory income interest	The right to receive net income that the terms of the trust require the fiduciary to distribute (§ 68-10-102(7)).
Net income	Total receipts allocated to income during an accounting period, minus disbursements made from income, plus or minus transfers to or from income under the Act (§ 68-10-102(8)).
Accounting period	A calendar year, unless the fiduciary selects another 12-month period; it includes a partial period when an income interest begins or ends (§ 68-10-102(1)).

The Trust Document Comes First

When allocating receipts and disbursements, a fiduciary must follow the terms of the trust or the will, even if the Act says something different (Idaho Code § 68-10-103(a)(1)). A fiduciary may also use a discretionary power of administration given by the trust or will, even if the result differs from the Act, and no inference of improper conduct arises just because an allocation departs from the Act (§ 68-10-103(a)(2)).

If the document is silent and gives no such discretion, the fiduciary must follow the Act (§ 68-10-103(a)(3)). If neither the document nor the Act gives a rule for a receipt or disbursement, it goes to principal (§ 68-10-103(a)(4)).

In using the power to adjust or any discretionary power under the Act, a fiduciary must act impartially, based on what is fair and reasonable to all beneficiaries, unless the trust or will clearly shows an intent to favor one or more of them (§ 68-10-103(b)). A decision made in accordance with the Act is presumed fair and reasonable to all beneficiaries (§ 68-10-103(b)). For the trustee’s broader duties, see trustee duties and liabilities.

The Trustee’s Power to Adjust

A trustee may adjust between principal and income to the extent the trustee considers necessary if three conditions are met (Idaho Code § 68-10-104(a)):

1. The trustee invests and manages trust assets as a prudent investor under the Idaho uniform prudent investor act (see the prudent investor rule).
2. The trust describes what may or must be distributed to a beneficiary by referring to the trust’s income.
3. After applying the basic rules, the trustee determines that it cannot administer the trust impartially as § 68-10-103(b) requires.

In deciding whether to adjust, the trustee must consider all relevant factors, including the trust’s nature, purpose, and expected duration; the trustor’s intent; the beneficiaries’ identity and circumstances; needs for liquidity, regular income, and preserving and growing capital; the kinds of assets held; economic conditions and inflation or deflation; and the expected tax consequences (§ 68-10-104(b)).

When a Trustee May Not Adjust

A trustee may not make an adjustment that (Idaho Code § 68-10-104(c)):

• Reduces the income interest in a trust that requires all income to be paid at least annually to a spouse and would qualify for an estate or gift tax marital deduction without the power.
• Reduces the actuarial value of the income interest in a trust funded to qualify for a gift tax exclusion.
• Changes an amount payable as a fixed annuity or a fixed fraction of the value of the trust assets.
• Comes from an amount permanently set aside for charitable purposes, unless both income and principal are set aside.
• Would cause an individual to be treated as owner of the trust for income tax purposes, or cause trust assets to be included in the estate of a trustee or a person who can remove or appoint a trustee, when that would not otherwise happen.
• Is made while the trustee is a beneficiary of the trust.

If the tax-ownership, estate-inclusion, or trustee-beneficiary limit applies to one trustee, a cotrustee to whom it does not apply may make the adjustment, unless the trust does not permit that (§ 68-10-104(d)). A trustee may release the entire power, or only the power to adjust in one direction, permanently or for a set period, if it is uncertain whether the power will cause a result described in § 68-10-104(c)(1)-(6), or determines the power will or may deprive the trust of a tax benefit or impose a tax burden (§ 68-10-104(e)).

Trust terms that limit adjustments do not remove the power unless the terms clearly intend to deny it (§ 68-10-104(f)). Unless a beneficiary has asked the trustee to consider an adjustment, the Act creates no duty to adjust, and a trustee is not liable for not considering or choosing not to make one (§ 68-10-104(g)).

Notice of Proposed Action

A trustee may give a notice of proposed action on any matter governed by the Act, including a decision not to act (Idaho Code § 68-10-105(a)). The trustee mails it to all adult beneficiaries who receive or are entitled to receive income, or who would receive principal if the trust ended when notice is given (§ 68-10-105(b)). If all beneficiaries are incapacitated persons, notice goes to their guardians or conservators appointed under Title 15, Chapter 5 (§ 68-10-105(b)). Anyone who consents in writing need not receive notice (§ 68-10-105(c)).

The notice must state that it is given under § 68-10-105 and include (§ 68-10-105(d)):

• The trustee’s name and mailing address.
• A copy of the trust instrument, if any.
• A description of the proposed action and the reasons for it.
• The time to object, which must be at least 30 days from mailing.
• The date on or after which the action may be taken or is effective.
• A statement that the recipient may petition for a judicial determination.
• A form for consenting or objecting.

A beneficiary objects or consents by mailing a written response to the trustee within the stated time (§ 68-10-105(e)). If no beneficiary entitled to notice objects and the other requirements are met, the trustee is not liable to any current or future beneficiary for the action (§ 68-10-105(f)).

If a timely written objection arrives, the trustee or a beneficiary may petition the court to have the action taken as proposed, taken with changes, or denied, and the objecting beneficiary has the burden of proving it should not be taken (§ 68-10-105(g)). If the trustee drops the action, it must tell the beneficiaries why; a beneficiary may then petition to have it taken and bears the burden of proving it should be (§ 68-10-105(g)). Court proceedings over trusts are discussed on the trust and estate disputes page.

When Income Rights Begin and End

An income beneficiary is entitled to net income from the date the income interest begins, which is the date the trust specifies or, if none, the date an asset becomes subject to the trust (Idaho Code § 68-10-301(a)). An asset becomes subject to a trust on the date of a lifetime transfer, on the testator’s death for assets passing by will, or on an individual’s death for assets a third party transfers because of that death (§ 68-10-301(b)). An income interest ends on the day before the income beneficiary dies or another terminating event occurs (§ 68-10-301(d)).

An income receipt or expense, such as rent or interest, due before a decedent dies or the income interest begins goes to principal; one with a periodic due date on or after that date goes to income (§ 68-10-302(a)-(b)). Items without a periodic due date are treated as accruing day by day and split at that date (§ 68-10-302(b)).

When a mandatory income interest ends, the trustee pays the surviving beneficiary, or the estate of a beneficiary whose death ended the interest, that beneficiary’s share of undistributed income not otherwise disposed of by the trust (§ 68-10-303(b)). This does not apply to income from any portion the beneficiary had an unqualified power to revoke, if that power covered more than 5% of the trust; that income is added to principal (§ 68-10-303(b)).

Estates and Ending Income Interests

After a death, or after an income interest ends, the fiduciary pays attorney, accountant, and fiduciary fees, court costs, other administration expenses, and interest on death taxes from income or principal in its discretion (Idaho Code § 68-10-201(2)(B)). It may pay them from income of property passing to a trust for which it claims an estate tax marital or charitable deduction only to the extent that does not reduce or lose the deduction (§ 68-10-201(2)(B)). Debts, funeral expenses, disposition of remains, and apportioned death taxes are paid from principal (§ 68-10-201(2)(C)).

Net income from specifically given property goes to the beneficiary receiving that property (§ 68-10-201(1)). Remaining net income is shared among residuary and remainder beneficiaries in proportion to their fractional interests in undistributed principal assets, valued as of the distribution date (§ 68-10-202(a)). For estate administration generally, see our Idaho probate overview.

How Common Receipts Are Allocated

Receipt	Income	Principal
Money from a corporation, partnership, LLC, or similar entity	Generally income (§ 68-10-401(b))	Property other than money, money in exchange for the trust’s interest, liquidation proceeds, and capital gain dividends from a regulated investment company or REIT (§ 68-10-401(c))
Sale or exchange of a principal asset	—	All, including realized profit (§ 68-10-404(2))
Rent, including lease cancellation or renewal payments	Income (§ 68-10-405)	Refundable and security deposits (§ 68-10-405)
Interest on an obligation to pay money	Income (§ 68-10-406(a))	Sale or redemption proceeds if held more than one year (§ 68-10-406(b))
Proceeds of a life insurance policy or other contract naming the trust or trustee as beneficiary	Proceeds of a contract insuring against loss of occupancy or use by an income beneficiary, loss of income, or loss of business profits (§ 68-10-407(b))	All other proceeds, including coverage for damage to or loss of a trust asset (§ 68-10-407(a))
Deferred compensation or annuity payments not characterized as interest or dividends	10% of the part required to be made during the period; special rules apply to payments from a separate fund, such as an IRA or pension plan, to certain marital deduction trusts (§ 68-10-409(c)-(g))	The balance, or the entire payment if no part is required to be made or it is the entire amount due (§ 68-10-409(c))
Liquidating asset (leasehold, patent, copyright, royalty right)	10% (§ 68-10-410(b))	90% (§ 68-10-410(b))
Mineral royalties, bonuses, and working interests (more than nominal)	10% (§ 68-10-411(a)(3)-(4))	90% (§ 68-10-411(a)(3)-(4))
Water	All, if renewable (§ 68-10-411(b))	90%, if not renewable (§ 68-10-411(b))
Timber	Up to the rate of growth during a mandatory income interest (§ 68-10-412(a)(1))	Removal beyond the rate of growth and sales of standing timber (§ 68-10-412(a)(2))
Derivatives and option premiums	—	Principal, unless accounted for as a separate business (§ 68-10-414(b)-(c))
Asset-backed securities	Portion the payer identifies as interest or current return (§ 68-10-415(b))	The balance (§ 68-10-415(b))

Money counts as a partial liquidation, and goes to principal, if the entity says so or if a distribution or related series exceeds 20% of the entity’s gross assets (Idaho Code § 68-10-401(d)). If an allocation for certain payments or assets would be insubstantial, the trustee may put the whole amount in principal, unless one of the § 68-10-104(c) limits applies; an allocation is presumed insubstantial if it would change net income by less than 10%, or the asset is worth less than 10% of the trust’s total value at the start of the accounting period (§ 68-10-408).

A trustee who runs a business or activity, such as farming, raising and selling livestock, managing rental properties, extracting minerals, or timber operations, may keep separate accounting records for it if that is in the best interest of all beneficiaries (§ 68-10-403(a), (c)).

How Expenses Are Charged

Paid from income	Paid from principal
One-half of the trustee’s regular compensation and of investment advisory or custodial fees (§ 68-10-501(1))	The other half (§ 68-10-502(a)(1))
One-half of expenses for accountings, judicial proceedings, or matters involving both income and remainder interests (§ 68-10-501(2))	The other half (§ 68-10-502(a)(1))
Other ordinary expenses, including interest, ordinary repairs, and regularly recurring taxes on principal (§ 68-10-501(3))	Payments on the principal of a trust debt (§ 68-10-502(a)(3))
Recurring insurance premiums covering loss of a principal asset or its income or use (§ 68-10-501(4))	Expenses of a proceeding that concerns primarily principal (§ 68-10-502(a)(4))
Expenses of a proceeding concerning primarily the income interest (§ 68-10-501(3))	Estate, inheritance, and other transfer taxes apportioned to the trust, and environmental expenses (§ 68-10-502(a)(6)-(7))

A trustee may transfer a reasonable amount of net cash receipts from a depreciable principal asset to principal (Idaho Code § 68-10-503(b)). It may not do so for a residence or personal-use property used by a beneficiary, during administration of a decedent’s estate, or for an asset used in a separately accounted business (§ 68-10-503(b)(1)-(3)). A trustee may also transfer income to principal to reimburse or reserve for extraordinary repairs, capital improvements, rental preparation costs, and similar principal disbursements (§ 68-10-504).

Income Taxes

Tax based on receipts allocated to income is paid from income, and tax based on receipts allocated to principal is paid from principal, even if the taxing authority calls it an income tax (Idaho Code § 68-10-505(a)-(b)). A fiduciary may make adjustments between principal and income to offset shifts in economic interests or tax benefits between income and remainder beneficiaries caused by tax elections and similar matters (§ 68-10-506(a)).

How I Can Help

I help trustees and personal representatives read their trust or will alongside Idaho’s Uniform Principal and Income Act, sort out how receipts and expenses should be allocated, and prepare notices of proposed action. I also help income and remainder beneficiaries understand how allocations affect them. Request a consultation to discuss your situation.

This page provides general information about Idaho trust law, based on the Idaho Code, and is not legal advice. Court rules and case law also affect these matters. Every situation is different; consult an attorney about yours. Reading this page does not create an attorney-client relationship.