* Section 1. AS 13.36.335 is amended to read:

Sec. 13.36.335. Application of special distribution provisions. The asset distribution provisions of AS 13.16.540 - 13.16.545 [AS 13.16.540 - 13.16.550], 13.16.560, and the provisions of AS 13.38 [AS 13.38.030(a)] apply to the administration of a revocable trust following the death of the settlor of the trust, unless the terms of the trust indicate a different intention.

* Sec. 2. AS 13.38 is amended by adding new sections to read:

Article 1. Preliminary Provisions; Power to Adjust.

Sec. 13.38.200. Fiduciary duties; general principles. (a) In allocating receipts and disbursements to or between principal and income and with respect to any matter within the scope of this chapter, a fiduciary

(3) the trustee determines to follow an investment policy seeking a total return for the investments held by the trust, whether the return is to be derived from

(A) appreciation of capital;

(B) earnings and distributions from capital; or

(C) both (A) and (B) of this paragraph.

(b) In deciding whether and to what extent to exercise the power conferred by

(1) the size of the trust;

(2) the nature and estimated duration of the trust;

(3) the liquidity and distribution requirements of the trust;

(4) the need for regular distributions and preservation and appreciation of capital;

(5) the expected tax consequences of an adjustment;

(6) the net amount allocated to income under the other sections of this chapter and the increase or decrease in the value of the principal assets, which the trustee may estimate as to assets for which market values are not readily available;

(7) the assets held in the trust; the extent to which the assets 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 settlor or testator;

(8) to the extent reasonably known to the trustee, the need of the beneficiaries for present and future distributions authorized or required by the governing instrument;

(9) whether and to what extent the governing instrument gives the trustee the power to invade principal or accumulate income or prohibits the trustee from invading principal or accumulating income, and the extent to which the trustee has exercised a power from time to time to invade principal or accumulate income;

(10) the intent of the settlor or testator; and

(11) the actual and anticipated effect of economic conditions on principal and income and the effects of inflation and deflation.

(c) A trustee may not make an adjustment under this section if

(1) the adjustment would diminish the income interest in a trust that requires all of the income to be paid at least annually to a spouse and for which a federal estate tax or gift tax marital deduction would be allowed, in whole or in part, if the trustee did not have the power to make the adjustment; the prohibition in this paragraph does not apply to a trust after the trustee determines that the marital deduction has not been claimed or has not been allowed;

(2) the adjustment would reduce the actuarial value of the income interest in a trust to which a person transfers property with the intent to qualify for a federal gift tax exclusion;

(3) the adjustment would change the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets;

(4) the adjustment is from any amount that is permanently set aside for charitable purposes under the governing instrument and for which a federal estate or gift tax charitable deduction has been taken, unless both income and principal are permanently set aside for charitable purposes under the governing instrument;

(5) possessing or exercising the power to make an adjustment would cause an individual to be treated as the owner of all or part of the trust for federal income tax purposes, and the individual would not be treated as the owner if the trustee did not possess the power to make an adjustment;

(6) possessing or exercising the power to make an adjustment would cause all or part of the trust assets to be subject to federal estate or gift tax with respect to an individual, and the assets would not be subject to federal estate or gift tax with respect to the individual if the trustee did not possess the power to make an adjustment;

(7) the trustee is a beneficiary of the trust; or

(8) the trust has been converted to a unitrust under AS 13.38.300 - 13.38.410.

(d) If (c)(5), (6), or (7) of this section applies to a trustee and there is more than one trustee, a co-trustee to whom the provision does not apply may make the adjustment unless the exercise of the power by the remaining trustee or trustees is prohibited by the governing instrument.

(f) A governing instrument that limits the power of a trustee to make an adjustment between principal and income does not affect the application of this section unless it is clear from the governing instrument that it is intended to deny the trustee the power of adjustment conferred by (a) of this section.

Sec. 13.38.220. Judicial control of discretionary powers. (a) A court may not change a fiduciary's decision to exercise or not to exercise a discretionary power conferred by this chapter unless the court determines that the decision was an abuse of the fiduciary's discretion.

(b) If a court determines that a fiduciary has abused the fiduciary's discretion regarding a discretionary power conferred by this chapter, the remedy is to restore the income and remainder beneficiaries to the positions they would have occupied if the fiduciary had not abused the fiduciary's discretion, according to the following rules:

(1) to the extent that the abuse of discretion has not resulted in a distribution to a beneficiary or has resulted in a distribution that is too small, the court shall require the fiduciary to distribute from the trust an amount to the beneficiary that the court determines will restore the beneficiary, in whole or in part, to the beneficiary's appropriate position;

(2) to the extent that the abuse of discretion has resulted in a distribution to a beneficiary that is too large, the court shall restore the beneficiaries, the trust, or both, in whole or in part, to their appropriate positions by requiring the fiduciary to withhold an amount from one or more future distributions to the beneficiary who received the distribution that was too large or by requiring that beneficiary or that beneficiary's estate to return some or all of the distribution to the trust, notwithstanding a spendthrift or similar provision;

(3) if the abuse of discretion concerns the power to convert a trust into a unitrust, the court shall require the trustee either to convert into a unitrust or to reconvert from a unitrust;

(4) to the extent that the court is unable, after applying (1) - (3) of this subsection, to restore the beneficiaries, the trust, or both to the positions they would have occupied if the fiduciary had not abused the fiduciary's discretion, the court may require the fiduciary to pay an appropriate amount from the fiduciary's own funds to one or more of the beneficiaries, the trust, or both.

Article 2. Conversion to Unitrust.

Sec. 13.38.300. Power to convert to unitrust. Unless expressly prohibited by the governing instrument, a trustee may release the power to adjust under AS 13.38.210 and may convert a trust into a unitrust as described in AS 13.38.300 - 13.38.410 if

(1) the trustee determines that the conversion will enable the trustee to better carry out the intent of the settlor or testator and the purposes of the trust;

(2) the trustee gives written notice of the trustee's intention to release the power to adjust, of the trustee's intention to convert the trust into a unitrust, and of how the unitrust will operate, including what initial decisions the trustee will make under this section, to all the sui juris beneficiaries who

(A) are currently eligible to receive income from the trust;

(B) would be eligible, if a power of appointment were not exercised, to receive income from the trust if the interest of all of the beneficiaries eligible to receive income under (A) of this paragraph were to terminate immediately before the giving of the notice; and

(C) would, if a power of appointment were not exercised, receive a distribution of principal if the trust were to terminate immediately before the giving of the notice;

(3) there are at least one sui juris beneficiary under (2)(A) of this section and at least one sui juris beneficiary under (2)(B) or (C) of this section; and

(4) a sui juris beneficiary does not object to the conversion to a unitrust in a writing delivered to the trustee within 60 days after the mailing of the notice under

Sec. 13.38.310. Judicially approved conversion. (a) A trustee may petition the court to approve the conversion to a unitrust if

(1) a beneficiary timely objects to the conversion to a unitrust; or

(2) there is not a sui juris beneficiary who is eligible under

(b) A beneficiary may request a trustee to convert to a unitrust. If the trustee

(c) The superior court shall approve the conversion or direct the requested conversion if the court concludes that the conversion will enable the trustee to better carry out the intent of the settlor or testator and the purposes of the trust.

Sec. 13.38.320. Factors to be considered. In deciding whether to exercise the power conferred by AS 13.38.300, a trustee may consider, among other things,

(1) the size of the trust;

(2) the nature and estimated duration of the trust;

(3) the liquidity and distribution requirements of the trust;

(4) the need for regular distributions and preservation and appreciation of capital;

(5) the expected tax consequences of the conversion;

(6) 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; and the extent to which an asset is used by a beneficiary;

(7) to the extent reasonably known to the trustee, the need of the beneficiaries for present and future distributions authorized or required by the governing instrument;

(8) whether and to what extent the governing instrument gives the trustee the power to invade principal or accumulate income or prohibits the trustee from invading principal or accumulating income and the extent to which the trustee has exercised a power from time to time to invade principal or accumulate income;

(9) the actual and anticipated effect of economic conditions on principal and income and the effects of inflation and deflation.

Sec. 13.38.330. Directions after conversion. (a) After a trust is converted to a unitrust, the trustee shall

(1) follow an investment policy seeking a total return for the investments held by the trust, whether the return is to be derived from

(A) appreciation of capital;

(B) earnings and distributions from capital; or

(C) both (A) and (B) of this paragraph; and

(2) make regular distributions in accordance with the governing instrument construed in accordance with the provisions of this section.

(b) After a trust has been converted to a unitrust, "income" in the governing instrument means an annual distribution equal to four percent of the net fair market value, as determined annually, of the trust's assets, whether the assets would be considered income or principal under other provisions of this chapter.

(c) After a trust has been administered as a unitrust for three years, the four percent amount referred to in (b) of this section shall be averaged over the three preceding years of the trust.

Sec. 13.38.340. Discretion of trustee regarding conversion. The trustee may in the trustee's discretion, from time to time, determine

(1) the effective date of a conversion to a unitrust;

(2) the provisions for prorating a unitrust distribution for a short year in which a beneficiary's right to payments commences or ceases;

(3) the frequency of unitrust distributions during the year;

(4) the effect of other payments from or contributions to the trust on the trust's valuation;

(5) whether to value the trust's assets annually or more frequently;

(6) what valuation dates to use;

(7) how frequently to value nonliquid assets and whether to estimate their value;

(8) whether to omit trust property occupied or possessed by a beneficiary from the calculations; and

(9) other matters necessary for the proper functioning of the unitrust.

Sec. 13.38.350. Unitrust deductions and distributions. (a) Expenses that would be deducted from income if the trust were not a unitrust may not be deducted from the unitrust distribution.

(b) Unless otherwise provided by the governing instrument, a unitrust distribution shall be considered to have been paid from net income as net income would be determined if the trust were not a unitrust. To the extent net income is insufficient, the unitrust distribution shall be considered to have been paid from net realized short-term capital gains. To the extent income and net realized short-term capital gains are insufficient, the unitrust distribution shall be considered to have been paid from net realized long-term capital gains. To the extent income and net realized short-term and long-term capital gains are insufficient, the unitrust distribution shall be paid from the principal of the trust.

Sec. 13.38.360. Court orders regarding unitrust. The trustee or, if the trustee declines to petition the court, a beneficiary may petition the court to

(1) select a payout percentage different than four percent;

(2) provide for a distribution of net income, as would be determined if the trust were not a unitrust, in excess of the unitrust distribution if the distribution is necessary to preserve a tax benefit;

(3) average the valuation of the trust's net assets over a period other than three years.

Sec. 13.38.370. Effects of conversion. A conversion to a unitrust does not affect a provision in the governing instrument directing or authorizing the trustee to distribute principal or authorizing a beneficiary to withdraw a portion or all of the principal.

Sec. 13.38.380. Prohibited conversions; exception. (a) A trustee may not convert a trust into a unitrust if

(1) payment of the unitrust distribution would change the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets;

(2) the unitrust distribution would be made from an amount that is permanently set aside for charitable purposes under the governing instrument and for which a federal estate or gift tax deduction has been taken;

(3) possessing or exercising the power to convert would cause an individual to be treated as the owner of all or part of the trust for federal income tax purposes, and the individual would not be treated as the owner if the trustee did not possess the power to convert;

(4) possessing or exercising the power to convert would cause all or part of the trust assets to be subject to federal estate or gift tax with respect to an individual, and the assets would not be subject to federal estate or gift tax with respect to the individual if the trustee did not possess the power to convert;

(5) the conversion would result in the disallowance of a federal estate tax or gift tax marital deduction that would be allowed if the trustee did not have the power to convert; or

(6) the trustee is a beneficiary of the trust.

(b) Notwithstanding (a)(2) of this section, a trustee may elect to convert a trust to a unitrust if both the income and principal of the trust being converted to a unitrust are permanently set aside for charitable purposes and if the provisions of AS 13.38.440 - 13.38.490 are followed.

Sec. 13.38.390. Permissible conversion where otherwise prohibited. (a) If AS 13.38.380(a)(3), (4), or (6) applies to a trustee and there is more than one trustee, a co-trustee to whom the provision does not apply may convert the trust, unless the exercise of the power by the remaining trustee is prohibited by the governing instrument.

(b) If AS 13.38.380(a)(3), (4), or (6) applies to all the trustees, the trustees may petition the court to direct a conversion.

Sec. 13.38.400. Reconversion from a unitrust. A trustee may reconvert a trust that has been converted into a unitrust under AS 13.38.300 by following the same procedures provided in AS 13.38.300 - 13.38.410 for converting a trust into a unitrust. If a unitrust is reconverted under this section, the trustee's power to adjust under AS 13.38.210 applies to the trustee after the reconversion.

Sec. 13.38.410. Release of power to convert to unitrust. (a) A trustee may
release the power conferred by AS 13.38.300 to convert to a unitrust if the trustee

(1) is uncertain about whether possessing or exercising the power will
cause a result described in AS 13.38.380(a)(3), (4), or (5); or

(2) determines that possessing or exercising the power will or may
deprive the trust of a tax benefit or impose a tax burden not described in
AS 13.38.380.

(b) The release of a power under (a) of this section may be permanent or for a
specified period, including a period measured by the life of an individual.

Sec. 13.38.440. Charitable trust election. The trustee of a trust held
exclusively for charitable purposes may elect to be governed by AS 13.38.440 -
13.38.490 unless the governing instrument expressly provides that the election
provided by AS 13.38.440 - 13.38.490 is not available.

Sec. 13.38.450. Eligibility for charitable trust election. To make an election
under AS 13.38.440 - 13.38.490, the trustee shall adopt and follow an investment
policy seeking a total return for the investments held by the trust, whether the return is to be derived from appreciation of capital or earnings and distributions with respect to capital or both. The policy constituting the election must be in writing, must be maintained as part of the permanent records of the trust, and must recite that it constitutes an election to be governed by AS 13.38.440 - 13.38.490.

Sec. 13.38.460. Selection of percentage after charitable trust election. (a) After a trustee has elected under AS 13.38.440 for the trust to be governed by AS 13.38.440 - 13.38.490, the trustee shall, in a writing maintained as part of the permanent records of the trust, select the percentage of the value of the trust that will be considered income and determine that it is consistent with the long-term preservation of the real value of the principal of the trust, but the percentage may not be less than two percent or more than seven percent each year of the principal value of the trust. The trustee may elect to change a percentage previously selected if the trustee determines that the new percentage is consistent with the long-term preservation of the real value of the principal of the trust, but may not change the
percentage more frequently than once every 10 years.

(b) For a charitable trust required by 26 U.S.C. 4942 (Internal Revenue Code) to distribute a higher amount than the percentage selected under (a) of this section, the amount required by 26 U.S.C. 4942 (Internal Revenue Code) controls over the percentage selected.

Sec. 13.38.470. Revocation of charitable trust election. The trustee may
revoke an election to be governed by AS 13.38.440 - 13.38.490 if the revocation is made as part of an alternative investment policy seeking the long-term preservation of the real value of the principal of the trust. The revocation and alternative investment policy must be in writing and maintained as part of the permanent records of the trust.

Sec. 13.38.480. Value determination. For the purposes of applying AS 13.38.440 - 13.38.490, the value of the trust is the fair market value of the cash and other assets held by the trustee with respect to the trust, whether these assets would be considered income or principal under the other provisions of this chapter, determined at least annually. In the discretion of the trustee, the value of the trust may be averaged over a period of three or more preceding years when the trust has been administered as a unitrust under this section for at least three years.

Sec. 13.38.490. Definitions. In AS 13.38.440 - 13.38.490, except as
otherwise expressly stated in AS 13.38.440 - 13.38.490, 22

(1) "income" means the percentage of the value of the trust computed
under AS 13.38.440 - 13.38.490;

(2) "principal" means all assets other than those identified as income in
(1) of this section that are held by the trustee with respect to the trust.

Sec. 13.38.500. Determination and distribution of net income. After a decedent dies in the case of an estate, or after an income interest in a trust ends, a fiduciary

(1) of an estate or of a terminating income interest shall determine the amount of net income and net principal receipts received from property specifically given to a beneficiary under (5) of this section and the provisions applicable to trustees in AS 13.38.550 - 13.38.860; the fiduciary shall distribute the net income and net principal receipts to the beneficiary who is to receive the specific property;

(2) shall distribute to a beneficiary or trust that receives a pecuniary
amount a share of net income equal to the beneficiary's or trust's fractional interest in undistributed principal assets as determined under AS 13.38.510; the share accrues from the date of death of a decedent, in the case of an estate, or the date of death of a settlor or specified event, in the case of a revocable or irrevocable trust;

(3) shall determine the remaining net income of a decedent's estate or a
terminating income interest under the provisions applicable to trustees in AS 13.38.550 - 13.38.860 and by

(A) including in net income all income from property used to
discharge liabilities; and

(B) paying from principal the debts, the funeral expenses, the
costs of disposition of remains, the family allowance under AS 13.12.404, fees of personal representatives and their attorneys and accountants, and the taxes, related interest, and penalties described in AS 13.38.810(a)(7) that are apportioned to the estate or terminating income interest by the governing instrument or applicable law;

(4) shall distribute the net income remaining after distributions
required by (2) of this section in the manner described in AS 13.38.510 to all other beneficiaries;

(5) may not reduce principal or income receipts from property
described in (1) of this section because of a payment described in AS 13.38.710 or 13.38.720 to the extent that the governing instrument or applicable law requires the fiduciary to make the payment from assets other than the property or to the extent that the fiduciary recovers or expects to recover the payment from a third party; the net income and principal receipts from the property are determined by

(A) including all of the amounts the fiduciary receives or pays
with respect to the property, whether those amounts accrued or became due before, on, or after the date of a decedent's death or an income interest's terminating event; and

(B) making a reasonable provision for amounts that the fiduciary believes the estate or terminating income interest may become obligated to pay after the property is distributed.

Sec. 13.38.510. Distribution to residuary and remainder beneficiaries. (a)
Each beneficiary described in AS 13.38.500(4) is entitled to receive a portion of the net income equal to the beneficiary's fractional interest in undistributed principal assets, using values as of the distribution date. If a fiduciary makes more than one distribution of assets to beneficiaries to whom this section applies, each beneficiary, 1including one who does not receive part of the distribution, is entitled, as of each distribution date, to the net income the fiduciary has received after the date of death or terminating event or earlier distribution date but has not distributed as of the current distribution date.

(b) In determining a beneficiary's share of net income, the following rules
apply:

(1) the beneficiary is entitled to receive a portion of the net income
equal to the beneficiary's fractional interest in the undistributed principal assets immediately before the distribution date, including assets that later may be sold or applied to meet principal obligations;

(2) the beneficiary's fractional interest in the undistributed principal
assets shall be calculated without regard to property specifically given to a beneficiary and property required to pay pecuniary amounts;

(3) the beneficiary's fractional interest in the undistributed principal
assets shall be calculated on the basis of the aggregate value of those assets as of the distribution date without reducing the value by any unpaid principal obligation.

(c) If a fiduciary does not distribute all of the collected but undistributed net
income to each person as of a distribution date, the fiduciary shall maintain appropriate records showing the interest of each beneficiary in that net income.

(d) To the extent that the fiduciary considers it appropriate, if this section applies to the income from an asset, the fiduciary may apply the rules in this section to net gain or loss from the disposition of a principal asset realized after the date of death
or terminating event or an earlier distribution date.

(e) For the purposes of this section, the distribution date may be the date as of
which the fiduciary calculates the value of the assets if that date is reasonably near the date on which assets are actually distributed.

Sec. 13.38.550. When right to income begins and ends. (a) An income
beneficiary is entitled to net income from the date on which the income interest begins. An income interest begins

(1) on the date specified in the governing instrument; or

(2) if a date is not specified, on the date an asset becomes subject to a trust or successive income interest.

(b) An asset becomes subject to a trust

(1) 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;

(2) on the date of a testator's death, in the case of an asset that becomes subject to a trust by reason of a will, even if there is an intervening period of administration of the testator's estate; or

(3) on the date of an individual's death, in the case of an asset that is transferred to a fiduciary by a third party because of the individual's death.

(c) An asset becomes subject to a successive income interest on the day after the preceding income interest ends, as determined under (d) of this section, even if there is an intervening period of administration to wind up the preceding income interest.

(d) An income interest ends on

(2) the last day of a period during which there is not a beneficiary to whom a trustee may distribute income.

Sec. 13.38.560. Apportionment of receipts and disbursements when
decedent dies or income interest begins. (a) Unless AS 13.38.500(1) applies, a trustee shall allocate an income receipt or disbursement to principal if its due date
occurs before

(1) a decedent dies, in the case of an estate; or

(2) an income interest begins, in the case of a trust or successive income interest.

(b) A trustee shall allocate an income receipt or disbursement to income if its due date occurs on or after the date on which a decedent dies or an income interest begins and its due date is periodic. An income receipt or disbursement shall be treated as accruing from day to day if its due date is not periodic or it does not have a due date. The portion of the receipt or disbursement accruing before the date on which a decedent dies or an income interest begins shall be allocated to principal, and the balance shall be allocated to income.

(c) An item of income or an obligation is due on the date the payor is required
to make a payment. If a payment date is not stated, there is not a due date for the purposes of this chapter. Distributions to shareholders or other owners from an entity to which AS 13.38.600 applies are considered to be due on the date fixed by the entity for determining who is entitled to receive the distribution or, if a date is not fixed, on the declaration date for the distribution. A due date is periodic for receipts or disbursements that must be paid at regular intervals under a lease or an obligation to pay interest or if an entity customarily makes distributions at regular intervals.

Sec. 13.38.570. Apportionment when income interest ends. (a) When a
mandatory income interest ends, the trustee shall pay to a mandatory income beneficiary who survives that date, or the estate of a deceased mandatory income
beneficiary whose death causes the interest to end, the beneficiary's share of the undistributed income that is not disposed of under the governing instrument unless the beneficiary has an unqualified power to revoke more than five percent of the trust immediately before the income interest ends. In the case of the beneficiary who has an unqualified power to revoke more than five percent of the trust immediately before the income interest ends, the undistributed income from the portion of the trust that may be revoked shall be added to principal.

(b) When a trustee's obligation to pay a fixed annuity or a fixed fraction of the value of the trust's assets ends, the trustee shall prorate the final payment if and to the extent required by applicable law to accomplish a purpose of the trust or its settlor or testator relating to income, gift, estate, or other tax requirements.

(c) In this section, "undistributed income" means net income received before
the date on which an income interest ends, but does not include an item of income or expense that is due or accrued or net income that has been added or is required to be added to principal under the governing instrument.

Sec. 13.38.600. Character of receipts. (a) Except as otherwise provided in
this section, a trustee shall allocate to income money received from an entity, including reinvested cash dividends.

(b) A trustee shall allocate the following receipts from an entity to principal:

(1) property other than money excluding reinvested cash dividends;

(2) money received in one distribution or a series of related distributions in exchange for part or all of a trust's interest in the entity;

(3) money received in total or partial liquidation of the entity;

(4) money received from an entity that is a regulated investment company or a real estate investment trust if the money distributed is a short-term or long-term capital gain dividend for federal income tax purposes.

(c) Money is received in partial liquidation

(1) to the extent that the entity, at or near the time of a distribution,
indicates that it is a distribution in partial liquidation; or

(2) if the total amount of money and property received in a distribution
or series of related distributions is greater than 20 percent of the entity's gross assets, as shown by the entity's year-end financial statements immediately preceding the initial receipt.

(d) Money is not received in partial liquidation, and it may not be taken into
account under (c)(2) of this section, to the extent that it does not exceed the amount of income tax that a trustee or beneficiary must pay on taxable income of the entity that distributes the money.

(e) A trustee may rely upon a statement made by an entity about the source or character of a distribution if the statement is made at or near the time of distribution by the entity's board of directors or other person or group of persons authorized to exercise powers to pay money or transfer property comparable to those of a corporation's board of directors.

(f) In this section, "entity" means a corporation, partnership, limited liability company, regulated investment company, real estate investment trust, common trust fund, or another organization in which a trustee has an interest, but does not include

(1) a trust or estate to which AS 13.38.610 applies;

(2) a business or activity to which AS 13.38.620 applies;

(3) a payment to which AS 13.38.690 applies; or

(4) an asset-backed security to which AS 13.38.750 applies.

Sec. 13.38.610. Distribution from trust or estate. (a) A trustee shall allocate to income an amount received as a distribution of income from a trust or an estate in which the trust has an interest other than a purchased interest.

(b) A trustee shall allocate to principal an amount received as a distribution of principal from a trust or estate in which the trust has an interest other than a purchased interest.

(c) If a trustee purchases an interest in a trust that is an investment entity, or a decedent or donor transfers an interest in a trust that is an investment entity to a trustee, AS 13.38.600 or 13.38.750 applies to a receipt from the trust.

Sec. 13.38.620. Business and other activities conducted by trustee. (a) If a
trustee that conducts a business or other activity determines that it is in the best
interest of all the beneficiaries to account separately for the business or other activity instead of accounting for it as part of the trust's general accounting records, the trustee may maintain separate accounting records for the transactions of the business or other activity, whether or not the assets of the business or other activity are segregated from other trust assets.

(b) A trustee who accounts separately for a business or other activity may
determine the extent to which

(1) its net cash receipts are retained for working capital, the acquisition
or replacement of fixed assets, and other reasonably foreseeable needs of the business or activity; and

(2) the remaining net cash receipts are accounted for as principal or
income in the trust's general accounting records.

(c) If a trustee sells assets of the business or other activity, other than in the
ordinary course of the business or activity, the trustee shall account for the net amount received as principal in the trust's general accounting records to the extent the trustee determines that the amount received