§2155. Underproductive property

A portion of the net proceeds of sale of any part of principal that has not produced an average net income (including the value of any beneficial use of the property by the income beneficiary) of at least one percent per annum of its inventory value for more than a year shall be treated as delayed income to which the income beneficiary is entitled as provided in this section. The net proceeds of sale are the gross proceeds received, including the value of any property received in substitution for the property disposed of, less expenses, including income taxes, incurred in disposition and less carrying charges accrued while the property was underproductive.

The sum allocated as delayed income is the difference between the net proceeds and the amount that, had it been invested at simple interest at four percent per annum while the property was underproductive, would have produced the net proceeds. That sum, plus any carrying charges and expenses previously charged against income while the property was underproductive, less any income received by the income beneficiary from the property and less the value of any beneficial use of the property by the income beneficiary, is income, and the balance is principal.

Property becomes underproductive at the beginning of the year in which it fails to produce an average net income of at least one percent per annum.

If there are successive income beneficiaries, the delayed income shall be divided among them or their heirs, legatees, or assignees according to the length of the period during which each was entitled to income.

If principal subject to this section is disposed of by conversion into property that cannot be apportioned easily, the income beneficiary is entitled to the net income from the substituted property while it is held. If within five years after the conversion the substituted property has not been further converted into easily apportionable property, no allocation as provided in this section shall be made.

This section does not apply to any period during which the trustee is under an express direction not to sell or dispose of the principal or to any period before the income from a legacy begins to accrue to the benefit of the income beneficiary.