Difference In Trust Principal & Trust Income

[Music] Hi this Keith Davidson from Albertson and Davidson in this video I want to discuss the difference between trust principle and Trust income so everything that goes into a trust all the property all the assets all the money that go into a trust it gets broken down into one of two categories it's either principle which is the property that the trust starts with or receives and then there's income and that's the amount of money and other things that the asset principle generates so if you have a stock for example the stock would be principal and if that stock pays a dividend then the dividend payment would be income same thing for rental property so if you have a apartment building or a rental home the home itself the building itself would be principal but the rents that come in off that property that would be income there are times when it can get a little tricky for example if you sell a stock and you trigger a capital gain that gain amount is actually principal not income even though it is subject to income tax as a capital gain it's still not income in the eyes of trust law it's actually a principle receipt so that's kind of the difference between principle and income and it's important to understand these differences because different people might have different rights to principle versus income so for example it's fairly common in a trust that's set up for a surviving spouse where the surviving spouse might be entitled to all of the income so all the income goes to the spouse but the principle either doesn't get distributed at all or if it is distributed it's based on a standard like the spouse can use it for health education maintenance or support so the two different types of property are going to be distributed out of the trust based on different standards so you have to understand what is principle and what is income so that you know what property is the beneficiary entitled to and what property is more limited or discretionary in the eyes of the trustee you can also have beneficiaries that have an income only interest and other beneficiaries that have a principal only interest so sometimes they're actually separated out based on income beneficiaries and principle beneficiaries two separate groups of people and so obviously there you also want to know what is income so you can pay the right amount out to the income beneficiaries versus the principle beneficiaries so it's very important to understand these distinctions it's important to be able to categorize principle and income appropriately and then obviously you want to distribute it appropriately and that's a little something about trust principle anding [Music] [Applause] you.