Understanding the Uniform Principal and Income Act

February 10, 2026
Paramus Estate Planning

When creating or administering a trust in New Jersey, one of the most important—but often overlooked—laws is the Uniform Principal and Income Act (UPIA). This statute governs how income and principal are allocated between trust beneficiaries and plays a critical role in fiduciary decision-making, tax planning, and beneficiary fairness.

Whether you are a trustee, beneficiary, or planning to create a trust as part of your estate plan, understanding how the New Jersey Uniform Principal and Income Act works can help you avoid disputes and ensure your estate plan operates as intended.

What Is the Uniform Principal and Income Act?

The Uniform Principal and Income Act is a model law adopted by many states to provide consistent rules for:

  • Allocating receipts and expenses between income and principal

  • Defining the rights of income beneficiaries versus remainder beneficiaries

  • Guiding trustees in managing modern investment portfolios

New Jersey has adopted its own version of the Act, codified at N.J.S.A. 3B:19B-1 through 3B:19B-33, which applies to most trusts and estates administered in the state unless the governing document states otherwise.

Why the Uniform Principal and Income Act Matters in New Jersey Estate Planning

Traditionally, trusts held income-producing assets such as bonds and rental property. Today, many trusts are invested for total return, including growth stocks and diversified portfolios that may produce little “income” in the traditional sense.

The New Jersey UPIA addresses this reality by:

  • Allowing trustees greater flexibility

  • Promoting fairness between different classes of beneficiaries

  • Reducing conflicts caused by outdated income rules

For New Jersey trustees, the Act provides statutory guidance—and legal protection—when making allocation decisions.

Income vs. Principal Under New Jersey Law

Under the New Jersey Uniform Principal and Income Act:

  • Income generally includes interest, dividends, rents, and other periodic receipts

  • Principal includes assets held for long-term growth, such as real estate sale proceeds, capital gains, and trust corpus

The distinction matters because:

  • Income beneficiaries are typically entitled to distributions during the trust term

  • Remainder beneficiaries receive what is left when the trust ends

The Act establishes default rules, but the trust document can override them, which is why careful drafting is essential.

The Trustee’s Power to Adjust in New Jersey

One of the most significant features of the New Jersey UPIA is the trustee’s power to adjust.

What Is the Power to Adjust?

Under N.J.S.A. 3B:19B-4, a trustee may adjust between income and principal if:

  • The trust describes distributions in terms of income

  • The trustee invests for total return

  • The adjustment is necessary to be fair to all beneficiaries

This allows trustees to reallocate funds when traditional income rules would otherwise disadvantage one group of beneficiaries.

Example:

If a trust holds primarily growth assets that generate little income, a trustee may shift a portion of principal to income so the income beneficiary receives a reasonable distribution—without violating fiduciary duties.

Unitrust Conversions in New Jersey

New Jersey law also allows trustees to convert certain trusts into unitrusts.

What Is a Unitrust?

A unitrust pays a fixed percentage (typically 3%–5%) of the trust’s total value each year, rather than relying on traditional income definitions.

Benefits of a Unitrust:

  • Predictable distributions

  • Alignment with modern investment strategies

  • Reduced disputes between beneficiaries

Under the New Jersey Uniform Principal and Income Act, trustees may convert to a unitrust if statutory requirements are met and fiduciary duties are satisfied.

How Expenses Are Allocated Under the Act

The Act also governs how trust expenses are allocated, including:

  • Investment management fees

  • Property taxes

  • Insurance premiums

  • Trustee compensation

In New Jersey:

  • Some expenses are charged to income

  • Others to principal

  • Certain expenses may be equitably apportioned

Improper expense allocation is a common source of beneficiary disputes, making professional guidance critical.

Can the Uniform Principal and Income Act Be Overridden?

Yes. In New Jersey, the terms of the trust or will control if they clearly express a different intent.

This is why customized estate planning is so important. Boilerplate trust language may unintentionally:

  • Restrict trustee flexibility

  • Favor one class of beneficiaries

  • Create tax inefficiencies

An experienced New Jersey estate planning attorney can draft provisions that either incorporate or modify UPIA rules to meet your specific goals.

Common Mistakes Trustees Make Under the New Jersey UPIA

Trustees often run into trouble by:

  • Failing to understand their power to adjust

  • Treating income and principal too rigidly

  • Ignoring tax consequences of allocations

  • Making adjustments without proper documentation

In New Jersey, trustees owe fiduciary duties of loyalty, impartiality, and prudence. Misapplication of the Uniform Principal and Income Act can expose a trustee to personal liability.

Why This Matters for New Jersey Families

For families in Paramus and throughout New Jersey, the Uniform Principal and Income Act directly impacts:

  • Trust administration

  • Family harmony

  • Long-term wealth preservation

  • Estate and income tax planning

Whether you are creating a revocable living trust, serving as a trustee, or receiving trust distributions, understanding this law helps protect your interests.

Work With a New Jersey Estate Planning Attorney

The Uniform Principal and Income Act is powerful—but complex. Proper application requires a deep understanding of:

  • New Jersey trust law

  • Fiduciary duties

  • Tax implications

  • Beneficiary rights

At Paramus Estate Planning, we help New Jersey clients design and administer trusts that work as intended—today and for generations to come.

If you have questions about the Uniform Principal and Income Act in New Jersey or need help reviewing a trust, speak with an experienced estate planning attorney who understands the nuances of New Jersey law.

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