Reference no: EM132946441

Ten years ago, a testator died, survived by his only children: a son, age 26, and a daughter, age 18. A testamentary trust was created under the testator's duly probated will. The will specified that all trust income would be paid to the son during the son's lifetime and that upon the son's death, the trust would terminate and trust principal would be distributed to the testator's "grandchildren who shall survive" the son. The testator provided for his daughter in other sections of the will. Five years ago, the trustee of the testamentary trust purchased an office building with $500,000 from the trust principal. Other than this building, the trust assets consist of publicly traded securities.

Last year, the trustee received $30,000 in rents from the office building. The trustee also received, with respect to the securities owned by the trust, cash dividends of $20,000 and a stock dividend of 400 shares of Acme Corp. common stock distributed to the trust by Acme Corp. Eight months ago, the trustee sold the office building for $700,000.Six months ago, the son delivered a letter to the trustee stating: "I hereby disclaim any interest I may have in the income interest of the trust." On the date the son delivered this letter to the trustee, the son had no living children; the daughter had one living minor child. A statute in this jurisdiction provides that "a disclaimer of any interest created by will is valid only if made within nine months after the testator's death, and if an interest is validly disclaimed, the disclaiming party is deemed to have predeceased the testator."

1. How should the rents, sales proceeds, cash dividends, and stock dividends received prior to the trustee's receipt of the son's letter have been allocated between trust principal and income? Explain.

2. How, if at all, does the son's letter to the trustee affect the future distribution of trust income and principal? Explain.