Prob. Code, § 16361

(a) Subject to Section 16364, and except as otherwise provided in paragraph (2) of subdivision (c) of Section 16370, a fiduciary shall disburse from principal all of the following:

(1) The balance of the disbursements described in paragraph (1) of subdivision (a) of, and subdivision (c) of, Section 16360, after application of subdivision (b) of Section 16360.

(2) The fiduciary’s compensation calculated on principal as a fee for acceptance, distribution, or termination.

(3) A payment of an expense to prepare for or execute a sale or other disposition of property.

(4) A payment on the principal of a trust debt.

(5) A payment of an expense of an accounting, judicial or nonjudicial proceeding, or other matter that involves primarily principal, including a proceeding to construe the terms of the trust or protect property.

(6) A payment of a premium for insurance, including title insurance, not described in subdivision (d) of Section 16360, of which the fiduciary is the owner and beneficiary.

(7) A payment of an estate or inheritance tax or other tax imposed because of the death of a decedent, including penalties, apportioned to the trust.

(8) The following payments:

(A) A payment related to environmental matters, including:

(i) Reclamation.

(ii) Assessment of environmental conditions.

(iii) Remedying and removing environmental contamination.

(iv) Monitoring remedial activities and the release of substances.

(v) Preventing future releases of substances.

(vi) Collecting amounts from persons liable or potentially liable for the costs of activities described in clauses (i) to (v), inclusive.

(vii) Penalties imposed under environmental laws or regulations.

(viii) Other actions to comply with environmental laws or regulations.

(ix) Statutory or common law claims by third parties.

(x) Defending claims based on environmental matters.

(B) A payment for a premium for insurance for matters described in subparagraph (A).

(9) Payments representing extraordinary repairs or expenses incurred in making a capital improvement to trust property, including special assessments.

(b) If a principal asset is encumbered with an obligation that requires income from the asset to be paid directly to a creditor, the fiduciary shall transfer from principal to income an amount equal to the income paid to the creditor in reduction of the principal balance of the obligation.