(

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.