SB109,22,1717 (f) Other receipts as provided in subs. (17) to (24).
SB109,22,25 18(14) Rental property. To the extent that a trustee accounts for receipts from
19rental property in accordance with this subsection, the trustee shall allocate to
20income an amount received as rent of real or personal property, including an amount
21received for cancellation or renewal of a lease. An amount received as a refundable
22deposit, including a security deposit or a deposit that is to be applied as rent for
23future periods, must be added to principal and held subject to the terms of the lease
24and is not available for distribution to a beneficiary until the trustee's contractual
25obligations have been satisfied with respect to that amount.
SB109,23,4
1(15) Obligation to pay money. (a) An amount received as interest, whether
2determined at a fixed, variable, or floating rate, on an obligation to pay money to the
3trustee, including an amount received as consideration for prepaying principal, must
4be allocated to income without any provision for amortization of premium.
SB109,23,115 (b) A trustee shall allocate to principal an amount received from the sale,
6redemption, or other disposition of an obligation to pay money to the trustee more
7than one year after it is purchased or acquired by the trustee, including an obligation
8whose purchase price or value when it is acquired is less than its value at maturity.
9If the obligation matures within one year after it is purchased or acquired by the
10trustee, an amount received in excess of its purchase price or its value when acquired
11by the trust must be allocated to income.
SB109,23,1312 (c) This subsection does not apply to an obligation to which sub. (18), (19), (20),
13(21), (23), or (24) applies.
SB109,23,20 14(16) Insurance policies and similar contracts. (a) Except as otherwise
15provided in par. (b), a trustee shall allocate to principal the proceeds of a life
16insurance policy or other contract in which the trust or its trustee is named as
17beneficiary, including a contract that insures the trust or its trustee against loss for
18damage to, destruction of, or loss of title to, a trust asset. The trustee shall allocate
19dividends on an insurance policy to income if the premiums on the policy are paid
20from income, and to principal if the premiums are paid from principal.
SB109,23,2321 (b) A trustee shall allocate to income proceeds of a contract that insures the
22trustee against loss of occupancy or other use by an income beneficiary, loss of
23income, or, subject to sub. (12), loss of profits from a business.
SB109,23,2424 (c) This subsection does not apply to a contract to which sub. (18) applies.
SB109,24,7
1(17) Insubstantial allocations not required. If a trustee determines that an
2allocation between principal and income required by sub. (18), (19), (20), (21), or (24)
3is insubstantial, the trustee may allocate the entire amount to principal unless one
4of the circumstances described in sub. (4) (c) applies to the allocation. This power
5may be exercised by a cotrustee in the circumstances described in sub. (4) (d) and may
6be released for the reasons and in the manner described in sub. (4) (e). An allocation
7is presumed to be insubstantial if:
SB109,24,98 (a) The amount of the allocation would increase or decrease net income in an
9accounting period, as determined before the allocation, by less than 10%; or
SB109,24,1210 (b) The value of the asset producing the receipt for which the allocation would
11be made is less than 10% of the total value of the trust's assets at the beginning of
12the accounting period.
SB109,24,20 13(18) Deferred compensation, annuities, and similar payments. (a) In this
14subsection, "payment" means a payment that a trustee may receive over a fixed
15number of years or during the life of one or more individuals because of services
16rendered or property transferred to the payer in exchange for future payments. The
17term includes a payment made in money or property from the payer's general assets
18or from a separate fund created by the payer, including a private or commercial
19annuity, an individual retirement account, and a pension, profit-sharing,
20stock-bonus, or stock-ownership plan.
SB109,24,2521 (b) To the extent that a payment is characterized as interest or a dividend or
22a payment made in lieu of interest or a dividend, a trustee shall allocate it to income.
23The trustee shall allocate to principal the balance of the payment and any other
24payment received in the same accounting period that is not characterized as interest,
25a dividend, or an equivalent payment.
SB109,25,8
1(c) If no part of a payment is characterized as interest, a dividend, or an
2equivalent payment, and all or part of the payment is required to be made, a trustee
3shall allocate to income 10% of the part that is required to be made during the
4accounting period and the balance to principal. If no part of a payment is required
5to be made or the payment received is the entire amount to which the trustee is
6entitled, the trustee shall allocate the entire payment to principal. For purposes of
7this paragraph, a payment is not required to be made to the extent that it is made
8because the trustee exercises a right of withdrawal.
SB109,25,129 (d) If, to obtain an estate tax marital deduction for a trust, a trustee must
10allocate more of a payment to income than provided for by this subsection, the trustee
11shall allocate to income the additional amount necessary to obtain the marital
12deduction.
SB109,25,1313 (e) This subsection does not apply to payments to which sub. (19) applies.
SB109,25,22 14(19) Liquidating asset. (a) In this subsection, "liquidating asset" means an
15asset whose value will diminish or terminate because the asset is expected to produce
16receipts for a period of limited duration. The term includes a leasehold, patent,
17copyright, royalty right, and right to receive payments during a period of more than
18one year under an arrangement that does not provide for the payment of interest on
19the unpaid balance. The term does not include a payment subject to sub. (18),
20resources subject to sub. (20), timber subject to sub. (21), an activity subject to sub.
21(23), an asset subject to sub. (24), or any asset for which the trustee establishes a
22reserve for depreciation under sub. (27).
SB109,25,2423 (b) A trustee shall allocate to income 10% of the receipts from a liquidating
24asset and the balance to principal.
SB109,26,3
1(20) Minerals, water, and other natural resources. (a) To the extent that a
2trustee accounts for receipts from an interest in minerals or other natural resources
3in accordance with this subsection, the trustee shall allocate them as follows:
SB109,26,54 1. If received as nominal delay rental or nominal annual rent on a lease, a
5receipt must be allocated to income.
SB109,26,86 2. If received from a production payment, a receipt must be allocated to income
7if and to the extent that the agreement creating the production payment provides a
8factor for interest or its equivalent. The balance must be allocated to principal.
SB109,26,119 3. If an amount received as a royalty, shut-in-well payment, take-or-pay
10payment, bonus, or delay rental is more than nominal, 90% must be allocated to
11principal and the balance to income.
SB109,26,1412 4. If an amount is received from a working interest or any other interest not
13provided for in subd. 1., 2., or 3., 90% of the net amount received must be allocated
14to principal and the balance to income.
SB109,26,1715 (b) An amount received on account of an interest in water that is renewable
16must be allocated to income. If the water is not renewable, 90% of the amount must
17be allocated to principal and the balance to income.
SB109,26,2018 (c) This subsection applies whether or not a decedent or donor was extracting
19minerals, water, or other natural resources before the interest became subject to the
20trust.
SB109,27,221 (d) If a trust owns an interest in minerals, water, or other natural resources on
22the effective date of this paragraph .... [revisor inserts date], the trustee may allocate
23receipts from the interest as provided in this subsection or in the manner used by the
24trustee before the effective date of this paragraph .... [revisor inserts date]. If the
25trust acquires an interest in minerals, water, or other natural resources after the

1effective date of this paragraph .... [revisor inserts date], the trustee shall allocate
2receipts from the interest as provided in this subsection.
SB109,27,5 3(21) Timber. (a) To the extent that a trustee accounts for receipts from the sale
4of timber and related products in accordance with this subsection, the trustee shall
5allocate the net receipts:
SB109,27,86 1. To income to the extent that the amount of timber removed from the land does
7not exceed the rate of growth of the timber during the accounting periods in which
8a beneficiary has a mandatory income interest;
SB109,27,119 2. To principal to the extent that the amount of timber removed from the land
10exceeds the rate of growth of the timber or the net receipts are from the sale of
11standing timber;
SB109,27,1512 3. To income or principal or between income and principal if the net receipts
13are from the lease of timberland or from a contract to cut timber from land owned by
14a trust, by determining the amount of timber removed from the land under the lease
15or contract and applying the rules in subds. 1. and 2.; or
SB109,27,1716 4. To principal to the extent that advance payments, bonuses, and other
17payments are not allocated under subd. 1., 2., or 3.
SB109,27,1918 (b) In determining net receipts to be allocated under par. (a), a trustee shall
19deduct and transfer to principal a reasonable amount for depletion.
SB109,27,2120 (c) This subsection applies whether or not a decedent or transferor was
21harvesting timber from the property before it became subject to the trust.
SB109,28,322 (d) If a trust owns an interest in timberland on the effective date of this
23paragraph .... [revisor inserts date], the trustee may allocate net receipts from the
24sale of timber and related products as provided in this subsection or in the manner
25used by the trustee before the effective date of this paragraph .... [revisor inserts

1date]. If the trust acquires an interest in timberland after the effective date of this
2paragraph .... [revisor inserts date], the trustee shall allocate net receipts from the
3sale of timber and related products as provided in this subsection.
SB109,28,13 4(22) Property not productive of income. (a) If a marital deduction is allowed
5for all or part of a trust whose assets consist substantially of property that does not
6provide the surviving spouse with sufficient income from or use of the trust assets,
7and if the amounts that the trustee transfers from principal to income under sub. (4)
8and distributes to the spouse from principal in accordance with the terms of the trust
9are insufficient to provide the spouse with the beneficial enjoyment required to
10obtain the marital deduction, the spouse may require the trustee to make property
11productive of income, convert property within a reasonable time, or exercise the
12power conferred by sub. (4) (a). The trustee may decide which action or combination
13of actions to take.
SB109,28,1614 (b) In cases not governed by par. (a), proceeds from the sale or other disposition
15of an asset are principal without regard to the amount of income the asset produces
16during any accounting period.
SB109,28,22 17(23) Derivatives and options. (a) In this subsection, "derivative" means a
18contract or financial instrument or a combination of contracts and financial
19instruments that gives a trust the right or obligation to participate in some or all
20changes in the price of a tangible or intangible asset or group of assets, or changes
21in a rate, an index of prices or rates, or another market indicator for an asset or a
22group of assets.
SB109,28,2523 (b) To the extent that a trustee does not account under sub. (12) for transactions
24in derivatives, the trustee shall allocate to principal receipts from and
25disbursements made in connection with those transactions.
SB109,29,9
1(c) If a trustee grants an option to buy property from the trust, whether or not
2the trust owns the property when the option is granted, grants an option that permits
3another person to sell property to the trust, or acquires an option to buy property for
4the trust or an option to sell an asset owned by the trust, and the trustee or other
5owner of the asset is required to deliver the asset if the option is exercised, an amount
6received for granting the option must be allocated to principal. An amount paid to
7acquire the option must be paid from principal. A gain or loss realized upon the
8exercise of an option, including an option granted to a settlor of the trust for services
9rendered, must be allocated to principal.
SB109,29,16 10(24) Asset-backed securities. (a) In this subsection, "asset-backed security"
11means an asset whose value is based upon the right it gives the owner to receive
12distributions from the proceeds of financial assets that provide collateral for the
13security. The term includes an asset that gives the owner the right to receive from
14the collateral financial assets only the interest or other current return or only the
15proceeds other than interest or current return. The term does not include an asset
16to which sub. (10) or (18) applies.
SB109,29,2017 (b) If a trust receives a payment from interest or other current return and from
18other proceeds of the collateral financial assets, the trustee shall allocate to income
19the portion of the payment that the payer identifies as being from interest or other
20current return and shall allocate the balance of the payment to principal.
SB109,30,221 (c) If a trust receives one or more payments in exchange for the trust's entire
22interest in an asset-backed security in one accounting period, the trustee shall
23allocate the payments to principal. If a payment is one of a series of payments that
24will result in the liquidation of the trust's interest in the security over more than one

1accounting period, the trustee shall allocate 10% of the payment to income and the
2balance to principal.
SB109,30,5 3(25) Disbursements from income. A trustee shall make the following
4disbursements from income to the extent that they are not disbursements specified
5in sub. (5) (b) 2. or 3.:
SB109,30,76 (a) One-half of the regular compensation of the trustee and of any person
7providing investment advisory or custodial services to the trustee;
SB109,30,98 (b) One-half of all expenses for accountings, judicial proceedings, or other
9matters that involve both the income and remainder interests;
SB109,30,1410 (c) All of the other ordinary expenses incurred in connection with the
11administration, management, or preservation of trust property and the distribution
12of income, including interest, ordinary repairs, regularly recurring taxes assessed
13against principal, and expenses of a proceeding or other matter that concerns
14primarily the income interest; and
SB109,30,1615 (d) Recurring premiums on insurance covering the loss of a principal asset or
16the loss of income from or use of the asset.
SB109,30,18 17(26) Disbursements from principal. (a) A trustee shall make the following
18disbursements from principal:
SB109,30,2019 1. The remaining one-half of the disbursements described in sub. (25) (a) and
20(b);
SB109,30,2321 2. All of the trustee's compensation calculated on principal as a fee for
22acceptance, distribution, or termination, and disbursements made to prepare
23property for sale;
SB109,30,2424 3. Payments on the principal of a trust debt;
SB109,31,2
14. Expenses of a proceeding that concerns primarily principal, including a
2proceeding to construe the trust or to protect the trust or its property;
SB109,31,43 5. Premiums paid on a policy of insurance not described in sub. (25) (d) of which
4the trust is the owner and beneficiary;
SB109,31,65 6. Estate, inheritance, and other transfer taxes, including penalties,
6apportioned to the trust; and
SB109,31,147 7. Disbursements related to environmental matters, including reclamation,
8assessing environmental conditions, remedying and removing environmental
9contamination, monitoring remedial activities and the release of substances,
10preventing future releases of substances, collecting amounts from persons liable or
11potentially liable for the costs of those activities, penalties imposed under
12environmental laws or regulations and other payments made to comply with those
13laws or regulations, statutory or common law claims by third parties, and defending
14claims based on environmental matters.
SB109,31,1815 (b) If a principal asset is encumbered with an obligation that requires income
16from that asset to be paid directly to the creditor, the trustee shall transfer from
17principal to income an amount equal to the income paid to the creditor in reduction
18of the principal balance of the obligation.
SB109,31,22 19(27) Transfers from income to principal for depreciation. (a) In this
20subsection, "depreciation" means a reduction in value due to wear, tear, decay,
21corrosion, or gradual obsolescence of a fixed asset having a useful life of more than
22one year.
SB109,31,2523 (b) A trustee may transfer to principal a reasonable amount of the net cash
24receipts from a principal asset that is subject to depreciation, but may not transfer
25any amount for depreciation:
SB109,32,3
11. Of that portion of real property used or available for use by a beneficiary as
2a residence or of tangible personal property held or made available for the personal
3use or enjoyment of a beneficiary;
SB109,32,44 2. During the administration of a decedent's estate; or
SB109,32,65 3. Under this subsection if the trustee is accounting under sub. (12) for the
6business or activity in which the asset is used.
SB109,32,77 (c) An amount transferred to principal need not be held as a separate fund.
SB109,32,12 8(28) Transfers from income to reimburse principal. (a) If a trustee makes or
9expects to make a principal disbursement described in this subsection, the trustee
10may transfer an appropriate amount from income to principal in one or more
11accounting periods to reimburse principal or to provide a reserve for future principal
12disbursements.
SB109,32,1513 (b) Principal disbursements to which par. (a) applies include the following, but
14only to the extent that the trustee has not been and does not expect to be reimbursed
15by a third party:
SB109,32,1716 1. An amount chargeable to income but paid from principal because it is
17unusually large, including extraordinary repairs;
SB109,32,1918 2. A capital improvement to a principal asset, whether in the form of changes
19to an existing asset or the construction of a new asset, including special assessments;
SB109,32,2120 3. Disbursements made to prepare property for rental, including tenant
21allowances, leasehold improvements, and brokers' commissions;
SB109,32,2422 4. Periodic payments on an obligation secured by a principal asset to the extent
23that the amount transferred from income to principal for depreciation is less than the
24periodic payments; and
SB109,32,2525 5. Disbursements described in sub. (26) (a) 7.
SB109,33,3
1(c) If the asset whose ownership gives rise to the disbursements becomes
2subject to a successive income interest after an income interest ends, a trustee may
3continue to transfer amounts from income to principal as provided in par. (a).
SB109,33,5 4(29) Income taxes. (a) A tax required to be paid by a trustee based on receipts
5allocated to income must be paid from income.
SB109,33,86 (b) A tax required to be paid by a trustee based on receipts allocated to principal
7must be paid from principal, even if the tax is called an income tax by the taxing
8authority.
SB109,33,109 (c) A tax required to be paid by a trustee on the trust's share of an entity's
10taxable income must be paid proportionately:
SB109,33,1211 1. From income to the extent that receipts from the entity are allocated to
12income; and
SB109,33,1313 2. From principal to the extent that:
SB109,33,1414 a. Receipts from the entity are allocated to principal; and
SB109,33,1615 b. The trust's share of the entity's taxable income exceeds the total receipts
16described in subds. 1. and 2. a.
SB109,33,1917 (d) For purposes of this subsection, receipts allocated to principal or income
18must be reduced by the amount distributed to a beneficiary from principal or income
19for which the trust receives a deduction in calculating the tax.
SB109,33,23 20(30) Adjustments between principal and income because of taxes. (a) A
21fiduciary may make adjustments between principal and income to offset the shifting
22of economic interests or tax benefits between income beneficiaries and remainder
23beneficiaries which arise from:
SB109,33,2524 1. Elections and decisions, other than those described in par. (b), that the
25fiduciary makes from time to time regarding tax matters;
SB109,34,3
12. An income tax or any other tax that is imposed upon the fiduciary or a
2beneficiary as a result of a transaction involving or a distribution from the estate or
3trust; or
SB109,34,64 3. The ownership by an estate or trust of an interest in an entity whose taxable
5income, whether or not distributed, is includable in the taxable income of the estate
6or trust or of a beneficiary.
SB109,34,197 (b) If the amount of an estate tax marital deduction or charitable contribution
8deduction is reduced because a fiduciary deducts an amount paid from principal for
9income tax purposes instead of deducting it for estate tax purposes, and as a result
10estate taxes paid from principal are increased and income taxes paid by an estate,
11trust, or beneficiary are decreased, each estate, trust, or beneficiary that benefits
12from the decrease in income tax shall reimburse the principal from which the
13increase in estate tax is paid. The total reimbursement must equal the increase in
14the estate tax to the extent that the principal used to pay the increase would have
15qualified for a marital deduction or charitable contribution deduction but for the
16payment. The proportionate share of the reimbursement for each estate, trust, or
17beneficiary whose income taxes are reduced must be the same as its proportionate
18share of the total decrease in income tax. An estate or trust shall reimburse principal
19from income.
SB109,34,23 20(31) Uniformity of application and construction. In applying and construing
21the Uniform Principal and Income Act, consideration shall be given to the need to
22promote uniformity of the law with respect to the subject matter of the Uniform
23Principal and Income Act among states that enact it.
SB109, s. 8 24Section 8. 701.24 of the statutes is renumbered 701.24 (1) and amended to
25read:
SB109,35,6
1701.24 (1) Except as otherwise provided in s. 701.19 (9) (a) and (10), ss. 701.01
2to 701.19, 701.21, 701.22,and 701.23 are applicable to a trust existing on July 1, 1971,
3as well as a trust created after such date and shall govern trustees acting under such
4trusts. If application of any provision of ss. 701.01 to 701.19, 701.21, 701.22 ,and
5701.23 to a trust in existence on August 1, 1971, is unconstitutional, it shall not affect
6application of the provision to a trust created after that date.
SB109, s. 9 7Section 9. 701.24 (2) of the statutes is created to read:
SB109,35,118 701.24 (2) Section 701.20 applies to every trust or decedent's estate existing on
9the effective date of this subsection .... [revisor inserts date], and to every trust or
10decedent's estate created or coming into existence after that date, except as otherwise
11expressly provided in s. 701.20 or by the decedent's will or the terms of the trust.
SB109, s. 10 12Section 10. 861.015 (2) of the statutes is amended to read:
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