SB384: Bill Text

Subchapter 7: Office of Trustee

Subchapter 7 specifies numerous default procedural rules that apply to the office of the trustee. Subchapter 7 includes rules related to acceptance or declination of a trusteeship, requiring a bond, the rights and obligations of cotrustees, the vacancy and appointment of successor trustees, the resignation of a trustee, the grounds for removing a trustee, duties of a former trustee to deliver trust property, trustee compensation, and the reimbursement of trustee expenses. Subchapter 7 also provides that property is properly transferred to a trust by titling the property in the name of the trustee. However, property titled in the name of the trust also places legal title in the name of the trustee.

Subchapter 8: Duties and Powers of Trustees, Directing Parties, and Trust Protectors

Subchapter 8 sets forth the fiduciary obligations of a trustee, except for those fiduciary duties included in the Uniform Prudent Investor Act. Under the Code, a trustee must administer the trust in good faith, solely in the interests of the beneficiaries, impartially, and prudently, incurring only reasonable costs and using any special skills or expertise the trustee may have. A trustee must take reasonable steps to control and protect trust property, to maintain adequate records that clearly identify separate trust interests, to enforce claims of the trust and defend claims against the trust, to collect trust property and to redress breaches of former trustees, and to exercise discretion in good faith and in accordance with the terms of the trust. A trustee has a duty to inform and report and must provide requested trust accountings to certain beneficiaries.

Under the Code, a trustee may delegate certain duties and powers but must exercise reasonable care, skill, and caution when selecting an agent, establishing the scope and terms of the delegation, and periodically reviewing the agent's actions. An agent who accepts a delegation of duty or power from a trustee has a duty to exercise reasonable care to comply with the terms of the delegation. A trustee who properly delegates a duty or power to an agent is not liable to the beneficiaries for the agent's actions.

Subchapter 8 provides that a trustee has broad power to achieve proper investment, management, and distribution of the trust property and may exercise all the powers that an unmarried, competent owner would have over individually owned property. This subchapter also enumerates specific powers that a trustee has absent contrary provisions in the trust instrument, and requires a trustee to make certain presumptions related to certain tax objectives, including presumptions concerning marital deduction transfers that are not included in the UTC.

As an addition to the UTC, the Code specifically allows a settlor, a court, or interested persons in a nonjudicial settlement agreement to appoint directing parties and trust protectors. The Code defines "directing party" as a person who is granted a power, in a capacity other than as a trustee or a trust protector, to make or to direct the trustee to make investment and distribution decisions. A directing party is a fiduciary and is obligated to act in good faith, consistent with the terms and purposes of the trust, and the interests of the beneficiaries. A trustee has no duty to monitor the directing party, and a trustee who follows a directing party's directions is not liable for any resulting losses, unless the loss is a result of the trustee's willful misconduct.

Under the Code, a "trust protector" is a person who is granted certain powers over the trust, the trustee, or trust property in a capacity other than as a trustee or a directing party. A settlor, court, or interested persons in a nonjudicial settlement agreement may specify whether a power granted to a trust protector must be exercised in a fiduciary or nonfiduciary capacity. If a settlor, court, or interested persons do not specify the legal capacity in which a trust protector is to exercise a particular power, the Code provides default rules for determining the capacity for specific powers. A trustee has no duty to monitor the actions of a trust protector and, subject to certain exceptions, is not liable for taking actions consistent with the actions of the trust protector.

Subchapter 9: Investment Management of Trusts

Subchapter 9 provides that, subject to certain exceptions, the investment management of trust property is governed by the Uniform Prudent Investor Act, which has been adopted in this state. As an exception to this general rule, a trustee who has no power over directed trust property does not have a duty to monitor the conduct or investment performance of the directing party.

The Code also limits the application of the Uniform Prudent Investor Act for life insurance trusts. If a principal purpose of a trust is to hold a life insurance contract, a trustee does not have a duty to determine whether the life insurance contract is, or remains, a proper investment. This change applies to all trusts executed after the effective date of the bill and to trusts executed before that date if the trustee provides a notice to the qualified beneficiaries.

Subchapter 10: Liability of Trustees and Rights of Persons Dealing with Trustee

Subchapter 10 identifies the remedies for breach of trust, provides how damages are determined for a breach of trust, reaffirms the court's power to award costs and attorney fees, specifies potential defenses, and addresses trustee relations with and liability to persons other than beneficiaries. Under the Code, a trust instrument may not waive or vary the trustee's duty of good faith or relieve the trustee of liability for reckless indifference. The Code also provides that a term in a trust that relieves a trustee of liability is not enforceable if the inclusion of the term is the result of an abuse of the settlor's confidential relationship with the trustee.

Generally, under the Code, a beneficiary must commence a proceeding against a trustee for breach of trust within five years after the first to occur of the following: the termination of the trust, the termination of the beneficiary's interest, or the removal, resignation, or death of the trustee. However, the Code creates a one-year statute of limitation for commencing such a proceeding if the beneficiary received a report that adequately disclosed the existence of a potential claim.

Under the Code, a trustee is protected from liability for a loss in value of the trust property if there is no breach of trust. A trustee generally is not liable if the trustee acts in reasonable reliance on the express provisions of the trust, if the trustee exercises reasonable care but fails to ascertain unknown external facts, or if a beneficiary provides a consent, release, or ratification for the trustee's action. A trustee is also protected from personal liability on a contract entered into in a fiduciary capacity and for contracts and torts of a partnership in which the trustee holds a general partnership interest if the other party had notice of the fiduciary relationship.

In general, a trustee is entitled to payment from the trust for attorney fees incurred in good faith. However, if a claim against the trustee is based on a breach of trust, the trustee must provide notice to qualified beneficiaries of the trustee's intention to pay attorney fees from the trust. Any party to the action may seek a court order prohibiting payment of attorney fees from the trust by demonstrating to the court that there is a reasonable basis for the court to find that a breach of trust occurred.

A third party dealing with a trust is not liable for any breach of the trustee's obligations to the beneficiaries resulting from a transaction, unless the third party has knowledge of an actual breach by the trustee. In addition, a third party may rely on a certification of trust that sets out certain required information, including a statement that the trust has not been revoked, modified, or amended in any manner that would cause the representations in the certificate to be incorrect. A third party who receives a certification of trust and continues to demand a complete copy of a trust instrument may be liable for damages if the demand is not in good faith.

Subchapter 11: Uniform Principal and Income Act

Subchapter 11 incorporates into the Code the Uniform Principal and Income Act, which has been adopted in this state. The bill also updates the Uniform Principal and Income Act by incorporating recent changes recommended by the Uniform Law Commission related to deferred compensation, annuities, and other similar payments.

Subchapter 12: Miscellaneous Provisions

Subchapter 12 provides that, subject to certain exceptions, the Code applies to trusts that are in existence on the effective date of the bill as well as to trusts created after the effective date of the bill. It also provides that the Code applies to a judicial proceeding concerning a trust commenced before, on, or after the effective date of the bill, unless a court determines that the application of the Code to a proceeding commenced before the effective date of the bill will substantially interfere with the effective conduct of the judicial proceedings or will prejudice the rights of the parties. The effective date of the bill is the first day of the seventh month beginning after publication.

The following changes occur outside the Code:

Powers of Appointment

The bill changes the term "general power" to "general power of appointment," which means a power exercisable in favor of any one or more of the donee, the donee's estate, the donee's creditors, or the creditors of the donee's estate. Under the bill, a "special power of appointment" is defined as any power of appointment that is not a general power of appointment.

The bill also clarifies the rights of a creditor of a person who holds a power of appointment. Under the bill, a donee's creditor can reach property that is subject to a general power of appointment during a donee's life only if the general power is presently exercisable. In general, upon the death of the donee, a creditor can reach property that is subject to a general power of appointment, whether or not the donee exercised the general power of appointment. However, under the bill, a creditor may not reach property subject to a general power of appointment that the donee has not exercised at the time of the donee's death if the donee or the donee's spouse is not the donor of the power of appointment.

Uniform Prudent Investor Act

The bill modifies the definition of "fiduciary" in the Uniform Prudent Investor Act to include a directing party with the power to direct the trustee's investment decisions and a trust protector who has a power exercisable in a fiduciary capacity over the investment of the trust assets. Therefore, the default rule is that directing parties and trust protectors are subject to the prudent investor rule if the directing party or trust protector has a power over the trust investments. Finally, the bill provides that the general rule of diversification does not apply to assets collected by a fiduciary.

Estate recovery and divestment

The 2013-15 biennial budget act, 2013 Wisconsin Act 20 (Act 20), made a number of changes to the laws relating to recovery from nonprobate property and estates for public assistance provided (estate recovery) and divestment (divestment) and financial eligibility for Medical Assistance (MA). The divestment changes went into effect on July 2, 2013, and the estate recovery changes went into effect on October 1, 2013, except that the Department of Health Services (DHS) was prohibited from implementing any of the changes without the approval of the Joint Committee on Finance (JCF). DHS submitted proposals for the implementation of the divestment and estate recovery provisions to JCF and most, but not all, of the provisions were approved by JCF for implementation. This bill repeals the estate recovery and divestment provisions that were not approved by JCF and makes a few changes to the estate recovery and divestment provisions that were approved.

Property subject to estate recovery

Current law defines the property that is subject to estate recovery as all real and personal property to which the individual who received the recoverable public assistance benefits under a public assistance program (recipient) held any legal title or in which the recipient had any legal interest immediately before death, including assets transferred to an heir or a survivor through jointly owned property, a living trust, or other specified arrangements. In addition, the property subject to estate recovery includes any real or personal property in which the recipient's surviving spouse had an ownership interest at the recipient's death and in which the recipient had a marital property interest with that spouse at any time within five years before the recipient applied for the public assistance program or during the time that the recipient was eligible for the public assistance program. The bill limits the property that is subject to estate recovery to all real and personal property to which the recipient held any legal title or in which the recipient had any legal interest immediately before death, including assets transferred to an heir or a survivor through the specified arrangements, and removes from the definition of property that is subject to estate recovery any real or personal property in which the recipient's surviving spouse had any ownership interest at the recipient's death and in which the recipient had a marital property interest with that spouse at any time within five years before the recipient applied for the public assistance program or during the time that the recipient was eligible for the public assistance program.

Current law provides that there is a presumption, which may be rebutted with clear and convincing evidence, that all nonprobate property, and all property in the estate, of the recipient's deceased spouse who survived the recipient was marital property held with the recipient and that 100 percent of that property is subject to estate recovery by DHS. The bill provides that there is a presumption, consistent with the statutes relating to the classification of the property of spouses, which may be rebutted, that all nonprobate property, and all property in the estate, of the recipient's deceased surviving spouse was marital property held with the recipient and that 100 percent of that property is subject to estate recovery by DHS.

Voidable transfers

Current law provides that certain transfers of real property are voidable by DHS in court actions, in which case title to the real property reverts to the grantor or his or her estate. A voidable transfer is one that satisfies all of the following criteria: the transfer was made by a grantor who was receiving or who received MA; the transfer was made while the grantor was eligible for MA; DHS was unaware of the transfer; and the transfer was made to hinder, delay, or defraud DHS from recovering MA paid on behalf of the grantor. Current law provides that there is a rebuttable presumption that any "fraudulent transfer" was made to hinder, delay, or defraud DHS from recovering MA if the transfer was made by a grantor who was receiving or who received MA and while the grantor was eligible for MA. Current law defines a "fraudulent transfer" as one in which the property was transferred for less than fair market value or one in which the deed or other conveyance was not recorded during the lifetime of the grantor. JCF did not approve the implementation of these voidable transfer provisions and the bill repeals them.

Interests in property and notices of encumbrance

Current law establishes procedures for DHS to follow with respect to real property owned by a recipient, both before and after death. Whenever a recipient, upon becoming eligible for a public assistance program or during the time that the recipient is eligible for a public assistance program, has a current ownership interest in real property, or has a spouse with a current ownership interest in real property in which the recipient had a marital property interest with that spouse at any time within the five years before the recipient applied for the public assistance program or during the time that the recipient is eligible for the public assistance program, DHS may record a document with respect to the property, which requires any person intending to transfer title to, encumber, or terminate an interest in the property to notify DHS. JCF did not approve the implementation of the provisions establishing these procedures and the bill repeals them.

Trusts

Current law requires trustees of living trusts to notify DHS, within 30 days after the death of the trust settlor and before any assets are distributed, if the trust settlor, or his or her predeceased spouse, received any recoverable public assistance benefits. If DHS sends the trustee a claim for the estate recovery of recoverable public assistance benefits, the trustee must, within 90 days, pay DHS the recoverable amount or provide DHS with information about any property that was distributed and to whom it was distributed. Current law requires a trustee of a special needs or pooled trust, the beneficiaries of which receive MA, to provide notice to DHS within 30 days after the death of a trust beneficiary, and to repay DHS, within 90 days after receiving a claim from DHS, for the amount of MA paid on behalf of the beneficiary. If the trustee fails to comply with the notice or repayments requirements, the trustee is personally liable to DHS for any MA amounts paid on behalf of the beneficiary that DHS is unable to recover. Current law also provides that, after the death of a beneficiary under a pooled trust, the trustee may retain up to 30 percent of the balance in the deceased beneficiary's account, unless the trustee failed to comply with the notice and repayment requirements, in which case the trustee may not retain any of the balance in the deceased beneficiary's account. JCF did not approve the implementation of these trust and trustee provisions and the bill repeals them.

Hardship waiver

Under current law, DHS may promulgate rules that establish standards for determining whether the application of estate recovery would work a hardship in an individual case. DHS must waive the application of estate recovery in a particular case if it would work an undue hardship, except for estate recovery with respect to a recipient's deceased surviving spouse. The bill removes this exception so that DHS is required to waive the application of estate recovery against the nonprobate property and estate of a recipient's deceased surviving spouse, also, if estate recovery would work an undue hardship in that case.

Divestment and asset verification

Under the law previous to the effective date of Act 20, with certain exceptions, if an institutionalized, or noninstitutionalized, individual or his or her spouse transfers assets for less than fair market value on or after a specific date the individual is ineligible for certain MA services for a specified period of time. Current law, under Act 20, specified that an eligibility period applies for an institutionalized or noninstitutionalized individual regardless of whether the assets transferred for less than fair market value are considered excluded assets, if retained, under federal law. JCF did not approve the implementation of this change in Act 20 and the bill repeals the change.

Under the law previous to the effective date of Act 20, the purchase by an individual or his or her spouse of a promissory note, loan, or mortgage is a transfer of assets for less than fair market value triggers an ineligibility period unless certain circumstances apply including that the loan's terms prohibit cancellation of the balance upon the death of the lender. Current law, under Act 20, specifies that a promissory note in which the debtor is a presumptive heir of the lender or in which neither the lender nor debtor has any incentive to enforce repayment is considered cancelled upon the death of the lender for purposes of divestment and eligibility for MA. JCF did not approve the implementation of this change in Act 20 and the bill repeals the change.

Act 20 changes the definition of "financial institutions" for purposes of verifying the assets of applicants for and recipients of MA programs. The bill removes from that definition institution-affiliated parties of depository institutions and credit unions, as institutional-affiliated parties are defined under federal law; benefit associations; insurance companies; safe deposit companies; money market mutual funds; and similar entities authorized to do business in Wisconsin.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

SB384,1 Section 1. 20.435 (4) (im) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

SB384,14,12 20.435 (4) (im) Medical assistance; correct payment recovery; collections; other recoveries. All moneys received from the recovery of correct medical assistance payments under ss. 49.496, 49.848, and 49.849, all moneys received as collections and other recoveries from providers, drug manufacturers, and other 3rd parties under medical assistance performance-based contracts, and all moneys credited to this appropriation account under s. 49.89 (7) (f), for payments to counties and tribal governing bodies under s. 49.496 (4) (a), for payment of claims under s. 49.849 (5), for payments to the federal government for its share of medical assistance benefits recovered, for the state share of medical assistance benefits provided under subch. IV of ch. 49, and for costs related to collections and other recoveries.

SB384,2 Section 2. 20.435 (4) (in) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

SB384,15,2 20.435 (4) (in) Community options program; family care; recovery of costs administration. From the moneys received from the recovery of costs of care under ss. 46.27 (7g), 49.848, and 49.849 for enrollees who are ineligible for medical assistance, the amounts in the schedule for administration of the recovery of costs of the care.

SB384,3 Section 3. 20.435 (7) (im) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

SB384,15,15 20.435 (7) (im) Community options program; family care benefit; recovery of costs; birth to 3 waiver administration. From the moneys received from the recovery of costs of care under ss. 46.27 (7g), 49.848, and 49.849 for enrollees who are ineligible for medical assistance, all moneys not appropriated under sub. (4) (in), and all moneys transferred to this appropriation account from the appropriation account under sub. (4) (o), for payments to county departments and aging units under s. 46.27 (7g) (d), payments to care management organizations for provision of the family care benefit under s. 46.284 (5), payment of claims under s. 49.849 (5), payments for long-term community support services funded under s. 46.27 (7) as provided in ss. 46.27 (7g) (e) and 49.849 (6) (b), and for administration of the waiver program under s. 46.99.

SB384,4 Section 4. 23.0918 (2) of the statutes is amended to read:

SB384,15,23 23.0918 (2) Unless the natural resources board determines otherwise in a specific case, only the income from the gifts, grants, or bequests in the fund is available for expenditure. The natural resources board may authorize expenditures only for preserving, developing, managing, or maintaining land under the jurisdiction of the department that is used for any of the purposes specified in s. 23.09 (2) (d). In this subsection, unless otherwise provided in a gift, grant, or bequest, principal and income are determined as provided under s. 701.20 subch. XI of ch. 701.

SB384,5 Section 5. 25.70 of the statutes is amended to read:

SB384,16,8 25.70 Historical society trust fund. There is established a separate nonlapsible trust fund designated as the historical society trust fund, consisting of all endowment principal and income and all cash balances of the historical society. Unless the board of curators of the historical society determines otherwise in each case, only the income from the assets in the historical society trust fund is available for expenditure. In this section, unless otherwise provided in the gift, grant, or bequest, principal and income are determined as provided under s. 701.20 subch. XI of ch. 701.

SB384,6 Section 6. 46.27 (7g) (a) 5. a. of the statutes, as created by 2013 Wisconsin Act 20, is renumbered 46.27 (7g) (a) 5.

SB384,7 Section 7. 46.27 (7g) (a) 5. b. of the statutes, as created by 2013 Wisconsin Act 20, is repealed.

SB384,8 Section 8. 46.27 (7g) (c) 2m. b. of the statutes, as created by 2013 Wisconsin Act 20, is amended to read:

SB384,16,19 46.27 (7g) (c) 2m. b. There is a presumption, which may be rebutted by clear and convincing evidence consistent with s. 766.31, which may be rebutted, that all property in the estate of the nonclient surviving spouse was marital property held with the client and that 100 percent of the property in the estate of the nonclient surviving spouse is subject to the department's claim under subd. 1.

SB384,9 Section 9. 46.27 (7g) (c) 6m. b. of the statutes, as created by 2013 Wisconsin Act 20, is amended to read:

SB384,16,23 46.27 (7g) (c) 6m. b. The department shall release the lien in the circumstances described in s. 49.848 (5) (f) 49.849 (4) (c) 2.

SB384,10 Section 10. 46.27 (7g) (g) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

SB384,17,6 46.27 (7g) (g) The department shall promulgate rules establishing standards for determining whether the application of this subsection would work an undue hardship in individual cases. If the department determines that the application of this subsection would work an undue hardship in a particular case, the department shall waive application of this subsection in that case. This paragraph does not apply with respect to claims against the estates of nonclient surviving spouses.

SB384,11 Section 11. 46.286 (7) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

SB384,17,12 46.286 (7) Recovery of family care benefit payments. The department shall apply to the recovery from persons who receive the family care benefit, including by liens and affidavits and from estates, of correctly paid family care benefits, the applicable provisions under ss. 49.496, 49.848, and 49.849.

SB384,12 Section 12. 49.45 (4m) (a) 3. b. of the statutes, as created by 2013 Wisconsin Act 20, is repealed.

SB384,13 Section 13. 49.45 (4m) (a) 3. d. of the statutes, as created by 2013 Wisconsin Act 20, is repealed.

SB384,14 Section 14. 49.45 (4m) (a) 3. e. of the statutes, as created by 2013 Wisconsin Act 20, is repealed.

SB384,15 Section 15. 49.453 (2) (a) (intro.) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

SB384,18,2 49.453 (2) (a) Institutionalized individuals. (intro.) Except as provided in sub. (8), if an institutionalized individual or his or her spouse, or another person acting on behalf of the institutionalized individual or his or her spouse, transfers assets; regardless of whether those assets, if retained, are excluded under 42 USC 1396p; for less than fair market value on or after the institutionalized individual's look-back date, the institutionalized individual is ineligible for medical assistance for the following services for the period specified under sub. (3):

SB384,16 Section 16. 49.453 (2) (b) (intro.) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

SB384,18,11 49.453 (2) (b) Noninstitutionalized individuals. (intro.) Except as provided in sub. (8), if a noninstitutionalized individual or his or her spouse, or another person acting on behalf of the noninstitutionalized individual or his or her spouse, transfers assets; regardless of whether those assets, if retained, are excluded under 42 USC 1396p; for less than fair market value on or after the noninstitutionalized individual's look-back date, the noninstitutionalized individual is ineligible for medical assistance for the following services for the period specified under sub. (3):

SB384,17 Section 17. 49.453 (4c) (c) of the statutes, as created by 2013 Wisconsin Act 20, is repealed.

SB384,18 Section 18. 49.496 (1) (cm) 1. of the statutes, as created by 2013 Wisconsin Act 20, is renumbered 49.496 (1) (cm).

SB384,19 Section 19. 49.496 (1) (cm) 2. of the statutes, as created by 2013 Wisconsin Act 20, is repealed.

SB384,20 Section 20. 49.496 (3) (aj) 2. of the statutes, as created by 2013 Wisconsin Act 20, is amended to read:

SB384,18,24 49.496 (3) (aj) 2. There is a presumption, which may be rebutted by clear and convincing evidence consistent with s. 766.31, which may be rebutted, that all property in the estate of a nonrecipient surviving spouse was marital property held with the recipient and that 100 percent of the property in the estate of the nonrecipient surviving spouse is subject to the department's claim under par. (a).

SB384,21 Section 21. 49.496 (3) (dm) 2. of the statutes, as created by 2013 Wisconsin Act 20, is amended to read:

SB384,19,4 49.496 (3) (dm) 2. The department shall release the lien in the circumstances described in s. 49.848 (5) (f) 49.849 (4) (c) 2.

SB384,22 Section 22. 49.496 (6m) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

SB384,19,13 49.496 (6m) Waiver due to hardship. The department shall promulgate rules establishing standards for determining whether the application of this section would work an undue hardship in individual cases. If the department determines that the application of this section would work an undue hardship in a particular case, the department shall waive application of this section in that case. This subsection does not apply with respect to claims against the estates of nonrecipient surviving spouses.

SB384,23 Section 23. 49.4962 of the statutes, as created by 2013 Wisconsin Act 20, is repealed.

SB384,24 Section 24. 49.682 (1) (e) 1. of the statutes, as created by 2013 Wisconsin Act 20, is renumbered 49.682 (1) (e).

SB384,25 Section 25. 49.682 (1) (e) 2. of the statutes, as created by 2013 Wisconsin Act 20, is repealed.

SB384,26 Section 26. 49.682 (2) (bm) 2. of the statutes, as created by 2013 Wisconsin Act 20, is amended to read:

SB384,20,2 49.682 (2) (bm) 2. There is a presumption, which may be rebutted by clear and convincing evidence consistent with s. 766.31, which may be rebutted, that all property in the estate of the nonclient surviving spouse was marital property held with the client and that 100 percent of the property in the estate of the nonclient surviving spouse is subject to the department's claim under par. (a).