LRB-2871/2
JS:skg:ch
1995 - 1996 LEGISLATURE
April 4, 1995 - Introduced by Representatives Hubler and Prosser, cosponsored
by Senators Huelsman and George. Referred to Committee on Insurance,
Securities and Corporate Policy.
AB285,1,3 1An Act to repeal 881.06; to amend 20.907 (1), 36.29 (1), 40.82 (2), 66.04 (2) (b),
2186.38 (4) (g) 2. and 881.02; and to repeal and recreate 881.01 of the statutes;
3relating to: regulating the investments of trustees.
Analysis by the Legislative Reference Bureau
Under the current law, trustees are bound by the prudent person rule. That is,
they are required to invest the trust's assets conservatively. For example, no more
than 50% of the trust's assets may consist of common stocks. This act sets general
standards for trustees, allows them greater flexibility in choosing investments,
specifies that their work is to be judged on the basis of the performance of all of their
investments, allows them to delegate investment decisions and requires them to
consider the tax consequences of investments. These changes also affect state and
local deferred compensation plans, the historical society's funds that are invested by
the investment board, municipal cemetery funds, employe welfare funds, wards'
estates, care funds and preneed trust funds.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
AB285, s. 1 4Section 1. 20.907 (1) of the statutes is amended to read:
AB285,2,105 20.907 (1) Acceptance and investment. Unless otherwise provided by law, all
6gifts, grants, bequests and devises to the state or to any state agency for the benefit
7or advantage of the state, whether made to trustees or otherwise, shall be legal and
8valid when approved by the joint committee on finance and shall be executed and

1enforced according to the provisions of the instrument making the same, including
2all provisions and directions in any such instrument for accumulation of the income
3of any fund or rents and profits of any real estate without being subject to the
4limitations and restrictions provided by law in other cases; but no such accumulation
5shall be allowed to produce a fund more than 20 times as great as that originally
6given. When such gifts, grants, bequests or devises include common stocks or other
7investments which are not authorized by s. 881.01, such common stocks or other
8investments may be held and may be exchanged, invested or reinvested in similar
9types of investments without being subject to the limitations provided by law in other
10cases.
AB285, s. 2 11Section 2. 36.29 (1) of the statutes is amended to read:
AB285,3,912 36.29 (1) All gifts, grants and bequests for the benefit or advantage of the
13system or any of its institutions, departments or facilities or to provide any means
14of instruction, illustration or knowledge in connection therewith, whether made to
15trustees or otherwise, shall be valid notwithstanding any other provision of this
16chapter except as otherwise provided in this subsection and shall be executed and
17enforced according to the provisions of the instrument making the same, including
18all provisions and directions in any such instrument for accumulation of the income
19of any fund or rents and profits of any real estate without being subject to the
20limitations and restrictions provided by law in other cases; but no such income
21accumulation shall be allowed to produce a fund more than 20 times as great as that
22originally given. When such gifts, grants or bequests include common stocks or other
23investments which are not authorized by ch. 881, the board may continue to hold
24such common stocks or other investments and exchange, invest or reinvest the funds
25of such gift, grant or bequest in similar types of investments without being subject

1to the limitations and restrictions provided by law in other cases. No such
2investment shall knowingly be made in any company, corporation, subsidiary or
3affiliate which practices or condones through its actions discrimination on the basis
4of race, religion, color, creed or sex. Except as otherwise provided in this section, the
5board may invest not to exceed 75% of trust funds held and administered by the board
6in common stocks, the limitation of 50% in s. 881.01 (2) to the contrary
7notwithstanding
. This subsection does not apply to a gift, grant or bequest that the
8board declines to accept or that the board is not authorized to accept under this
9section.
AB285, s. 3 10Section 3. 40.82 (2) of the statutes is amended to read:
AB285,3,1711 40.82 (2) Compensation which is withheld under a deferred compensation plan
12contract between an employer and an employe may be invested by the employer or
13a person other than the employer who is authorized by contract to administer the
14funds. The employer may determine the types of investments in which the deferred
15compensation funds may be invested. The deferred compensation funds may be
16invested and reinvested in the same manner provided for investments under s.
17881.01 (1).
AB285, s. 4 18Section 4. 66.04 (2) (b) of the statutes is amended to read:
AB285,3,2519 66.04 (2) (b) Any town, city or village may invest surplus funds in any bonds
20or securities issued under the authority of the municipality, whether the bonds or
21securities create a general municipality liability or a liability of the property owners
22of the municipality for special improvements, and may sell or hypothecate the bonds
23or securities. Funds of any employer, as defined by s. 40.02 (28), in a deferred
24compensation plan may also be invested and reinvested in the same manner
25authorized for investments under s. 881.01 (1).
AB285, s. 5
1Section 5. 186.38 (4) (g) 2. of the statutes is amended to read:
AB285,4,42 186.38 (4) (g) 2. Not more than 10% of such funds in other categories of
3investments as are deemed prudent that fulfills the requirements under the
4"prudent person rule" of
s. 881.01 by the board of directors.
AB285, s. 6 5Section 6. 881.01 of the statutes is repealed and recreated to read:
AB285,4,9 6881.01 Uniform prudent investor act. (1) Prudent investor rule. (a)
7Except as otherwise provided in par. (b), a trustee who invests and manages trust
8assets owes a duty to the beneficiaries of the trust to comply with the prudent
9investor rule set forth in this section.
AB285,4,1310 (b) The prudent investor rule, a default rule, may be expanded, restricted,
11eliminated or otherwise altered by the provisions of a trust. A trustee is not liable
12to a beneficiary to the extent that the trustee acted in reasonable reliance on the
13provisions of the trust.
AB285,4,18 14(2) Standard of care; portfolio strategy; risk and return objectives. (a) A
15trustee shall invest and manage trust assets as a prudent investor would, by
16considering the purposes, terms, distribution requirements and other circumstances
17of the trust. In satisfying this standard, the trustee shall exercise reasonable care,
18skill and caution.
AB285,4,2219 (b) A trustee's investment and management decisions about individual assets
20shall be evaluated not in isolation but in the context of the trust portfolio as a whole
21and as a part of an overall investment strategy having risk and return objectives
22reasonably suited to the trust.
AB285,4,2523 (c) Among circumstances that a trustee shall consider in investing and
24managing trust assets are those of the following that are relevant to the trust or its
25beneficiaries:
AB285,5,1
11. General economic conditions.
AB285,5,22 2. The possible effect of inflation or deflation.
AB285,5,33 3. The expected tax consequences of investment decisions or strategies.
AB285,5,64 4. The role that each investment or course of action plays within the overall
5trust portfolio, which may include financial assets, interests in closely held
6enterprises, tangible and intangible personal property and real property.
AB285,5,77 5. The expected total return from income and the appreciation of capital.
AB285,5,88 6. Other resources of the beneficiaries.
AB285,5,109 7. Needs for liquidity, regularity of income and preservation or appreciation of
10capital.
AB285,5,1211 8. An asset's special relationship or special value to the purposes of the trust
12or to one or more of the beneficiaries.
AB285,5,1413 (d) A trustee shall make a reasonable effort to verify facts relevant to the
14investment and management of trust assets.
AB285,5,1615 (e) A trustee may invest in any kind of property or type of investment consistent
16with the standards of this section.
AB285,5,1917 (f) A trustee who has special skills or expertise, or is named trustee in reliance
18upon the trustee's representation that the trustee has special skills or expertise, has
19a duty to use those special skills or expertise.
AB285,5,22 20(3) Diversification. A trustee shall diversify the investments of the trust
21unless the trustee reasonably determines that, because of special circumstances, the
22purposes of the trust are better served without diversifying.
AB285,6,3 23(4) Duties at inception of trusteeship. Within a reasonable time after
24accepting a trusteeship or receiving trust assets, a trustee shall review the trust's
25assets and make and implement decisions concerning the retention and disposition

1of assets, in order to bring the trust portfolio into compliance with the purposes,
2terms, distribution requirements and other circumstances of the trust and with the
3requirements of this section.
AB285,6,5 4(5) Loyalty. A trustee shall invest and manage the trust's assets solely in the
5interest of the beneficiaries.
AB285,6,8 6(6) Impartiality. If a trust has 2 or more beneficiaries, the trustee shall act
7impartially in investing and managing the trust assets, taking into account the
8differences between the interests of the beneficiaries.
AB285,6,11 9(7) Investment costs. In investing and managing trust assets, a trustee may
10incur only costs that are appropriate and reasonable in relation to the assets, the
11purposes of the trust and the skills of the trustee.
AB285,6,14 12(8) Reviewing compliance. Compliance with the prudent investor rule is
13determined in light of the facts and circumstances existing at the time of a trustee's
14decision or action and not by hindsight.
AB285,6,18 15(9) Delegation of investment and management functions. (a) A trustee may
16delegate investment and management functions that a prudent trustee of similar
17skills could properly delegate under the circumstances. The trustee shall exercise
18reasonable care, skill and caution in all of the following:
AB285,6,1919 1. Selecting an agent.
AB285,6,2120 2. Establishing the scope and terms of the delegation, consistent with the
21purposes and terms of the trust.
AB285,6,2322 3. Periodically reviewing the agent's actions in order to monitor the agent's
23performance and compliance with the terms of the delegation.
AB285,6,2524 (b) In performing a delegated function, an agent owes a duty to the trust to
25exercise reasonable care to comply with the terms of the delegation.
AB285,7,3
1(c) A trustee who complies with the requirements of par. (a) is not liable to the
2beneficiaries or to the trust for the decisions or actions of the agent to whom the
3function was delegated.
AB285,7,64 (d) By accepting the delegation of a trust function from the trustee of a trust
5that is subject to the law of this state, an agent submits to the jurisdiction of the
6courts of this state.
AB285,7,16 7(10) Phrases invoking standard of this section. The following phrases or
8similar phrases in a trust, unless otherwise limited or modified, authorize any
9investment or strategy permitted under this section: "investments permissible by
10law for investment of trust funds"; "legal investments"; "authorized investments";
11"using the judgment and care under the circumstances then prevailing that persons
12of prudence, discretion, and intelligence exercise in the management of their own
13affairs, not in regard to speculation but in regard to the permanent disposition of
14their funds, considering the probable income as well as the probable safety of their
15capital"; "prudent man rule"; "prudent trustee rule"; "prudent person rule"; and
16"prudent investor rule".
AB285,7,20 17(11) Application to existing trusts. This section applies to trusts existing on
18and created on and after the effective date of this subsection .... [revisor inserts date].
19As applied to trusts existing on the effective date of this subsection .... [revisor inserts
20date], this section governs only decisions or actions occurring after that date.
AB285,7,24 21(12) Uniformity of application and construction. This section shall be
22applied and construed to effectuate its general purpose to make uniform the law with
23respect to the subject of this section among the states that have enacted this uniform
24legislation.
AB285, s. 7 25Section 7. 881.02 of the statutes is amended to read:
AB285,8,7
1881.02 Construction; court orders; written instruments. Nothing
2contained in this chapter shall be construed as authorizing any departure from, or
3variation of, the express terms or limitations set forth in any will, agreement, court
4order or other instrument creating or defining the fiduciary's duties and powers, but
5the terms "legal investment" or "authorized investment" or words of similar import,
6as used in any such instrument, shall be taken to mean any investment which is
7permitted by the terms of s. 881.01.
AB285, s. 8 8Section 8. 881.06 of the statutes is repealed.
AB285,8,99 (End)
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