SB109,9,17 12(4) Trustee's power to adjust. (a) A trustee may adjust between principal and
13income to the extent the trustee considers necessary if the trustee invests and
14manages trust assets as a prudent investor, the terms of the trust describe the
15amount that may or must be distributed to a beneficiary by referring to the trust's
16income, and the trustee determines, after applying the rules in sub. (3) (a), that the
17trustee is unable to comply with sub. (3) (b).
SB109,9,2018 (b) In deciding whether and to what extent to exercise the power conferred by
19par. (a), a trustee shall consider all factors relevant to the trust and its beneficiaries,
20including the following factors to the extent they are relevant:
SB109,9,2121 1. The nature, purpose, and expected duration of the trust;
SB109,9,2222 2. The intent of the settlor;
SB109,9,2323 3. The identity and circumstances of the beneficiaries;
SB109,9,2524 4. The needs for liquidity, regularity of income, and preservation and
25appreciation of capital;
SB109,10,4
15. The assets held in the trust; the extent to which they consist of financial
2assets, interests in closely held enterprises, tangible and intangible personal
3property, or real property; the extent to which an asset is used by a beneficiary; and
4whether an asset was purchased by the trustee or received from the settlor;
SB109,10,85 6. The net amount allocated to income under the other subsections of this
6section and the increase or decrease in the value of the principal assets, which the
7trustee may estimate in the case of assets for which market values are not readily
8available;
SB109,10,129 7. Whether and to what extent the terms of the trust give the trustee the power
10to invade principal or accumulate income or prohibit the trustee from invading
11principal or accumulating income, and the extent to which the trustee has exercised
12a power from time to time to invade principal or accumulate income;
SB109,10,1413 8. The actual and anticipated effect of economic conditions on principal and
14income and effects of inflation and deflation; and
SB109,10,1515 9. The anticipated tax consequences of an adjustment.
SB109,10,1616 (c) A trustee may not make an adjustment:
SB109,10,2017 1. That diminishes the income interest in a trust that requires all of the income
18to be paid at least annually to a surviving spouse and for which an estate tax or gift
19tax marital deduction would be allowed, in whole or in part, if the trustee did not have
20the power to make the adjustment;
SB109,10,2221 2. That reduces the actuarial value of the income interest in a trust to which
22a person transfers property with the intent to qualify for a gift tax exclusion;
SB109,10,2423 3. That changes the amount payable to a beneficiary as a fixed annuity or a
24fixed fraction of the value of the trust assets;
SB109,11,2
14. From any amount that is permanently set aside for charitable purposes
2under a will or the terms of a trust unless both income and principal are so set aside;
SB109,11,63 5. If possessing or exercising the power to make an adjustment causes an
4individual to be treated as the owner of all or part of the trust for income tax purposes,
5and the individual would not be treated as the owner if the trustee did not possess
6the power to make an adjustment;
SB109,11,117 6. If possessing or exercising the power to make an adjustment causes all or
8part of the trust assets to be included for estate tax purposes in the estate of an
9individual who has the power to remove a trustee or appoint a trustee, or both, and
10the assets would not be included in the estate of the individual if the trustee did not
11possess the power to make an adjustment;
SB109,11,1212 7. If the trustee is a beneficiary of the trust; or
SB109,11,1413 8. If the trustee is not a beneficiary, but the adjustment would benefit the
14trustee directly or indirectly.
SB109,11,1815 (d) If par. (c) 5., 6., 7., or 8. applies to a trustee and there is more than one
16trustee, a cotrustee to whom the provision does not apply may make the adjustment
17unless the exercise of the power by the remaining trustee or trustees is not permitted
18by the terms of the trust.
SB109,12,219 (e) A trustee may release the entire power conferred by par. (a) or may release
20only the power to adjust from income to principal or the power to adjust from
21principal to income if the trustee is uncertain about whether possessing or exercising
22the power will cause a result described in par. (c) 1. to 6. or 8. or if the trustee
23determines that possessing or exercising the power will or may deprive the trust of
24a tax benefit or impose a tax burden not described in par. (c). The release may be

1permanent or for a specified period, including a period measured by the life of an
2individual.
SB109,12,63 (f) Terms of a trust that limit the power of a trustee to make an adjustment
4between principal and income do not affect the application of this subsection unless
5it is clear from the terms of the trust that the terms are intended to deny the trustee
6the power of adjustment conferred by par. (a).
SB109,12,10 7(4m) Judicial review of discretionary power. (a) Unless it determines that
8the decision was an abuse of the fiduciary's discretion, a court may not grant relief
9from a fiduciary's decision to exercise or not to exercise a discretionary power
10conferred by this section, including:
SB109,12,1211 1. A decision under sub. (4) (a) as to whether and to what extent an amount
12should be transferred from principal to income or from income to principal.
SB109,12,1613 2. A decision regarding the factors that are relevant to the trust and its
14beneficiaries, the extent to which the factors are relevant, and the weight, if any, to
15be given to those factors in deciding whether and to what extent to exercise the
16discretionary power conferred under sub. (4) (a).
SB109,12,1917 (b) A fiduciary's decision is not an abuse of discretion merely because the court
18would have exercised the power in a different manner or would not have exercised
19the power.
SB109,12,2320 (c) If the court determines that a fiduciary has abused the fiduciary's discretion,
21the court may place the income and remainder beneficiaries in the positions that they
22would have occupied had the discretion not been abused, according to the following
23rules:
SB109,13,324 1. To the extent that the abuse of discretion has resulted in no distribution to
25a beneficiary or in a distribution that is too small, the court shall order the fiduciary

1to distribute from the trust to the beneficiary an amount that the court determines
2will restore the beneficiary, in whole or in part, to the beneficiary's appropriate
3position.
SB109,13,94 2. To the extent that the abuse of discretion has resulted in a distribution to a
5beneficiary that is too large, the court shall place the beneficiaries, the trust, or both,
6in whole or in part, in their appropriate positions by ordering the fiduciary to
7withhold an amount from one or more future distributions to the beneficiary who
8received the distribution that was too large or by ordering that beneficiary to return
9some or all of the distribution to the trust.
SB109,13,1410 3. To the extent that the court is unable, after applying subds. 1. and 2., to place
11the beneficiaries, the trust, or both in the positions that they would have occupied
12had the discretion not been abused, the court may order the fiduciary to pay an
13appropriate amount from its own funds to one or more of the beneficiaries, the trust,
14or both.
SB109,13,2415 (d) Upon petition by the fiduciary, the court having jurisdiction over a trust
16shall determine whether a proposed exercise or nonexercise by the fiduciary of a
17discretionary power conferred under this section will result in an abuse of the
18fiduciary's discretion. The petition must describe the proposed exercise or
19nonexercise of the power and contain sufficient information to inform the
20beneficiaries of the reasons for the proposal, the facts upon which the fiduciary relies,
21and an explanation of how the income and remainder beneficiaries will be affected
22by the proposed exercise or nonexercise of the power. A beneficiary who challenges
23the proposed exercise or nonexercise of the power has the burden of establishing that
24it will result in an abuse of discretion.
SB109,14,3
1(5) Determination and distribution of net income. After a decedent dies, in
2the case of an estate, or after an income interest in a trust ends, the following rules
3apply:
SB109,14,84 (a) A fiduciary of an estate or of a terminating income interest shall determine
5the amount of net income and net principal receipts received from property
6specifically given to a beneficiary under the rules in subs. (7) to (30) that apply to
7trustees and the rules in par. (e). The fiduciary shall distribute the net income and
8net principal receipts to the beneficiary who is to receive the specific property.
SB109,14,119 (b) A fiduciary shall determine the remaining net income of a decedent's estate
10or a terminating income interest under the rules in subs. (7) to (30) that apply to
11trustees and by:
SB109,14,1312 1. Including in net income all income from property used to discharge
13liabilities;
SB109,14,1914 2. Paying from income or principal, in the fiduciary's discretion, fees of
15attorneys, accountants, and fiduciaries; court costs and other expenses of
16administration; and interest on death taxes, but the fiduciary may pay those
17expenses from income of property passing to a trust for which the fiduciary claims
18an estate tax marital or charitable deduction only to the extent that the payment of
19those expenses from income will not cause the reduction or loss of the deduction; and
SB109,14,2520 3. Paying from principal all other disbursements made or incurred in
21connection with the settlement of a decedent's estate or the winding up of a
22terminating income interest, including debts, funeral expenses, disposition of
23remains, family allowances, and death taxes and related penalties that are
24apportioned to the estate or terminating income interest by the will, the terms of the
25trust, or applicable law.
SB109,15,9
1(c) A fiduciary shall distribute to a beneficiary who receives a pecuniary
2amount outright the interest or any other amount provided by the will, the terms of
3the trust, or applicable law from net income determined under par. (b) or from
4principal to the extent that net income is insufficient. If a beneficiary is to receive
5a pecuniary amount outright from a trust after an income interest ends and no
6interest or other amount is provided for by the terms of the trust or applicable law,
7the fiduciary shall distribute the interest or other amount to which the beneficiary
8would be entitled under applicable law if the pecuniary amount were required to be
9paid under a will.
SB109,15,1410 (d) A fiduciary shall distribute the net income remaining after distributions
11required by par. (c) in the manner described in sub. (6) to all other beneficiaries,
12including a beneficiary who receives a pecuniary amount in trust, even if the
13beneficiary holds an unqualified power to withdraw assets from the trust or other
14presently exercisable general power of appointment over the trust.
SB109,15,2515 (e) A fiduciary may not reduce principal or income receipts from property
16described in par. (a) because of a payment described in sub. (25) or (26) to the extent
17that the will, the terms of the trust, or applicable law requires the fiduciary to make
18the payment from assets other than the property or to the extent that the fiduciary
19recovers or expects to recover the payment from a third party. The net income and
20principal receipts from the property are determined by including all of the amounts
21the fiduciary receives or pays with respect to the property, whether those amounts
22accrued or became due before, on, or after the date of a decedent's death or an income
23interest's terminating event, and by making a reasonable provision for amounts that
24the fiduciary believes the estate or terminating income interest may become
25obligated to pay after the property is distributed.
SB109,16,9
1(6) Distribution to residuary and remainder beneficiaries. (a) Each
2beneficiary described in sub. (5) (d) is entitled to receive a portion of the net income
3equal to the beneficiary's fractional interest in undistributed principal assets, using
4values as of the distribution date. If a fiduciary makes more than one distribution
5of assets to beneficiaries to whom this subsection applies, each beneficiary, including
6one who does not receive part of the distribution, is entitled, as of each distribution
7date, to the net income the fiduciary has received after the date of death or
8terminating event or earlier distribution date but has not distributed as of the
9current distribution date.
SB109,16,1010 (b) In determining a beneficiary's share of net income, the following rules apply:
SB109,16,1411 1. The beneficiary is entitled to receive a portion of the net income equal to the
12beneficiary's fractional interest in the undistributed principal assets immediately
13before the distribution date, including assets that later may be sold to meet principal
14obligations.
SB109,16,1715 2. The beneficiary's fractional interest in the undistributed principal assets
16must be calculated without regard to property specifically given to a beneficiary and
17property required to pay pecuniary amounts not in trust.
SB109,16,2018 3. The beneficiary's fractional interest in the undistributed principal assets
19must be calculated on the basis of the aggregate value of those assets as of the
20distribution date without reducing the value by any unpaid principal obligation.
SB109,16,2321 4. The distribution date for purposes of this subsection may be the date as of
22which the fiduciary calculates the value of the assets if that date is reasonably near
23the date on which assets are actually distributed.
SB109,17,3
1(c) If a fiduciary does not distribute all of the collected but undistributed net
2income to each person as of a distribution date, the fiduciary shall maintain
3appropriate records showing the interest of each beneficiary in that net income.
SB109,17,74 (d) A trustee may apply the rules in this subsection, to the extent that the
5trustee considers it appropriate, to net gain or loss realized after the date of death
6or terminating event or earlier distribution date from the disposition of a principal
7asset if this subsection applies to the income from the asset.
SB109,17,11 8(7) When right to income begins and ends. (a) An income beneficiary is
9entitled to net income from the date on which the income interest begins. An income
10interest begins on the date specified in the terms of the trust or, if no date is specified,
11on the date an asset becomes subject to a trust or successive income interest.
SB109,17,1212 (b) An asset becomes subject to a trust:
SB109,17,1413 1. On the date it is transferred to the trust in the case of an asset that is
14transferred to a trust during the transferor's life;
SB109,17,1715 2. On the date of a testator's death in the case of an asset that becomes subject
16to a trust by reason of a will, even if there is an intervening period of administration
17of the testator's estate; or
SB109,17,1918 3. On the date of an individual's death in the case of an asset that is transferred
19to a fiduciary by a third party because of the individual's death.
SB109,17,2220 (c) An asset becomes subject to a successive income interest on the day after
21the preceding income interest ends, as determined under par. (d), even if there is an
22intervening period of administration to wind up the preceding income interest.
SB109,17,2523 (d) An income interest ends on the day before an income beneficiary dies or
24another terminating event occurs, or on the last day of a period during which there
25is no beneficiary to whom a trustee may distribute income.
SB109,18,5
1(8) Apportionment of receipts and disbursements when decedent dies or
2income interest begins.
(a) A trustee shall allocate to principal an income receipt
3or disbursement other than one to which sub. (5) (a) applies if its due date occurs
4before a decedent dies in the case of an estate or before an income interest begins in
5the case of a trust or successive income interest.
SB109,18,126 (b) A trustee shall allocate to income an income receipt or disbursement if its
7due date occurs on or after the date on which a decedent dies or an income interest
8begins and it is a periodic due date. An income receipt or disbursement must be
9treated as accruing from day to day if its due date is not periodic or it has no due date.
10The portion of the receipt or disbursement accruing before the date on which a
11decedent dies or an income interest begins must be allocated to principal and the
12balance must be allocated to income.
SB109,18,2013 (c) An item of income or an obligation is due on the date the payer is required
14to make a payment. If a payment date is not stated, there is no due date for the
15purposes of this section. Distributions to shareholders or other owners from an
16entity, as defined in sub. (10), are deemed to be due on the date fixed by the entity
17for determining who is entitled to receive the distribution or, if no date is fixed, on
18the declaration date for the distribution. A due date is periodic for receipts or
19disbursements that must be paid at regular intervals under a lease or an obligation
20to pay interest or if an entity customarily makes distributions at regular intervals.
SB109,18,25 21(9) Apportionment when income interest ends. (a) In this subsection,
22"undistributed income" means net income received before the date on which an
23income interest ends. "Undistributed income" does not include an item of income or
24expense that is due or accrued or net income that has been added or is required to
25be added to principal under the terms of the trust.
SB109,19,8
1(b) When a mandatory income interest ends, the trustee shall pay to a
2mandatory income beneficiary who survives that date, or to the estate of a deceased
3mandatory income beneficiary whose death causes the interest to end, the
4beneficiary's share of the undistributed income that is not disposed of under the
5terms of the trust unless the beneficiary has an unqualified power to revoke more
6than 5% of the trust immediately before the income interest ends. In the latter case,
7the undistributed income from the portion of the trust that may be revoked must be
8added to principal.
SB109,19,129 (c) When a trustee's obligation to pay a fixed annuity or a fixed fraction of the
10value of the trust's assets ends, the trustee shall prorate the final payment if and to
11the extent required by applicable law to accomplish a purpose of the trust or its
12settlor relating to income, gift, estate, or other tax requirements.
SB109,19,18 13(10) Character of receipts. (a) In this subsection, "entity" means a
14corporation, partnership, limited liability company, regulated investment company,
15real estate investment trust, common trust fund, or any other organization in which
16a trustee has an interest other than a trust or estate to which sub. (11) applies, a
17business or activity to which sub. (12) applies, or an asset-backed security to which
18sub. (24) applies.
SB109,19,2019 (b) Except as otherwise provided in this subsection, a trustee shall allocate to
20income money received from an entity.
SB109,19,2121 (c) A trustee shall allocate the following receipts from an entity to principal:
SB109,19,2222 1. Property other than money;
SB109,19,2423 2. Money received in one distribution or a series of related distributions in
24exchange for part or all of a trust's interest in the entity;
SB109,19,2525 3. Money received in total or partial liquidation of the entity; and
SB109,20,3
14. Money received from an entity that is a regulated investment company or
2a real estate investment trust if the money distributed is a capital gain dividend for
3federal income tax purposes.
SB109,20,44 (d) Money is received in partial liquidation:
SB109,20,65 1. To the extent that the entity, at or near the time of a distribution, indicates
6that it is a distribution in partial liquidation; or
SB109,20,97 2. If the total amount of money and property received in a distribution or series
8of related distributions is greater than 20% of the entity's gross assets, as shown by
9the entity's year-end financial statements immediately preceding the initial receipt.
SB109,20,1310 (e) Money is not received in partial liquidation, nor may it be taken into account
11under par. (d) 2., to the extent that it does not exceed the amount of income tax that
12a trustee or beneficiary must pay on taxable income of the entity that distributes the
13money.
SB109,20,1814 (f) A trustee may rely upon a statement made by an entity about the source or
15character of a distribution if the statement is made at or near the time of distribution
16by the entity's board of directors or other person or group of persons authorized to
17exercise powers to pay money or transfer property comparable to those of a
18corporation's board of directors.
SB109,20,25 19(11) Distribution from trust or estate. A trustee shall allocate to income an
20amount received as a distribution of income from a trust or an estate in which the
21trust has an interest other than a purchased interest, and shall allocate to principal
22an amount received as a distribution of principal from such a trust or estate. If a
23trustee purchases an interest in a trust that is an investment entity, or a decedent
24or donor transfers an interest in such a trust to a trustee, sub. (10) or (24) applies to
25a receipt from the trust.
SB109,21,6
1(12) Business and other activities conducted by trustee. (a) If a trustee who
2conducts a business or other activity determines that it is in the best interest of all
3the beneficiaries to account separately for the business or activity instead of
4accounting for it as part of the trust's general accounting records, the trustee may
5maintain separate accounting records for its transactions, whether or not its assets
6are segregated from other trust assets.
SB109,21,167 (b) A trustee who accounts separately for a business or other activity may
8determine the extent to which its net cash receipts must be retained for working
9capital, the acquisition or replacement of fixed assets, and other reasonably
10foreseeable needs of the business or activity and the extent to which the remaining
11net cash receipts are accounted for as principal or income in the trust's general
12accounting records. If a trustee sells assets of the business or other activity, other
13than in the ordinary course of the business or activity, the trustee shall account for
14the net amount received as principal in the trust's general accounting records to the
15extent the trustee determines that the amount received is no longer required in the
16conduct of the business.
SB109,21,1817 (c) Activities for which a trustee may maintain separate accounting records
18include:
SB109,21,1919 1. Retail, manufacturing, service, and other traditional business activities;
SB109,21,2020 2. Farming;
SB109,21,2121 3. Raising and selling livestock and other animals;
SB109,21,2222 4. Management of rental properties;
SB109,21,2323 5. Extraction of minerals and other natural resources;
SB109,21,2424 6. Timber operations; and
SB109,21,2525 7. Activities to which sub. (23) applies.
SB109,22,1
1(13) Principal receipts. A trustee shall allocate to principal:
SB109,22,52 (a) To the extent not allocated to income under this section, assets received from
3a transferor during the transferor's lifetime, a decedent's estate, a trust with a
4terminating income interest, or a payer under a contract naming the trust or its
5trustee as beneficiary;
SB109,22,86 (b) Money or other property received from the sale, exchange, liquidation, or
7change in form of a principal asset, including realized profit, subject to subs. (10) to
8(24);
SB109,22,119 (c) Amounts recovered from third parties to reimburse the trust because of
10disbursements described in sub. (26) (a) 7. or for other reasons to the extent not based
11on the loss of income;
Loading...
Loading...