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;
SB109,22,1412 (d) Proceeds of property taken by eminent domain, but a separate award made
13for the loss of income with respect to an accounting period during which a current
14income beneficiary had a mandatory income interest is income;
SB109,22,1615 (e) Net income received in an accounting period during which there is no
16beneficiary to whom a trustee may or must distribute income; and
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.
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