March 28, 2001 - Introduced by Senators Huelsman and George, cosponsored by
Representatives Cullen and Gundrum, by request of Wisconsin Commission
on Uniform State Laws. Referred to Committee on Judiciary, Consumer
Affairs, and Campaign Finance Reform.
SB109,1,6 1An Act to renumber and amend 701.24; to amend 20.907 (1), 23.0918 (2),
225.70, 36.29 (1), 40.82 (2), 66.0603 (1m) (b), 861.015 (2), 881.02 and 881.06; to
3repeal and recreate
701.20 and 881.01; and to create 701.24 (2) of the
4statutes; relating to: regulating the investments of personal representatives,
5trustees, conservators, and guardians of the estate; and providing rules for
6allocations between principal and income for trusts and estates.
Analysis by the Legislative Reference Bureau
Uniform Principal and Income Act
Current law contains a provision that is the Revised Uniform Principal and
Income Act of 1962. The provision provides rules for trustees and personal
representatives (fiduciaries) for apportioning trust and estate receipts and
disbursements between principal and income. This bill replaces that provision with
the Uniform Principal and Income Act of 1997 and an amendment to it. The Uniform
Principal and Income Act of 1997 addresses essentially the same issues as the
Revised Uniform Principal and Income Act of 1962, but is much more extensive and
detailed, takes into account the widespread use today of revocable living trusts as
will replacements, and provides rules related to financial instruments and
transactions that were not in use previously, such as derivatives.
As under current law, the bill specifies that, in allocating receipts and
disbursements between income and principal in the administration of trusts and

estates, the terms of the trust or will control. The fiduciary may exercise discretion
in the allocation if the trust or will gives the fiduciary such discretionary powers. If
the trust or will does not contain a conflicting provision or provide discretionary
powers, however, the fiduciary must follow the allocation rules provided in the bill
in administering a trust or estate.
Under a trust, some beneficiaries may have a beneficial interest in receiving
trust income, while other beneficiaries may receive the principal that remains after
the trust terminates. The bill specifies which receipts by a trust are to be allocated
to income and which are to be allocated to principal. Various types of receipts are
addressed, including distributions from a trust or estate; receipts from the conduct
of a business by the trustee; receipts from rental property; interest received on an
obligation to pay money; proceeds from a life insurance policy or other contract;
payments from a pension, individual retirement account, or annuity; receipts from
an interest in minerals, water, or other natural resources; receipts from the sale of
timber; distributions from the proceeds of financial assets that provide collateral for
a security; and receipts from transactions in derivatives. Following are a few
examples of how the bill provides rules for allocation of receipts between principal
and income: 1) If part of a payment from an annuity, pension plan, or other
retirement account is characterized as interest or dividend, that part of the payment
must be allocated to income and the balance must be allocated to principal. If no part
of such a payment is characterized as interest or dividend, however, 10% of the
payment must be allocated to income and the balance must be allocated to principal.
2) Receipts from rental property must be allocated to income, but a refundable
deposit, such as a security deposit, must be allocated to principal and may not be
distributed to a beneficiary until the trustee's contractual obligations with respect
to the amount have been satisfied. 3) Proceeds of a life insurance policy must be
allocated to principal. Dividends on an insurance policy, however, must be allocated
to income if the premiums on the policy are paid from income and allocated to
principal if the premiums are paid from principal. 4) An amount received on account
of an interest in water that is renewable must be allocated to income. If the water
is not renewable, however, 90% of the amount received must be allocated to principal
and the balance must be allocated to income.
The bill specifies which distributions from a trust are to be made from income
and which are to be made from principal. Generally, ordinary administrative
expenses are paid from income. One-half of the trustee's regular compensation is
paid from income and one-half from principal, but the trustee's compensation for
certain activities, such as disbursements made to prepare property for sale, are paid
from principal. Expenses of proceedings that concern primarily principal must be
paid from principal. Estate, inheritance, and other transfer taxes must be paid from
principal, but a tax that is based on receipts allocated to income must be paid from
income.
Under the bill, a trustee is authorized to transfer to principal a reasonable
amount of the cash receipts from a principal asset that is subject to depreciation and
to transfer an appropriate amount from income to principal to reimburse principal
or provide a reserve for future principal disbursements if the trustee makes or

expects to make a principal disbursement of a type specified in the bill, such as a
capital improvement to a principal asset or disbursements to prepare a property for
rental. Under the bill, a fiduciary may make adjustments between principal and
income to offset any inequities resulting from tax rules or tax elections.
The bill prohibits a court from granting relief from a fiduciary's decision to
exercise or not to exercise a discretionary power conferred under the bill, such as
whether and to what extent an amount should be transferred from principal to
income or from income to principal, unless the court determines that the decision was
an abuse of the fiduciary's discretion. In that case, the court may require certain
actions to be taken to place the beneficiaries in the positions that they would have
occupied had the discretion not been abused and may even require the fiduciary to
pay one or more beneficiaries from the fiduciary's own funds.
The bill provides general rules for fiduciaries to use for distributing income to
beneficiaries and principal to remainder beneficiaries in an estate or after an income
interest in a trust ends, rules for determining when a right to income begins and ends
in different circumstances, rules for allocating income receipts and disbursements
between income and principal on the basis of the relation in time to the decedent's
death or the date on which an income interest begins, and rules for distributing
undistributed income after an income interest in a trust ends.
Uniform Prudent Investor Act
Under current law, personal representatives, guardians of the estate, and
trustees (fiduciaries) are bound by the prudent person rule. That is, they are
required to invest the assets of their trusts and estates conservatively. For example,
no more than 50% of the assets may consist of common stocks. This bill replaces the
prudent person rule with the Uniform Prudent Investor Act, which sets general
standards for fiduciaries, allows them greater flexibility in choosing investments,
specifies that their work is to be judged on the basis of the performance of all their
investments, allows them to delegate investment decisions, and requires them to
consider the tax consequences of investments. These changes 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 bill also adds conservators to the types of
fiduciaries to which the Uniform Prudent Investor Act applies. A conservator is
appointed by a court to manage the property or income of a person who is competent
and who has requested that the conservator be appointed.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
SB109, s. 1 1Section 1. 20.907 (1) of the statutes is amended to read:
SB109,4,122 20.907 (1) Acceptance and investment. Unless otherwise provided by law, all
3gifts, grants, bequests, and devises to the state or to any state agency for the benefit

1or advantage of the state, whether made to trustees or otherwise, shall be legal and
2valid when approved by the joint committee on finance and shall be executed and
3enforced according to the provisions of the instrument making the same, including
4all provisions and directions in any such instrument for accumulation of the income
5of any fund or rents and profits of any real estate without being subject to the
6limitations and restrictions provided by law in other cases; but no such accumulation
7shall be allowed to produce a fund more than 20 times as great as that originally
8given. When such gifts, grants, bequests or devises include common stocks or other
9investments which are not authorized by s. 881.01, such common stocks or other
10investments may be held and may be exchanged, invested or reinvested in similar
11types of investments without being subject to the limitations provided by law in other
12cases.
SB109, s. 2 13Section 2. 23.0918 (2) of the statutes is amended to read:
SB109,4,2014 23.0918 (2) Unless the natural resources board determines otherwise in a
15specific case, only the income from the gifts, grants, or bequests in the fund is
16available for expenditure. The natural resources board may authorize expenditures
17only for preserving, developing, managing, or maintaining land under the
18jurisdiction of the department that is used for any of the purposes specified in s. 23.09
19(2) (d). In this subsection, unless otherwise provided in a gift, grant, or bequest,
20principal and income are determined as provided under s. 701.20 (3).
SB109, s. 3 21Section 3. 25.70 of the statutes is amended to read:
SB109,5,3 2225.70 Historical society trust fund. There is established a separate
23nonlapsible trust fund designated as the historical society trust fund, consisting of
24all endowment principal and income and all cash balances of the historical society.
25Unless the board of curators of the historical society determines otherwise in each

1case, only the income from the assets in the historical society trust fund is available
2for expenditure. In this section, unless otherwise provided in the gift, grant, or
3bequest, principal and income are determined as provided under s. 701.20 (3).
SB109, s. 4 4Section 4. 36.29 (1) of the statutes is amended to read:
SB109,6,25 36.29 (1) All gifts, grants, and bequests for the benefit or advantage of the
6system or any of its institutions, departments, or facilities or to provide any means
7of instruction, illustration, or knowledge in connection therewith, whether made to
8trustees or otherwise, shall be valid notwithstanding any other provision of this
9chapter except as otherwise provided in this subsection and shall be executed and
10enforced according to the provisions of the instrument making the same, including
11all provisions and directions in any such instrument for accumulation of the income
12of any fund or rents and profits of any real estate without being subject to the
13limitations and restrictions provided by law in other cases; but no such income
14accumulation shall be allowed to produce a fund more than 20 times as great as that
15originally given. When such gifts, grants or bequests include common stocks or other
16investments which are not authorized by ch. 881, the board may continue to hold
17such common stocks or other investments and exchange, invest or reinvest the funds
18of such gift, grant or bequest in similar types of investments without being subject
19to the limitations and restrictions provided by law in other cases.
No such
20investment of the funds of such gifts, grants, or bequests shall knowingly be made
21in any company, corporation, subsidiary, or affiliate which that practices or condones
22through its actions discrimination on the basis of race, religion, color, creed, or sex.
23Except as otherwise provided in this section, the board may invest not to exceed 85%
24of trust funds held and administered by the board in common stocks , the limitation
25of 50% in s. 881.01 (2) to the contrary notwithstanding
. This subsection does not

1apply to a gift, grant, or bequest that the board declines to accept or that the board
2is not authorized to accept under this section.
SB109, s. 5 3Section 5. 40.82 (2) of the statutes is amended to read:
SB109,6,104 40.82 (2) Compensation which that is withheld under a deferred compensation
5plan contract between an employer and an employee may be invested by the
6employer or a person other than the employer who is authorized by contract to
7administer the funds. The employer may determine the types of investments in
8which the deferred compensation funds may be invested. The deferred compensation
9funds may be invested and reinvested in the same manner provided for investments
10under s. 881.01 (1).
SB109, s. 6 11Section 6. 66.0603 (1m) (b) of the statutes is amended to read:
SB109,6,2212 66.0603 (1m) (b) A town, city or village may invest surplus funds in any bonds
13or securities issued under the authority of the municipality, whether the bonds or
14securities create a general municipality liability or a liability of the property owners
15of the municipality for special improvements, and may sell or hypothecate the bonds
16or securities. Funds of an employer, as defined by s. 40.02 (28), in a deferred
17compensation plan may also be invested and reinvested in the same manner
18authorized for investments under s. 881.01 (1). Funds of any school district
19operating under ch. 119, held in trust for pension plans intended to qualify under
20section 401 (a) of the Internal Revenue Code, other than funds held in the public
21employee trust fund, may be invested and reinvested in the same manner as is
22authorized for investments under s. 881.01
.
SB109, s. 7 23Section 7. 701.20 of the statutes is repealed and recreated to read:
SB109,6,25 24701.20 Uniform principal and income act. (1) Citing section. This section
25may be cited as the Uniform Principal and Income Act.
SB109,7,1
1(2) Definitions. In this section:
SB109,7,52 (a) "Accounting period" means a calendar year, unless another 12-month
3period is selected by a fiduciary, and includes a portion of a calendar year or other
412-month period that begins when an income interest begins or that ends when an
5income interest ends.
SB109,7,86 (b) "Beneficiary" means a person who has a beneficial interest in a trust or an
7estate and includes, in the case of a decedent's estate, an heir, a legatee, and a devisee
8and, in the case of a trust, an income beneficiary and a remainder beneficiary.
SB109,7,119 (c) "Fiduciary" means a personal representative or a trustee and includes an
10executor, administrator, successor personal representative, special administrator,
11and a person performing substantially the same function as any of those.
SB109,7,1512 (d) "Income" means money or property that a fiduciary receives as current
13return from a principal asset. "Income" includes a portion of receipts from a sale,
14exchange, or liquidation of a principal asset, to the extent provided in subs. (10) to
15(24).
SB109,7,1716 (e) "Income beneficiary" means a person to whom net income of a trust is or may
17be payable.
SB109,7,2018 (f) "Income interest" means the right of an income beneficiary to receive all or
19part of net income, whether the terms of the trust require it to be distributed or
20authorize it to be distributed in the trustee's discretion.
SB109,7,2221 (g) "Mandatory income interest" means the right of an income beneficiary to
22receive net income that the terms of the trust require the fiduciary to distribute.
SB109,7,2523 (h) "Net income" means the total receipts allocated to income during an
24accounting period, minus the disbursements made from income during the period,
25plus or minus transfers under this section to or from income during the period.
SB109,8,4
1(i) "Person" means an individual; corporation; business trust; estate; trust;
2partnership; limited liability company; association; joint venture; government;
3governmental subdivision, agency, or instrumentality; public corporation; or any
4other legal or commercial entity.
SB109,8,65 (j) "Principal" means property held in trust for distribution to a remainder
6beneficiary when the trust terminates.
SB109,8,87 (k) "Remainder beneficiary" means a person entitled to receive principal when
8an income interest ends.
SB109,8,119 (L) "Terms of a trust" means the manifestation of the intent of a settlor or
10decedent with respect to a trust, expressed in a manner that admits of its proof in a
11judicial proceeding, whether by written or spoken words or by conduct.
SB109,8,1312 (m) "Trustee" includes an original, additional, or successor trustee, whether or
13not appointed or confirmed by a court.
SB109,8,16 14(3) Fiduciary duties; general principles. (a) In allocating receipts and
15disbursements to income or principal or between income and principal, and with
16respect to any matter within the scope of subs. (5) to (9), a fiduciary:
SB109,8,1817 1. Shall administer a trust or estate in accordance with the terms of the trust
18or the will, even if there is a different provision in this section;
SB109,8,2219 2. May administer a trust or estate by the exercise of a discretionary power of
20administration given to the fiduciary by the terms of the trust or the will, even if the
21exercise of the power produces a result different from a result required or permitted
22by this section;
SB109,8,2523 3. Shall administer a trust or estate in accordance with this section if the terms
24of the trust or the will do not contain a different provision or do not give the fiduciary
25a discretionary power of administration; and
SB109,9,3
14. Shall add a receipt or charge a disbursement to principal to the extent that
2the terms of the trust and this section do not provide a rule for allocating the receipt
3or disbursement to principal or income or between principal and income.
SB109,9,114 (b) In exercising the power to adjust under sub. (4) (a) or a discretionary power
5of administration regarding a matter within the scope of this section, whether
6granted by the terms of a trust, a will, or this section, a fiduciary shall administer
7a trust or estate impartially, based on what is fair and reasonable to all of the
8beneficiaries, except to the extent that the terms of the trust or the will clearly
9manifest an intention that the fiduciary shall or may favor one or more of the
10beneficiaries. A determination in accordance with this section is presumed to be fair
11and reasonable to all of the beneficiaries.
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:
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