Amendment SSA1-SB109

SB109-SSA1,26,3 3. If an amount received as a royalty, shut-in-well payment, take-or-pay payment, bonus, or delay rental is more than nominal, 90% must be allocated to principal and the balance to income.

SB109-SSA1,26,6 4. If an amount is received from a working interest or any other interest not provided for in subd. 1., 2., or 3., 90% of the net amount received must be allocated to principal and the balance to income.

SB109-SSA1,26,9 (b) An amount received on account of an interest in water that is renewable must be allocated to income. If the water is not renewable, 90% of the amount must be allocated to principal and the balance to income.

SB109-SSA1,26,12 (c) This subsection applies whether or not a decedent or donor was extracting minerals, water, or other natural resources before the interest became subject to the trust.

SB109-SSA1,26,19 (d) If a trust owns an interest in minerals, water, or other natural resources on the effective date of this paragraph .... [revisor inserts date], the trustee may allocate receipts from the interest as provided in this subsection or in the manner used by the trustee before the effective date of this paragraph .... [revisor inserts date]. If the trust acquires an interest in minerals, water, or other natural resources after the effective date of this paragraph .... [revisor inserts date], the trustee shall allocate receipts from the interest as provided in this subsection.

SB109-SSA1,26,22 (21) Timber. (a) To the extent that a trustee accounts for receipts from the sale of timber and related products in accordance with this subsection, the trustee shall allocate the net receipts:

SB109-SSA1,26,25 1. To income to the extent that the amount of timber removed from the land does not exceed the rate of growth of the timber during the accounting periods in which a beneficiary has a mandatory income interest;

SB109-SSA1,27,3 2. To principal to the extent that the amount of timber removed from the land exceeds the rate of growth of the timber or the net receipts are from the sale of standing timber;

SB109-SSA1,27,7 3. To income or principal or between income and principal if the net receipts are from the lease of timberland or from a contract to cut timber from land owned by a trust, by determining the amount of timber removed from the land under the lease or contract and applying the rules in subds. 1. and 2.; or

SB109-SSA1,27,9 4. To principal to the extent that advance payments, bonuses, and other payments are not allocated under subd. 1., 2., or 3.

SB109-SSA1,27,11 (b) In determining net receipts to be allocated under par. (a), a trustee shall deduct and transfer to principal a reasonable amount for depletion.

SB109-SSA1,27,13 (c) This subsection applies whether or not a decedent or transferor was harvesting timber from the property before it became subject to the trust.

SB109-SSA1,27,20 (d) If a trust owns an interest in timberland on the effective date of this paragraph .... [revisor inserts date], the trustee may allocate net receipts from the sale of timber and related products as provided in this subsection or in the manner used by the trustee before the effective date of this paragraph .... [revisor inserts date]. If the trust acquires an interest in timberland after the effective date of this paragraph .... [revisor inserts date], the trustee shall allocate net receipts from the sale of timber and related products as provided in this subsection.

SB109-SSA1,28,5 (22) Property not productive of income. (a) If a marital deduction is allowed for all or part of a trust whose assets consist substantially of property that does not provide the surviving spouse with sufficient income from or use of the trust assets, and if the amounts that the trustee transfers from principal to income under sub. (4) and distributes to the spouse from principal in accordance with the terms of the trust are insufficient to provide the spouse with the beneficial enjoyment required to obtain the marital deduction, the spouse may require the trustee to make property productive of income, convert property within a reasonable time, or exercise the power conferred by sub. (4) (a). The trustee may decide which action or combination of actions to take.

SB109-SSA1,28,8 (b) In cases not governed by par. (a), proceeds from the sale or other disposition of an asset are principal without regard to the amount of income the asset produces during any accounting period.

SB109-SSA1,28,14 (23) Derivatives and options. (a) In this subsection, "derivative" means a contract or financial instrument or a combination of contracts and financial instruments that gives a trust the right or obligation to participate in some or all changes in the price of a tangible or intangible asset or group of assets, or changes in a rate, an index of prices or rates, or another market indicator for an asset or a group of assets.

SB109-SSA1,28,17 (b) To the extent that a trustee does not account under sub. (12) for transactions in derivatives, the trustee shall allocate to principal receipts from and disbursements made in connection with those transactions.

SB109-SSA1,29,2 (c) If a trustee grants an option to buy property from the trust, whether or not the trust owns the property when the option is granted, grants an option that permits another person to sell property to the trust, or acquires an option to buy property for the trust or an option to sell an asset owned by the trust, and the trustee or other owner of the asset is required to deliver the asset if the option is exercised, an amount received for granting the option must be allocated to principal. An amount paid to acquire the option must be paid from principal. A gain or loss realized upon the exercise of an option, including an option granted to a settlor of the trust for services rendered, must be allocated to principal.

SB109-SSA1,29,9 (24) Asset-backed securities. (a) In this subsection, "asset-backed security" means an asset whose value is based upon the right it gives the owner to receive distributions from the proceeds of financial assets that provide collateral for the security. The term includes an asset that gives the owner the right to receive from the collateral financial assets only the interest or other current return or only the proceeds other than interest or current return. The term does not include an asset to which sub. (10) or (18) applies.

SB109-SSA1,29,13 (b) If a trust receives a payment from interest or other current return and from other proceeds of the collateral financial assets, the trustee shall allocate to income the portion of the payment that the payer identifies as being from interest or other current return and shall allocate the balance of the payment to principal.

SB109-SSA1,29,19 (c) If a trust receives one or more payments in exchange for the trust's entire interest in an asset-backed security in one accounting period, the trustee shall allocate the payments to principal. If a payment is one of a series of payments that will result in the liquidation of the trust's interest in the security over more than one accounting period, the trustee shall allocate 10% of the payment to income and the balance to principal.

SB109-SSA1,29,22 (25) Disbursements from income. A trustee shall make the following disbursements from income to the extent that they are not disbursements specified in sub. (5) (b) 2. or 3.:

SB109-SSA1,29,24 (a) One-half of the regular compensation of the trustee and of any person providing investment advisory or custodial services to the trustee;

SB109-SSA1,30,2 (b) One-half of all expenses for accountings, judicial proceedings, or other matters that involve both the income and remainder interests;

SB109-SSA1,30,7 (c) All of the other ordinary expenses incurred in connection with the administration, management, or preservation of trust property and the distribution of income, including interest, ordinary repairs, regularly recurring taxes assessed against principal, and expenses of a proceeding or other matter that concerns primarily the income interest; and

SB109-SSA1,30,9 (d) Recurring premiums on insurance covering the loss of a principal asset or the loss of income from or use of the asset.

SB109-SSA1,30,11 (26) Disbursements from principal. (a) A trustee shall make the following disbursements from principal:

SB109-SSA1,30,13 1. The remaining one-half of the disbursements described in sub. (25) (a) and (b);

SB109-SSA1,30,16 2. All of the trustee's compensation calculated on principal as a fee for acceptance, distribution, or termination, and disbursements made to prepare property for sale;

SB109-SSA1,30,17 3. Payments on the principal of a trust debt;

SB109-SSA1,30,19 4. Expenses of a proceeding that concerns primarily principal, including a proceeding to construe the trust or to protect the trust or its property;

SB109-SSA1,30,21 5. Premiums paid on a policy of insurance not described in sub. (25) (d) of which the trust is the owner and beneficiary;

SB109-SSA1,30,23 6. Estate, inheritance, and other transfer taxes, including penalties, apportioned to the trust; and

SB109-SSA1,31,6 7. Disbursements related to environmental matters, including reclamation, assessing environmental conditions, remedying and removing environmental contamination, monitoring remedial activities and the release of substances, preventing future releases of substances, collecting amounts from persons liable or potentially liable for the costs of those activities, penalties imposed under environmental laws or regulations and other payments made to comply with those laws or regulations, statutory or common law claims by third parties, and defending claims based on environmental matters.

SB109-SSA1,31,10 (b) If a principal asset is encumbered with an obligation that requires income from that asset to be paid directly to the creditor, the trustee shall transfer from principal to income an amount equal to the income paid to the creditor in reduction of the principal balance of the obligation.

SB109-SSA1,31,14 (27) Transfers from income to principal for depreciation. (a) In this subsection, "depreciation" means a reduction in value due to wear, tear, decay, corrosion, or gradual obsolescence of a fixed asset having a useful life of more than one year.

SB109-SSA1,31,17 (b) A trustee may transfer to principal a reasonable amount of the net cash receipts from a principal asset that is subject to depreciation, but may not transfer any amount for depreciation:

SB109-SSA1,31,20 1. Of that portion of real property used or available for use by a beneficiary as a residence or of tangible personal property held or made available for the personal use or enjoyment of a beneficiary;

SB109-SSA1,31,21 2. During the administration of a decedent's estate; or

SB109-SSA1,31,23 3. Under this subsection if the trustee is accounting under sub. (12) for the business or activity in which the asset is used.

SB109-SSA1,31,24 (c) An amount transferred to principal need not be held as a separate fund.

SB109-SSA1,32,5 (28) Transfers from income to reimburse principal. (a) If a trustee makes or expects to make a principal disbursement described in this subsection, the trustee may transfer an appropriate amount from income to principal in one or more accounting periods to reimburse principal or to provide a reserve for future principal disbursements.

SB109-SSA1,32,8 (b) Principal disbursements to which par. (a) applies include the following, but only to the extent that the trustee has not been and does not expect to be reimbursed by a third party:

SB109-SSA1,32,10 1. An amount chargeable to income but paid from principal because it is unusually large, including extraordinary repairs;

SB109-SSA1,32,12 2. A capital improvement to a principal asset, whether in the form of changes to an existing asset or the construction of a new asset, including special assessments;

SB109-SSA1,32,14 3. Disbursements made to prepare property for rental, including tenant allowances, leasehold improvements, and brokers' commissions;

SB109-SSA1,32,17 4. Periodic payments on an obligation secured by a principal asset to the extent that the amount transferred from income to principal for depreciation is less than the periodic payments; and

SB109-SSA1,32,18 5. Disbursements described in sub. (26) (a) 7.

SB109-SSA1,32,21 (c) If the asset whose ownership gives rise to the disbursements becomes subject to a successive income interest after an income interest ends, a trustee may continue to transfer amounts from income to principal as provided in par. (a).

SB109-SSA1,32,23 (29) Income taxes. (a) A tax required to be paid by a trustee based on receipts allocated to income must be paid from income.

SB109-SSA1,33,3 (b) A tax required to be paid by a trustee based on receipts allocated to principal must be paid from principal, even if the tax is called an income tax by the taxing authority.

SB109-SSA1,33,5 (c) A tax required to be paid by a trustee on the trust's share of an entity's taxable income must be paid proportionately:

SB109-SSA1,33,7 1. From income to the extent that receipts from the entity are allocated to income; and

SB109-SSA1,33,8 2. From principal to the extent that:

SB109-SSA1,33,9 a. Receipts from the entity are allocated to principal; and

SB109-SSA1,33,11 b. The trust's share of the entity's taxable income exceeds the total receipts described in subds. 1. and 2. a.

SB109-SSA1,33,14 (d) For purposes of this subsection, receipts allocated to principal or income must be reduced by the amount distributed to a beneficiary from principal or income for which the trust receives a deduction in calculating the tax.

SB109-SSA1,33,18 (30) Adjustments between principal and income because of taxes. (a) A fiduciary may make adjustments between principal and income to offset the shifting of economic interests or tax benefits between income beneficiaries and remainder beneficiaries which arise from:

SB109-SSA1,33,20 1. Elections and decisions, other than those described in par. (b), that the fiduciary makes from time to time regarding tax matters;

SB109-SSA1,33,23 2. An income tax or any other tax that is imposed upon the fiduciary or a beneficiary as a result of a transaction involving or a distribution from the estate or trust; or

SB109-SSA1,34,3 3. The ownership by an estate or trust of an interest in an entity whose taxable income, whether or not distributed, is includable in the taxable income of the estate or trust or of a beneficiary.

SB109-SSA1,34,16 (b) If the amount of an estate tax marital deduction or charitable contribution deduction is reduced because a fiduciary deducts an amount paid from principal for income tax purposes instead of deducting it for estate tax purposes, and as a result estate taxes paid from principal are increased and income taxes paid by an estate, trust, or beneficiary are decreased, each estate, trust, or beneficiary that benefits from the decrease in income tax shall reimburse the principal from which the increase in estate tax is paid. The total reimbursement must equal the increase in the estate tax to the extent that the principal used to pay the increase would have qualified for a marital deduction or charitable contribution deduction but for the payment. The proportionate share of the reimbursement for each estate, trust, or beneficiary whose income taxes are reduced must be the same as its proportionate share of the total decrease in income tax. An estate or trust shall reimburse principal from income.

SB109-SSA1, s. 7 Section 7. 701.24 of the statutes is renumbered 701.24 (1) and amended to read:

SB109-SSA1,34,24 701.24 (1) Except as otherwise provided in s. 701.19 (9) (a) and (10), ss. 701.01 to 701.19, 701.21, 701.22,and 701.23 are applicable to a trust existing on July 1, 1971, as well as a trust created after such date and shall govern trustees acting under such trusts. If application of any provision of ss. 701.01 to 701.19, 701.21, 701.22 ,and 701.23 to a trust in existence on August 1, 1971, is unconstitutional, it shall not affect application of the provision to a trust created after that date.

SB109-SSA1, s. 8 Section 8. 701.24 (2) of the statutes is created to read:

SB109-SSA1,35,8 701.24 (2) Section 701.20 applies to every trust or decedent's estate existing on the effective date of this subsection .... [revisor inserts date], and to every trust or decedent's estate created or coming into existence after that date, except as otherwise expressly provided in s. 701.20 or by the decedent's will or the terms of the trust. With respect to a trust or decedent's estate existing on the effective date of this subsection .... [revisor inserts date], s. 701.20 does not apply before the trust's or estate's first accounting period, as defined in s. 701.20 (2) (a), that begins after the effective date of this subsection .... [revisor inserts date].

SB109-SSA1, s. 9 Section 9. 861.015 (2) of the statutes is amended to read:

SB109-SSA1,35,17 861.015 (2) For purposes of this section, property subject to a directive is valued by its clear market value on the date of the decedent's death. Satisfaction of the nonholding spouse's marital property interest in the property subject to the directive shall be based on that value, plus any income from the property subject to the directive after the death of the decedent and before satisfaction. For purposes of determining the income from the property subject to a directive, such property shall be treated as a legacy or devise of property other than money under s. 701.20 (5) (b) 1.

SB109-SSA1, s. 10 Section 10. 881.01 of the statutes is repealed and recreated to read:

SB109-SSA1,35,19 881.01 Uniform prudent investor act. (1) Definition. In this section:

SB109-SSA1,35,22 (a) "Beneficiary", with respect to a guardianship of the estate, means a ward for whom a guardian of the estate has been appointed and, with respect to a conservator, means a person for whose estate a conservator has been appointed.

SB109-SSA1,35,24 (b) "Fiduciary" means personal representative, trustee, conservator, or guardian of the estate.

SB109-SSA1,36,3 (2) Prudent investor rule. (a) Except as otherwise provided in par. (b), a fiduciary who invests and manages assets owes a duty to the beneficiaries to comply with the prudent investor rule set forth in this section.

SB109-SSA1,36,7 (b) The prudent investor rule, a default rule, may be expanded, restricted, eliminated or otherwise altered by the provisions of a will, trust, or court order. A fiduciary is not liable to a beneficiary to the extent that the fiduciary acted in reasonable reliance on the provisions of the will, trust, or court order.

SB109-SSA1,36,12 (3) Standard of care; portfolio strategy; risk and return objectives. (a) A fiduciary shall invest and manage assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the estate, trust, conservatorship, or guardianship. In satisfying this standard, the fiduciary shall exercise reasonable care, skill, and caution.

SB109-SSA1,36,16 (b) A fiduciary's investment and management decisions about individual assets shall be evaluated not in isolation but in the context of the portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the estate, trust, conservatorship, or guardianship.

SB109-SSA1,36,19 (c) Among circumstances that a fiduciary shall consider in investing and managing assets are those of the following that are relevant to the estate, trust, conservatorship, or guardianship or its beneficiaries:

SB109-SSA1,36,20 1. General economic conditions.

SB109-SSA1,36,21 2. The possible effect of inflation or deflation.

SB109-SSA1,36,22 3. The expected tax consequences of investment decisions or strategies.

SB109-SSA1,36,25 4. The role that each investment or course of action plays within the overall portfolio, which may include financial assets, interests in closely held enterprises, tangible and intangible personal property, and real property.

SB109-SSA1,37,1 5. The expected total return from income and the appreciation of capital.

SB109-SSA1,37,2 6. Other resources of the beneficiaries.

SB109-SSA1,37,4 7. Needs for liquidity, regularity of income, and preservation or appreciation of capital.

SB109-SSA1,37,6 8. An asset's special relationship or special value to the purposes of the estate, trust, conservatorship, or guardianship or to one or more of the beneficiaries.

SB109-SSA1,37,8 (d) A fiduciary shall make a reasonable effort to verify facts relevant to the investment and management of assets.

SB109-SSA1,37,10 (e) A fiduciary may invest in any kind of property or type of investment consistent with the standards of this section.

SB109-SSA1,37,13 (f) A fiduciary who has special skills or expertise, or is named fiduciary in reliance upon the fiduciary's representation that the fiduciary has special skills or expertise, has a duty to use those special skills or expertise.

SB109-SSA1,37,17 (4) Diversification. A fiduciary shall diversify investments unless the fiduciary reasonably determines that, because of special circumstances, the purposes of the estate, trust, conservatorship, or guardianship are better served without diversifying.