Amendment SSA1-SB109

SB109-SSA1,11,13 (4m) Judicial review of discretionary power. (a) Unless it determines that the decision was an abuse of the fiduciary's discretion, a court may not grant relief from a fiduciary's decision to exercise or not to exercise a discretionary power conferred by this section, including:

SB109-SSA1,11,15 1. A decision under sub. (4) (a) as to whether and to what extent an amount should be transferred from principal to income or from income to principal.

SB109-SSA1,11,19 2. A decision regarding the factors that are relevant to the trust and its beneficiaries, the extent to which the factors are relevant, and the weight, if any, to be given to those factors in deciding whether and to what extent to exercise the discretionary power conferred under sub. (4) (a).

SB109-SSA1,11,22 (b) A fiduciary's decision is not an abuse of discretion merely because the court would have exercised the power in a different manner or would not have exercised the power.

SB109-SSA1,12,2 (c) If the court determines that a fiduciary has abused the fiduciary's discretion, the court may place the income and remainder beneficiaries in the positions that they would have occupied had the discretion not been abused, according to the following rules:

SB109-SSA1,12,7 1. To the extent that the abuse of discretion has resulted in no distribution to a beneficiary or in a distribution that is too small, the court shall order the fiduciary to distribute from the trust to the beneficiary an amount that the court determines will restore the beneficiary, in whole or in part, to the beneficiary's appropriate position.

SB109-SSA1,12,13 2. To the extent that the abuse of discretion has resulted in a distribution to a beneficiary that is too large, the court shall place the beneficiaries, the trust, or both, in whole or in part, in their appropriate positions by ordering the fiduciary to withhold an amount from one or more future distributions to the beneficiary who received the distribution that was too large or by ordering that beneficiary to return some or all of the distribution to the trust.

SB109-SSA1,12,18 3. To the extent that the court is unable, after applying subds. 1. and 2., to place the beneficiaries, the trust, or both in the positions that they would have occupied had the discretion not been abused, the court may order the fiduciary to pay an appropriate amount from its own funds to one or more of the beneficiaries, the trust, or both.

SB109-SSA1,13,3 (d) Upon petition by the fiduciary, the court having jurisdiction over a trust shall determine whether a proposed exercise or nonexercise by the fiduciary of a discretionary power conferred under this section will result in an abuse of the fiduciary's discretion. The petition must describe the proposed exercise or nonexercise of the power and contain sufficient information to inform the beneficiaries of the reasons for the proposal, the facts upon which the fiduciary relies, and an explanation of how the income and remainder beneficiaries will be affected by the proposed exercise or nonexercise of the power. A beneficiary who challenges the proposed exercise or nonexercise of the power has the burden of establishing that it will result in an abuse of discretion.

SB109-SSA1,13,6 (5) Determination and distribution of net income. After a decedent dies, in the case of an estate, or after an income interest in a trust ends, the following rules apply:

SB109-SSA1,13,11 (a) A fiduciary of an estate or of a terminating income interest shall determine the amount of net income and net principal receipts received from property specifically given to a beneficiary under the rules in subs. (7) to (30) that apply to trustees and the rules in par. (e). The fiduciary shall distribute the net income and net principal receipts to the beneficiary who is to receive the specific property.

SB109-SSA1,13,14 (b) A fiduciary shall determine the remaining net income of a decedent's estate or a terminating income interest under the rules in subs. (7) to (30) that apply to trustees and by:

SB109-SSA1,13,16 1. Including in net income all income from property used to discharge liabilities;

SB109-SSA1,13,22 2. Paying from income or principal, in the fiduciary's discretion, fees of attorneys, accountants, and fiduciaries; court costs and other expenses of administration; and interest on death taxes, but the fiduciary may pay those expenses from income of property passing to a trust for which the fiduciary claims an estate tax marital or charitable deduction only to the extent that the payment of those expenses from income will not cause the reduction or loss of the deduction; and

SB109-SSA1,14,3 3. Paying from principal all other disbursements made or incurred in connection with the settlement of a decedent's estate or the winding up of a terminating income interest, including debts, funeral expenses, disposition of remains, family allowances, and death taxes and related penalties that are apportioned to the estate or terminating income interest by the will, the terms of the trust, or applicable law.

SB109-SSA1,14,10 (c) A fiduciary shall distribute to a beneficiary, including a trustee, who receives a pecuniary amount not determined by a pecuniary formula interest at the legal rate set forth in s. 138.04 on any unpaid portion of the pecuniary amount for the period commencing one year after the decedent's death or after the income interest in the trust ends. The interest under this paragraph shall be distributed from net income determined under par. (b) or from principal to the extent that net income is insufficient.

SB109-SSA1,14,14 (d) A fiduciary shall distribute the net income remaining after distributions required by par. (c) in the manner described in sub. (6) to all other beneficiaries, including a beneficiary who receives a pecuniary amount determined by a pecuniary formula.

SB109-SSA1,14,25 (e) A fiduciary may not reduce principal or income receipts from property described in par. (a) because of a payment described in sub. (25) or (26) to the extent that the will, the terms of the trust, or applicable law requires the fiduciary to make the payment from assets other than the property or to the extent that the fiduciary recovers or expects to recover the payment from a third party. The net income and principal receipts from the property are determined by including all of the amounts the fiduciary receives or pays with respect to the property, whether those amounts accrued or became due before, on, or after the date of a decedent's death or an income interest's terminating event, and by making a reasonable provision for amounts that the fiduciary believes the estate or terminating income interest may become obligated to pay after the property is distributed.

SB109-SSA1,15,9 (6) Distribution to residuary and remainder beneficiaries. (a) Each beneficiary described in sub. (5) (d) is entitled to receive a portion of the net income equal to the beneficiary's fractional interest in undistributed principal assets, using values as of the distribution date. If a fiduciary makes more than one distribution of assets to beneficiaries to whom this subsection applies, each beneficiary, including one who does not receive part of the distribution, is entitled, as of each distribution date, to the net income the fiduciary has received after the date of death or terminating event or earlier distribution date but has not distributed as of the current distribution date.

SB109-SSA1,15,10 (b) In determining a beneficiary's share of net income, the following rules apply:

SB109-SSA1,15,14 1. The beneficiary is entitled to receive a portion of the net income equal to the beneficiary's fractional interest in the undistributed principal assets immediately before the distribution date, including assets that later may be sold to meet principal obligations.

SB109-SSA1,15,17 2. The beneficiary's fractional interest in the undistributed principal assets must be calculated without regard to property specifically given to a beneficiary and property required to pay pecuniary amounts not determined by a pecuniary formula.

SB109-SSA1,15,20 3. The beneficiary's fractional interest in the undistributed principal assets must be calculated on the basis of the aggregate value of those assets as of the distribution date without reducing the value by any unpaid principal obligation.

SB109-SSA1,15,23 4. The distribution date for purposes of this subsection may be the date as of which the fiduciary calculates the value of the assets if that date is reasonably near the date on which assets are actually distributed.

SB109-SSA1,16,3 (c) If a fiduciary does not distribute all of the collected but undistributed net income to each person as of a distribution date, the fiduciary shall maintain appropriate records showing the interest of each beneficiary in that net income.

SB109-SSA1,16,7 (d) A trustee may apply the rules in this subsection, to the extent that the trustee considers it appropriate, to net gain or loss realized after the date of death or terminating event or earlier distribution date from the disposition of a principal asset if this subsection applies to the income from the asset.

SB109-SSA1,16,11 (7) When right to income begins and ends. (a) An income beneficiary is entitled to net income from the date on which the income interest begins. An income interest begins on the date specified in the terms of the trust or, if no date is specified, on the date an asset becomes subject to a trust or successive income interest.

SB109-SSA1,16,12 (b) An asset becomes subject to a trust:

SB109-SSA1,16,14 1. On the date it is transferred to the trust in the case of an asset that is transferred to a trust during the transferor's life;

SB109-SSA1,16,17 2. On the date of a testator's death in the case of an asset that becomes subject to a trust by reason of a will, even if there is an intervening period of administration of the testator's estate; or

SB109-SSA1,16,19 3. On the date of an individual's death in the case of an asset that is transferred to a fiduciary by a third party because of the individual's death.

SB109-SSA1,16,22 (c) An asset becomes subject to a successive income interest on the day after the preceding income interest ends, as determined under par. (d), even if there is an intervening period of administration to wind up the preceding income interest.

SB109-SSA1,16,25 (d) An income interest ends on the day before an income beneficiary dies or another terminating event occurs, or on the last day of a period during which there is no beneficiary to whom a trustee may distribute income.

SB109-SSA1,17,5 (8) Apportionment of receipts and disbursements when decedent dies or income interest begins. (a) A trustee shall allocate to principal an income receipt or disbursement other than one to which sub. (5) (a) applies if its due date occurs before a decedent dies in the case of an estate or before an income interest begins in the case of a trust or successive income interest.

SB109-SSA1,17,12 (b) A trustee shall allocate to income an income receipt or disbursement if its due date occurs on or after the date on which a decedent dies or an income interest begins and it is a periodic due date. An income receipt or disbursement must be treated as accruing from day to day if its due date is not periodic or it has no due date. The portion of the receipt or disbursement accruing before the date on which a decedent dies or an income interest begins must be allocated to principal and the balance must be allocated to income.

SB109-SSA1,17,20 (c) An item of income or an obligation is due on the date the payer is required to make a payment. If a payment date is not stated, there is no due date for the purposes of this section. Distributions to shareholders or other owners from an entity, as defined in sub. (10), are deemed to be due on the date fixed by the entity for determining who is entitled to receive the distribution or, if no date is fixed, on the declaration date for the distribution. A due date is periodic for receipts or disbursements that must be paid at regular intervals under a lease or an obligation to pay interest or if an entity customarily makes distributions at regular intervals.

SB109-SSA1,17,25 (9) Apportionment when income interest ends. (a) In this subsection, "undistributed income" means net income received before the date on which an income interest ends. "Undistributed income" does not include an item of income or expense that is due or accrued or net income that has been added or is required to be added to principal under the terms of the trust.

SB109-SSA1,18,8 (b) When a mandatory income interest ends, the trustee shall pay to a mandatory income beneficiary who survives that date, or to the estate of a deceased mandatory income beneficiary whose death causes the interest to end, the beneficiary's share of the undistributed income that is not disposed of under the terms of the trust unless the beneficiary has an unqualified power to revoke more than 5% of the trust immediately before the income interest ends. In the latter case, the undistributed income from the portion of the trust that may be revoked must be added to principal.

SB109-SSA1,18,12 (c) When a trustee's obligation to pay a fixed annuity or a fixed fraction of the value of the trust's assets ends, the trustee shall prorate the final payment if and to the extent required by applicable law to accomplish a purpose of the trust or its settlor relating to income, gift, estate, or other tax requirements.

SB109-SSA1,18,18 (10) Character of receipts. (a) In this subsection, "entity" means a corporation, partnership, limited liability company, regulated investment company, real estate investment trust, common trust fund, or any other organization in which a trustee has an interest other than a trust or estate to which sub. (11) applies, a business or activity to which sub. (12) applies, or an asset-backed security to which sub. (24) applies.

SB109-SSA1,18,20 (b) Except as otherwise provided in this subsection, a trustee shall allocate to income money received from an entity.

SB109-SSA1,18,21 (c) A trustee shall allocate the following receipts from an entity to principal:

SB109-SSA1,18,22 1. Property other than money;

SB109-SSA1,18,24 2. Money received in one distribution or a series of related distributions in exchange for part or all of a trust's interest in the entity;

SB109-SSA1,18,25 3. Money received in total or partial liquidation of the entity; and

SB109-SSA1,19,3 4. Money received from an entity that is a regulated investment company or a real estate investment trust if the money distributed is a capital gain dividend for federal income tax purposes.

SB109-SSA1,19,4 (d) Money is received in partial liquidation:

SB109-SSA1,19,6 1. To the extent that the entity, at or near the time of a distribution, indicates that it is a distribution in partial liquidation; or

SB109-SSA1,19,9 2. If the total amount of money and property received in a distribution or series of related distributions is greater than 20% of the entity's gross assets, as shown by the entity's year-end financial statements immediately preceding the initial receipt.

SB109-SSA1,19,13 (e) Money is not received in partial liquidation, nor may it be taken into account under par. (d) 2., to the extent that it does not exceed the amount of income tax that a trustee or beneficiary must pay on taxable income of the entity that distributes the money.

SB109-SSA1,19,18 (f) A trustee may rely upon a statement made by an entity about the source or character of a distribution if the statement is made at or near the time of distribution by the entity's board of directors or other person or group of persons authorized to exercise powers to pay money or transfer property comparable to those of a corporation's board of directors.

SB109-SSA1,19,25 (11) Distribution from trust or estate. A trustee shall allocate to income an amount received as a distribution of income from a trust or an estate in which the trust has an interest other than a purchased interest, and shall allocate to principal an amount received as a distribution of principal from such a trust or estate. If a trustee purchases an interest in a trust that is an investment entity, or a decedent or donor transfers an interest in such a trust to a trustee, sub. (10) or (24) applies to a receipt from the trust.

SB109-SSA1,20,6 (12) Business and other activities conducted by trustee. (a) If a trustee who conducts a business or other activity determines that it is in the best interest of all the beneficiaries to account separately for the business or activity instead of accounting for it as part of the trust's general accounting records, the trustee may maintain separate accounting records for its transactions, whether or not its assets are segregated from other trust assets.

SB109-SSA1,20,16 (b) A trustee who accounts separately for a business or other activity may determine the extent to which its net cash receipts must be retained for working capital, the acquisition or replacement of fixed assets, and other reasonably foreseeable needs of the business or activity and the extent to which the remaining net cash receipts are accounted for as principal or income in the trust's general accounting records. If a trustee sells assets of the business or other activity, other than in the ordinary course of the business or activity, the trustee shall account for the net amount received as principal in the trust's general accounting records to the extent the trustee determines that the amount received is no longer required in the conduct of the business.

SB109-SSA1,20,18 (c) Activities for which a trustee may maintain separate accounting records include:

SB109-SSA1,20,19 1. Retail, manufacturing, service, and other traditional business activities;

SB109-SSA1,20,20 2. Farming;

SB109-SSA1,20,21 3. Raising and selling livestock and other animals;

SB109-SSA1,20,22 4. Management of rental properties;

SB109-SSA1,20,23 5. Extraction of minerals and other natural resources;

SB109-SSA1,20,24 6. Timber operations; and

SB109-SSA1,20,25 7. Activities to which sub. (23) applies.

SB109-SSA1,21,1 (13) Principal receipts. A trustee shall allocate to principal:

SB109-SSA1,21,5 (a) To the extent not allocated to income under this section, assets received from a transferor during the transferor's lifetime, a decedent's estate, a trust with a terminating income interest, or a payer under a contract naming the trust or its trustee as beneficiary;

SB109-SSA1,21,8 (b) Money or other property received from the sale, exchange, liquidation, or change in form of a principal asset, including realized profit, subject to subs. (10) to (24);

SB109-SSA1,21,11 (c) Amounts recovered from third parties to reimburse the trust because of disbursements described in sub. (26) (a) 7. or for other reasons to the extent not based on the loss of income;

SB109-SSA1,21,14 (d) Proceeds of property taken by eminent domain, but a separate award made for the loss of income with respect to an accounting period during which a current income beneficiary had a mandatory income interest is income;

SB109-SSA1,21,16 (e) Net income received in an accounting period during which there is no beneficiary to whom a trustee may or must distribute income; and

SB109-SSA1,21,17 (f) Other receipts as provided in subs. (17) to (24).

SB109-SSA1,21,25 (14) Rental property. To the extent that a trustee accounts for receipts from rental property in accordance with this subsection, the trustee shall allocate to income an amount received as rent of real or personal property, including an amount received for cancellation or renewal of a lease. An amount received as a refundable deposit, including a security deposit or a deposit that is to be applied as rent for future periods, must be added to principal and held subject to the terms of the lease and is not available for distribution to a beneficiary until the trustee's contractual obligations have been satisfied with respect to that amount.

SB109-SSA1,22,4 (15) Obligation to pay money. (a) An amount received as interest, whether determined at a fixed, variable, or floating rate, on an obligation to pay money to the trustee, including an amount received as consideration for prepaying principal, must be allocated to income without any provision for amortization of premium.

SB109-SSA1,22,11 (b) A trustee shall allocate to principal an amount received from the sale, redemption, or other disposition of an obligation to pay money to the trustee more than one year after it is purchased or acquired by the trustee, including an obligation whose purchase price or value when it is acquired is less than its value at maturity. If the obligation matures within one year after it is purchased or acquired by the trustee, an amount received in excess of its purchase price or its value when acquired by the trust must be allocated to income.

SB109-SSA1,22,13 (c) This subsection does not apply to an obligation to which sub. (18), (19), (20), (21), (23), or (24) applies.

SB109-SSA1,22,20 (16) Insurance policies and similar contracts. (a) Except as otherwise provided in par. (b), a trustee shall allocate to principal the proceeds of a life insurance policy or other contract in which the trust or its trustee is named as beneficiary, including a contract that insures the trust or its trustee against loss for damage to, destruction of, or loss of title to, a trust asset. The trustee shall allocate dividends on an insurance policy to income if the premiums on the policy are paid from income, and to principal if the premiums are paid from principal.

SB109-SSA1,22,23 (b) A trustee shall allocate to income proceeds of a contract that insures the trustee against loss of occupancy or other use by an income beneficiary, loss of income, or, subject to sub. (12), loss of profits from a business.

SB109-SSA1,22,24 (c) This subsection does not apply to a contract to which sub. (18) applies.

SB109-SSA1,23,7 (17) Insubstantial allocations not required. If a trustee determines that an allocation between principal and income required by sub. (18), (19), (20), (21), or (24) is insubstantial, the trustee may allocate the entire amount to principal unless one of the circumstances described in sub. (4) (c) applies to the allocation. This power may be exercised by a cotrustee in the circumstances described in sub. (4) (d) and may be released for the reasons and in the manner described in sub. (4) (e). An allocation is presumed to be insubstantial if:

SB109-SSA1,23,9 (a) The amount of the allocation would increase or decrease net income in an accounting period, as determined before the allocation, by less than 10%; or

SB109-SSA1,23,12 (b) The value of the asset producing the receipt for which the allocation would be made is less than 10% of the total value of the trust's assets at the beginning of the accounting period.

SB109-SSA1,23,20 (18) Deferred compensation, annuities, and similar payments. (a) In this subsection, "payment" means a payment that a trustee may receive over a fixed number of years or during the life of one or more individuals because of services rendered or property transferred to the payer in exchange for future payments. The term includes a payment made in money or property from the payer's general assets or from a separate fund created by the payer, including a private or commercial annuity, an individual retirement account, and a pension, profit-sharing, stock-bonus, or stock-ownership plan.

SB109-SSA1,23,25 (b) To the extent that a payment is characterized as interest or a dividend or a payment made in lieu of interest or a dividend, a trustee shall allocate it to income. The trustee shall allocate to principal the balance of the payment and any other payment received in the same accounting period that is not characterized as interest, a dividend, or an equivalent payment.

SB109-SSA1,24,1 (c) 1. In this paragraph, "plan income" means any of the following:

SB109-SSA1,24,11 a. With respect to payments received from a plan that maintains separate accounts or funds for its participants or account holders, such as defined contribution retirement plans, individual retirement accounts, Roth individual retirement accounts, and some types of deferred compensation plans, either the amount of the plan account or fund held for the benefit of the trust that, if the plan account or fund were a trust, would be allocated to income under pars. (b) and (d) for that accounting period, or 4% of the value of the plan account or fund on the first day of the accounting period. The trustee shall, in his or her discretion, choose the method of determining "plan income" under this subd. 1. a., and may change the method of determining "plan income" under this subd. 1. a. for any subsequent accounting period.

SB109-SSA1,24,17 b. With respect to payments received from a plan that does not maintain separate accounts or funds for its participants or account holders, such as defined benefit retirement plans and some types of deferred compensation plans, 4% of the total present value of the trust's interest in the plan as of the first day of the accounting period, based on reasonable actuarial assumptions as determined by the trustee.

SB109-SSA1,24,24 2. For each accounting period of a trust in which the trust receives a payment but no part of any payment is allocated to income under par. (b), the trustee shall allocate to income that portion of the aggregate value of all payments received by the trustee in that accounting period that is equal to the amount of plan income that is attributable to the trust's interest in the plan from which payment is received for that accounting period. The trustee shall allocate the balance of any payments to principal.

SB109-SSA1,25,4 (d) If, to obtain an estate or gift tax marital deduction for an interest in a trust, a trustee must allocate more of a payment to income than provided for by this subsection, the trustee shall allocate to income the additional amount necessary to obtain the marital deduction.

SB109-SSA1,25,5 (e) This subsection does not apply to payments to which sub. (19) applies.

SB109-SSA1,25,14 (19) Liquidating asset. (a) In this subsection, "liquidating asset" means an asset whose value will diminish or terminate because the asset is expected to produce receipts for a period of limited duration. The term includes a leasehold, patent, copyright, royalty right, and right to receive payments during a period of more than one year under an arrangement that does not provide for the payment of interest on the unpaid balance. The term does not include a payment subject to sub. (18), resources subject to sub. (20), timber subject to sub. (21), an activity subject to sub. (23), an asset subject to sub. (24), or any asset for which the trustee establishes a reserve for depreciation under sub. (27).

SB109-SSA1,25,16 (b) A trustee shall allocate to income 10% of the receipts from a liquidating asset and the balance to principal.