AB490: Bill Text

AB490,64,25 16. Add or modify an exculpatory provision for a trustee, trust protector, or directing party.

AB490,65,4 17. Obtain desirable tax treatment, as determined by the trustee of the first trust, or to avoid adverse tax consequences, as determined by the trustee of the first trust, including provisions relating to grantor trust status under sections 671 to 679 of the Internal Revenue Code.

AB490,65,5 18. Modify a power in the first trust to invade income and principal.

AB490,65,7 19. Modify or eliminate a general or special power of appointment in the first trust.

AB490,65,10 (b) The trust instrument of the 2nd trust may include terms granting a beneficiary a general or special power of appointment only if the trustee of the first trust has the absolute power to invade income and principal.

AB490,65,14 (c) 1. The trust instrument of the 2nd trust may include terms that are intended to change terms of the first trust that are applicable to a beneficiary who is an individual with a disability only if the purpose of the change is to allow the beneficiary to qualify or continue to be qualified to receive public assistance.

AB490,65,16 2. Subdivision 1. applies regardless of whether the first trust includes specific or ascertainable standards for distribution.

AB490,65,19 (d) The trust instrument of the 2nd trust may include a term that adopts or expands an exculpatory provision relating to the trustee only if one of the following applies:

AB490,65,23 1. Any trustee of the first trust who would benefit from the adoption of the term in the 2nd trust abstains from the consideration and adoption of the term and the trustees of the first trust who would not benefit from the adoption of the term adopt the trust instrument of the 2nd trust.

AB490,65,24 2. A court approves the trust instrument of the 2nd trust.

AB490,66,6 (5) Procedural matters. (a) A trustee shall appoint assets to a 2nd trust under sub. (2) by an instrument in writing that is signed and acknowledged by the trustee and shall include the written instrument with the records of the first and 2nd trusts. A trustee may appoint assets to a 2nd trust under sub. (2) upon notice, without court approval, under the procedure described in par. (b), or with court approval, under the procedure described in par. (c).

AB490,66,9 (b) 1. If a trustee chooses to proceed without a court order, the trustee shall give notice of the manner in which the trustee intends to appoint assets to a 2nd trust under sub. (2) to all of the following:

AB490,66,10 a. The qualified beneficiaries of the first trust.

AB490,66,11 b. Each trust protector appointed under the terms of the first trust.

AB490,66,12 c. Each directing party appointed under the terms of the first trust.

AB490,66,13 d. The settlor of the first trust, if living.

AB490,66,15 2. To satisfy the trustee's notice obligation under this paragraph, a trustee shall provide each person entitled to receive notice under subd. 1. all of the following:

AB490,66,17 a. A copy of the proposed written instrument under which the trustee will appoint assets to a 2nd trust.

AB490,66,18 b. The proposed effective date of the appointment.

AB490,66,19 c. A copy of the trust instrument of the first trust.

AB490,66,20 d. A copy of the trust instrument of the 2nd trust.

AB490,67,2 3. A trustee may not appoint assets to the 2nd trust until 30 days after the trustee provides notice as required under this paragraph unless every person who is entitled to receive notice under subd. 1. waives the 30-day notice period by delivering a signed written instrument to the trustee. A person's waiver of the 30-day notice period does not constitute that person's consent to the trustee's appointment of assets to a 2nd trust.

AB490,67,7 4. If a person entitled to receive notice under subd. 1. delivers a written objection to the trustee before the effective date of the appointment of assets to a 2nd trust, the trustee may not appoint the assets to a 2nd trust, as specified in the trustee's notice, without obtaining court approval under par. (c) unless the written objection is withdrawn.

AB490,67,12 5. If the trustee does not receive a written objection from any person entitled to receive notice under subd. 1. before the effective date of the appointment of assets to the 2nd trust or all written objections to the proposed appointment of assets to the 2nd trust are withdrawn, the trustee may appoint the assets to a 2nd trust, as specified in the notice.

AB490,67,24 (c) 1. If a trustee chooses to proceed with court approval, including after receiving a written objection to a proposed appointment of assets, the trustee shall petition a court to approve a proposed appointment of assets to a 2nd trust under sub. (2). The trustee shall provide notice of the petition to all qualified beneficiaries of the first trust, each trust protector appointed under the first trust, each directing party appointed under the first trust, and to the settlor of the first trust, if living. The trustee shall include in the notice of the petition the proposed effective date of the appointment of assets to a 2nd trust. The trustee shall also provide to each person who is entitled to receive notice under this paragraph a copy of the proposed instrument under which the trustee will appoint assets to a 2nd trust, the proposed effective date of the appointment, a copy of the trust instrument of the first trust, and a copy of the trust instrument of the 2nd trust.

AB490,68,3 2. If a person who is entitled to receive notice under subd. 1. files an objection with the court, in determining whether to grant or deny a petition under subd. 1., the court shall consider all of the following:

AB490,68,4 a. The purpose of the proposed appointment of assets under sub. (2).

AB490,68,6 b. The reasons for any objection made by a person entitled to receive notice under subd. 1.

AB490,68,8 c. Changes in circumstances that have occurred since the creation of the first trust.

AB490,68,10 d.   Whether the appointment of assets under sub. (2) complies with the requirements of this section.

AB490,68,15 3. If no person who is entitled to receive notice under subd. 1. files an objection with the court or any objection that has been filed with the court is withdrawn, the court shall enter an order approving the appointment of assets under sub. (2) as set forth in the trustee's notice unless the court determines that the appointment of assets does not comply with the requirements of this section.

AB490,68,19 (6) Subsequently discovered assets. (a) The appointment of all of the assets of the first trust in favor of the trustee of the 2nd trust includes subsequently discovered assets otherwise belonging to the first trust and assets paid to or acquired by the first trust subsequent to the appointment in favor of the 2nd trust.

AB490,68,24 (b) Except as otherwise provided by the trustee of the first trust, the appointment of part but not all of the assets of the first trust in favor of the 2nd trust does not include subsequently discovered assets belonging to the first trust or assets paid to or acquired by the first trust subsequent to the appointment in favor of the 2nd trust, which remain the assets of the first trust.

AB490,69,3 (7) Liability. (a) This section does not create or imply a duty on a trustee to appoint assets to a 2nd trust under sub. (2). A trustee that does not appoint assets to a 2nd trust under sub. (2) is not liable for the failure to do so.

AB490,69,6 (b)   A trustee who appoints assets to a 2nd trust under sub. (2) is not liable to any beneficiary for any loss related to the appointment unless the trustee did not appoint the assets in good faith.

AB490,69,8 (8) Miscellaneous provisions. (a) The appointment of assets to a 2nd trust under sub. (2) is not an exercise of a general power of appointment.

AB490,69,11 (b) A trustee may appoint assets to a 2nd trust under sub. (2) even if the first trust includes a spendthrift clause or a provision that prohibits amendment or revocation of the trust.

AB490,69,15 (c) This section does not limit a trustee who has a power to invade principal to appoint property in further trust to the extent the power arises under the terms of the first trust or under any other section of this chapter or under another provision of law or under common law.

AB490,69,20 (d) The restriction relating to a trustee under sub. (3) (c) does not preclude a cotrustee who does not have a beneficial interest in the first trust from appointing assets to a 2nd trust under sub. (2) even if the terms of the first trust, applicable law, or other circumstances would otherwise require the majority or unanimous action of the trustees of the first trust.

AB490,69,23 (e) For purposes of this section, if beneficiaries of a first trust are defined as a class of persons, the class shall include any person who falls within the class of persons after the trustee appoints assets to the 2nd trust.

AB490,70,3 (f) Notwithstanding s. 701.0103 (23), a trustee of a first trust who appoints assets to a 2nd trust under sub. (2) or creates a 2nd trust instrument under sub. (4) is not the settlor of the 2nd trust.

AB490,70,7 (g) To the extent a directing party or trust protector has the power to invade the principal of a first trust, as described in sub. (2), this section applies to the directing party or trust protector as if the directing party or trust protector is a trustee.

AB490,93 Section 93. 701.05 of the statutes is repealed.

AB490,94 Section 94. Subchapter V (title) of chapter 701 [precedes 701.0501] of the statutes is created to read:

AB490,70,11 chapter 701

AB490,70,12 subchapter v

AB490,70,14 creditor's claims; spendthrift and discretionary trusts

AB490,95 Section 95. 701.0501 of the statutes is created to read:

AB490,70,21 701.0501 Rights of beneficiary's creditor or assignee. (1) (a) To the extent a beneficiary's interest is not protected by a spendthrift provision, the court may authorize a judgment creditor or an assignee of the beneficiary to reach the beneficiary's interest by attachment of present or future distributions to or for the benefit of the beneficiary or other means. The court may limit the award to such relief as is appropriate under the circumstances.

AB490,70,22 (b) This subsection does not apply to a trust for an individual with a disability.

AB490,70,24 (2) A trustee is not liable to any creditor of a beneficiary for any distributions made to or for the benefit of the beneficiary if any of the following applies:

AB490,70,25 (a) The beneficiary's interest is protected by a spendthrift provision.

AB490,71,1 (b) The trust is a trust for an individual with a disability.

AB490,96 Section 96. 701.0502 of the statutes is created to read:

AB490,71,4 701.0502 Spendthrift provision. (1) A spendthrift provision is valid only if any of the following applies:

AB490,71,6 (a) The beneficiary is a person other than the settlor and is not treated as the settlor under s. 701.0505 (2).

AB490,71,7 (b) The trust is a trust for an individual with a disability.

AB490,71,10 (2) Subject to sub. (1), a term of a trust providing that the interest of a beneficiary is held subject to a spendthrift trust, or words of similar import, restrains both a voluntary and involuntary transfer of the beneficiary's interest.

AB490,71,14 (3) A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided in this subchapter, a creditor or assignee of the beneficiary may not attach, garnish, execute on, or otherwise reach the interest or a distribution by the trustee before its receipt by the beneficiary.

AB490,71,19 (4) Real property or tangible personal property that is owned by the trust but that is made available for a beneficiary's occupancy or use in accordance with the trustee's authority under the trust instrument may not be considered to have been distributed by the trustee or received by the beneficiary for purposes of allowing a creditor or assignee of the beneficiary to reach the property.

AB490,97 Section 97. 701.0503 (title) of the statutes is created to read:

AB490,71,21 701.0503 (title) Exceptions to spendthrift provision.

AB490,98 Section 98. 701.0504 of the statutes is created to read:

AB490,72,2 701.0504 Discretionary trusts; effect of standard. (1) For purposes of this subchapter, and except as provided in sub. (3), a beneficiary's interest in a trust that is subject to the trustee's discretion does not constitute an interest in property or an enforceable right even if the discretion is expressed in the form of a standard of distribution or the beneficiary is then serving as sole trustee or cotrustee.

AB490,72,7 (2)   Except as provided in this subchapter, a creditor or other claimant may not attach present or future distributions from a beneficiary's interest in property or an enforceable right, obtain an order from a court forcing the judicial sale of the interest or compelling the trustee to make distributions, or reach the interest or right by any other means, even if the trustee has abused the trustee's discretion.

AB490,72,11 (3) Subsections (1) and (2) do not apply if a beneficiary is acting as sole trustee of a trust for his or her benefit and his or her discretion to make distributions to himself or herself is not limited by an ascertainable standard or the consent of a party holding an adverse interest to the beneficiary.

AB490,72,14 (4)   (a) Except as provided in par. (b), this section does not limit the right of a beneficiary to maintain a judicial proceeding against a trustee for an abuse of discretion or failure to comply with a standard for distribution.

AB490,72,16 (b) The right of a beneficiary described in par. (a) may not be exercised by a creditor.

AB490,99 Section 99. 701.0505 of the statutes is created to read:

AB490,72,20 701.0505 Creditor's claim against settlor. (1) (a) Whether or not the terms of a trust include a spendthrift provision and except as provided in par. (b), the following rules apply to claims of a settlor's creditors:

AB490,72,22 1. During the lifetime of the settlor, the property of a revocable trust is subject to claims of the settlor's creditors.

AB490,73,5 2. With respect to an irrevocable trust that is not a trust for an individual with a disability, upon application of a judgment creditor of the settlor, the court may, if the trust instrument requires or authorizes the trustee to make payments of income or principal to or for the settlor, order the trustee to satisfy part or all of the judgment out of part or all of the payments of income or principal as they are due, presently or in the future, or which are payable in the trustee's discretion. If a trust has more than one settlor, the amount the judgment creditor of a particular settlor may reach may not exceed the settlor's interest in the trust.

AB490,73,12 3. After the death of a settlor, and subject to the settlor's right to direct the source from which liabilities will be paid, the property of a trust that was revocable at the settlor's death is subject to claims of the settlor's creditors, costs of administration of the settlor's estate, the expenses of the settlor's funeral and disposal of remains, and statutory allowances to a surviving spouse and children to the extent the settlor's probate estate is inadequate to satisfy those claims, costs, expenses, and allowances.

AB490,73,14 (b) Assets of a trust that are exempt from claims of creditors under other statutes are not subject to par. (a).

AB490,73,15 (2) For purposes of this subchapter, all of the following apply:

AB490,73,18 (a) During the period the power may be exercised, the holder of a power of withdrawal is treated in the same manner as the settlor of a revocable trust to the extent of the property subject to the power.

AB490,73,20 (e) 1. Contributions to the following trusts are not considered to have been contributed by the settlor:

AB490,73,24 a. An irrevocable marital trust that is treated as qualified terminable interest property under section 2523 (f) of the Internal Revenue Code if after the death of the settlor's spouse the settlor is a beneficiary of the trust or an irrevocable trust that receives property from the trust.

AB490,74,4 b. An irrevocable marital trust that is treated as a general power of appointment trust under section 2523 (e) of the Internal Revenue Code if after the death of the settlor's spouse the settlor is a beneficiary of the trust or an irrevocable trust that receives property from the trust.

AB490,74,7 c. An irrevocable trust for the settlor's spouse if after the death of the settlor's spouse the settlor is a beneficiary of the trust or an irrevocable trust that receives property from the trust.

AB490,74,10 d. An irrevocable trust for the benefit of a person, the settlor of which is the person's spouse, regardless of whether or when the person was the settlor of an irrevocable trust for the benefit of that spouse.

AB490,74,12 e. An irrevocable trust for the benefit of a person to the extent that the property of the trust was subject to a general power of appointment in another person.

AB490,74,14 2. A person who would otherwise be treated as a settlor of a trust described in subd. 1. a. to e. is not treated as a settlor of the trust.

AB490,74,18 3. For purposes of this paragraph, notwithstanding s. 701.0103 (3), "beneficiary" means a person who satisfies s. 701.0103 (3) (a) or (b) and who is designated in a trust instrument or through the exercise of a special or general power of appointment.

AB490,74,20 (3) Any order entered by a court under this section is subject to modification upon application of an interested person.

AB490,100 Section 100. 701.0506 of the statutes is created to read:

AB490,75,2 701.0506 Overdue distribution. (1) In this section, "mandatory distribution" means a distribution of income or principal that the trustee is required to make to a beneficiary under the terms of the trust, including a distribution upon termination of the trust. "Mandatory distribution" does not include a distribution subject to the exercise of the trustee's discretion even if any of the following applies:

AB490,75,3 (a) The discretion is expressed in the form of a standard of distribution.

AB490,75,5 (b) The terms of the trust authorizing a distribution couple language of discretion with language of direction.