SB384: Bill Text

SB384,142,24 2. Any fixed percentage under subd. 1. par. (a) that is determined by a trustee may not be less than 3 percent nor more than 5 percent.

SB384,143,3 (c) After a trust is converted to a unitrust, the trustee may, subject to the notice requirement under sub. (4c) s. 701.1105 and with the consent of every sui juris qualified beneficiary, do any of the following:

SB384,143,5 1. Convert the unitrust back to the original trust under the creating trust instrument.

SB384,143,7 2. Change the fixed percentage under subd. 1. par. (a), subject to subd. 2. b. par. (b) 2.

SB384,143,9 (d) 7. The averaging under subd. 1. par. (a) to a different preceding period, which is at least 3 years but not more than 5 years.

SB384,143,12 (f) (intro.) Unless otherwise provided by the creating trust instrument, the unitrust distribution is considered to have been paid from the following sources in the order of priority:

SB384,143,14 2. Ordinary income for federal income tax purposes that is not net income under subd. 6. a. 1.

SB384,143,16 (g) (intro.) A court may, on the petition of the trustee or a qualified beneficiary, do any of the following:

SB384,143,18 1. Change the fixed percentage that was determined under subd. 2. par. (b) by the trustee or by a prior court order.

SB384,143,20 3. Average the valuation of the unitrust's assets over a period other than that specified in subd. 1. par. (a).

SB384,143,24 (h) Conversion to a unitrust under this subsection section does not affect a provision in the creating trust instrument that directs or authorizes the trustee to distribute principal or that authorizes a beneficiary to withdraw a portion or all of the principal.

SB384,144,2 (4) (a) (intro.) A trust may not be converted under this subsection section to a unitrust if any of the following applies:

SB384,144,3 1. The creating trust instrument specifically prohibits the conversion.

SB384,144,9 (b) Notwithstanding subd. 1. par. (a), if a trust may not be converted to a unitrust solely because subd. 1. g. par. (a) 7. applies to a trustee, a cotrustee, if any, to whom subd. 1. g. par. (a) 7. does not apply may convert the trust to a unitrust under par. (a) 1. sub. (1) (a), unless prohibited by the creating instrument, or a court may convert the trust to a unitrust under par. (a) 2. sub. (1) (b) on the petition of a trustee or qualified beneficiary.

SB384,144,16 (5) A trustee may release the power conferred by par. (a) 1. sub. (1) (a) if the trustee is uncertain about whether possessing or exercising the power will cause a result described in par. (d) 1. b. sub. (4) (a) 2. to f. 6. or if the trustee determines that possessing or exercising the power will or may deprive the trust of a tax benefit or impose a tax burden not described in par. (d) 1. sub. (4) (a). The release may be permanent or for a specified period, including a period measured by the life of an individual.

SB384,243 Section 243. 701.20 (4j) of the statutes is renumbered 701.1107, and 701.1107 (1) and (2) (a), (e), (f) 2., (g) and (h), as renumbered, are amended to read:

SB384,144,24 701.1107 (1) In this subsection section, "express unitrust" means any trust that by its governing trust instrument requires the distribution at least annually of a unitrust amount equal to a fixed percentage of the net fair market value of the trust's assets, valued at least annually, other than a trust solely for charitable purposes or a charitable split-interest trust under section 664 (d) or 170 (f) (2) (B) of the Internal Revenue Code.

SB384,145,5 (2) (a) To the extent not otherwise provided for in the governing trust instrument, the unitrust amount of not less than 3 percent nor more than 5 percent may be determined by reference to the net fair market value of the trust's assets averaged over a preceding period determined by the trustee, which is at least 3 years but not more than 5 years.

SB384,145,9 (e) The governing trust instrument may grant discretion to the trustee to adopt a consistent practice of treating capital gains as part of the unitrust distribution, to the extent that the unitrust distribution exceeds the income determined as if the trust were not a unitrust, or it may specify the ordering of such classes of income.

SB384,145,11 (f) 2. Ordinary income for federal income tax purposes that is not net income under subd. 6. a. 1.

SB384,145,15 (g) The trust document instrument may provide that assets used by the trust beneficiary, such as a residence or tangible personal property, may be excluded from the net fair market value for computing the unitrust amount. Such use may be considered equivalent to the income or unitrust amount.

SB384,145,18 (h) In the absence of contrary provisions in the governing document trust instrument of an express unitrust, the provisions of sub. (4g) (c) 1., 4. s. 701.1106 (3) (a), (d), and 5. (e) apply.

SB384,244 Section 244. 701.20 (4k) of the statutes is renumbered 701.1108 and amended to read:

SB384,146,2 701.1108 Power to treat capital gains as part of a distribution. Unless prohibited by the governing instrument will or trust instrument, a trustee fiduciary may cause gains from the sale or exchange of estate or trust assets property, as determined for federal income tax purposes, to be taxed for federal income tax purposes as part of a distribution of income that has been increased by an adjustment from principal to income under sub. (4) s. 701.1104, of a unitrust distribution, of a fixed annuity distribution, or of a principal distribution to a beneficiary.

SB384,245 Section 245. 701.20 (4m) (title) of the statutes is renumbered 701.1109 (title).

SB384,246 Section 246. 701.20 (4m) (a) of the statutes is renumbered 701.1109 (1) and amended to read:

SB384,146,11 701.1109 (1) Nothing in this section subchapter creates a duty to make an adjustment under sub. (4) s. 701.1104 or to convert a trust to a unitrust under sub. (4g) s. 701.1106. Unless it determines that the decision to make an adjustment or to convert to a unitrust was an abuse of the fiduciary's discretion, a court may not grant relief from any decision a fiduciary makes regarding the exercise of a discretionary power conferred by sub. (4) s. 701.1104 or (4g) 701.1106.

SB384,247 Section 247. 701.20 (4m) (am) of the statutes is renumbered 701.1109 (2) and amended to read:

SB384,146,18 701.1109 (2) An action taken under sub. (4) s. 701.1104 or (4g) 701.1106 is not an abuse of a fiduciary's discretion if the fiduciary gave written notice of the proposed action under sub. (4c) s. 701.1105 and did not receive a timely written objection to the notice. It is not an abuse of discretion not to exercise the power to adjust under sub. (4) s. 701.1104 or to convert under sub. (4g) s. 701.1106.

SB384,248 Section 248. 701.20 (4m) (b) of the statutes is renumbered 701.1109 (3).

SB384,249 Section 249. 701.20 (4m) (c) of the statutes is renumbered 701.1109 (4), and 701.1109 (4) (c), as renumbered, is amended to read:

SB384,147,2 701.1109 (4) (c) To the extent that the court is unable, after applying subds. 1. pars. (a) and 2. (b), 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.

SB384,250 Section 250. 701.20 (4m) (d) of the statutes is renumbered 701.1109 (5).

SB384,251 Section 251. 701.20 (5) of the statutes is renumbered 701.1110, and 701.1110 (1), (2) (intro.), (3), (4) and (5), as renumbered, are amended to read:

SB384,147,11 701.1110 (1) 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) ss. 701.1112 to (30) 701.1135 that apply to trustees and the rules in par. (e) sub. (5). The fiduciary shall distribute the net income and net principal receipts to the beneficiary who is to receive the specific property.

SB384,147,14 (2) (intro.) A fiduciary shall determine the remaining net income of a decedent's estate or a terminating income interest under the rules in subs. (7) ss. 701.1112 to (30) 701.1135 that apply to trustees and by:

SB384,147,24 (3) A fiduciary shall distribute to a beneficiary, including a trustee, who receives a pecuniary amount not determined by a pecuniary formula related to a transfer tax 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 subsection shall be distributed from net income determined under par. (b) sub. (2) or from principal to the extent that net income is insufficient. For purposes of this paragraph subsection, the deferred marital property elective share amount elected by a surviving spouse under s. 861.02 (1) is a bequest of a specific pecuniary amount of money not determined by a pecuniary formula related to a transfer tax.

SB384,148,4 (4) A fiduciary shall distribute the net income remaining after distributions required by par. (c) under subs. (1) to (3) in the manner described in sub. (6) s. 701.1111 to all other beneficiaries, including a beneficiary who receives a pecuniary amount determined by a pecuniary formula related to a transfer tax.

SB384,148,16 (5) A fiduciary may not reduce principal or income receipts from property described in par. (a) sub. (1) because of a payment described in sub. (25) s. 701.1130 or (26) 701.1131 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 3rd 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.

SB384,252 Section 252. 701.20 (6) of the statutes is renumbered 701.1111, and 701.1111 (1), (2) (d) and (4), as renumbered, are amended to read:

SB384,149,2 701.1111 (1) Each beneficiary described in sub. (5) (d) s. 701.1110 (4) 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 section 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.

SB384,149,5 (2) (d) The distribution date for purposes of this subsection section 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.

SB384,149,9 (4) A trustee may apply the rules in this subsection section, 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 section applies to the income from the asset.

SB384,253 Section 253. 701.20 (7) of the statutes is renumbered 701.1112, and 701.1112 (3), as renumbered, is amended to read:

SB384,149,15 701.1112 (3) An asset becomes subject to a successive income interest on the day after the preceding income interest ends, as determined under par. (d) sub. (4), even if there is an intervening period of administration to wind up the preceding income interest.

SB384,254 Section 254. 701.20 (8) of the statutes is renumbered 701.1113, and 701.1113 (1) and (3), as renumbered, are amended to read:

SB384,149,21 701.1113 (1) A trustee shall allocate to principal an income receipt or disbursement other than one to which sub. (5) (a) s. 701.1110 (1) 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.

SB384,150,4 (3) 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) s. 701.1115, are 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.

SB384,255 Section 255. 701.20 (9) (a) of the statutes is renumbered 701.1114, and 701.1114 (1), as renumbered, is amended to read:

SB384,150,11 701.1114 (1) In this subsection section, "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.

SB384,256 Section 256. 701.20 (10) of the statutes is renumbered 701.1115, and 701.1115 (1), (2) and (5), as renumbered, is amended to read:

SB384,150,19 701.1115 (1) In this subsection section, "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) s. 701.1116 applies, a business or activity to which sub. (12) s. 701.1117 applies, or an asset-backed security to which sub. (24) s. 701.1129 applies.

SB384,150,21 (2) Except as otherwise provided in this subsection section, a trustee shall allocate to income money received from an entity.

SB384,150,25 (5) Money is not received in partial liquidation, nor may it be taken into account under par. (d) 2. sub. (4) (b), 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.

SB384,257 Section 257. 701.20 (11) of the statutes is renumbered 701.1116 and amended to read:

SB384,151,9 701.1116 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) s. 701.1115 or (24) 701.1129 applies to a receipt from the trust.

SB384,258 Section 258. 701.20 (12) of the statutes is renumbered 701.1117 and 701.1117 (3) (g), as renumbered, is amended to read:

SB384,151,12 701.1117 (3) (g) Activities to which sub. (23) s. 701.1128 applies.

SB384,259 Section 259. 701.20 (13) of the statutes is renumbered 701.1118, and 701.1118 (1), (2), (3) and (6), as renumbered, are amended to read:

SB384,151,18 701.1118 (1) To the extent not allocated to income under this section subchapter, 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.

SB384,151,21 (2) 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) ss. 701.1115 to (24) 701.1129.

SB384,151,24 (3) Amounts recovered from 3rd parties to reimburse the trust because of disbursements described in sub. (26) (a) 7. s. 701.1131 (1) (g) or for other reasons to the extent not based on the loss of income.

SB384,151,25 (6) Other receipts as provided in subs. (17) ss. 701.1122 to (24) 701.1129.

SB384,260 Section 260. 701.20 (14) of the statutes is renumbered 701.1119 and amended to read:

SB384,152,10 701.1119 Rental property. To the extent that a trustee accounts for receipts from rental property in accordance with this subsection section, 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.

SB384,261 Section 261. 701.20 (15) of the statutes is renumbered 701.1120, and 701.1120 (3), as renumbered, is amended to read:

SB384,152,15 701.1120 (3) This subsection section does not apply to an obligation to which sub. (18), (19), (20), (21), (23) s. 701.1123, 701.1124, 701.1125, 701.1126, 701.1128, or (24) 701.1129 applies.

SB384,262 Section 262. 701.20 (16) of the statutes is renumbered 701.1121 and amended to read:

SB384,152,24 701.1121 Insurance policies and similar contracts. (1) Except as provided in par. (b) sub. (2), 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.

SB384,153,3 (2) 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) s. 701.1117, loss of profits from a business.

SB384,153,5 (3) This subsection section does not apply to a contract to which sub. (18) s. 701.1123 applies.

SB384,263 Section 263. 701.20 (17) of the statutes is renumbered 701.1122, and 701.1122 (intro.), as renumbered, is amended to read:

SB384,153,16 701.1122 Insubstantial allocations not required. (intro.) If a trustee determines that an allocation between principal and income required by sub. (15) (b), (18), (19), (20), (21) s. 701.1120 (2), 701.1123, 701.1124, 701.1125, 701.1126, or (24) 701.1129 is insubstantial, the trustee may allocate the entire amount to principal unless one of the circumstances described in sub. (4) (c) s. 701.1104 (3) applies to the allocation. This power may be exercised by a cotrustee in the circumstances described in sub. (4) (d) s. 701.1104 (4) and may be released for the reasons and in the manner described in sub. (4) (e) s. 701.1104 (5). An allocation is presumed to be insubstantial if:

SB384,264 Section 264. 701.20 (18) (title) of the statutes is renumbered 701.1123 (title).

SB384,265 Section 265. 701.20 (18) (a) of the statutes is repealed.

SB384,266 Section 266. 701.20 (18) (b) of the statutes is renumbered 701.1123 (2) and amended to read:

SB384,154,2 701.1123 (2) 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 the payment 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 a payment in lieu of interest or a dividend.

SB384,267 Section 267. 701.20 (18) (c) 1. of the statutes is renumbered 701.1123 (1) (d) and amended to read:

SB384,154,6 701.1123 (1) (d) In this paragraph "plan "Plan income" means any of the following:

SB384,154,17 1. 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 separate account or fund held for the benefit of the trust that, if the plan separate account or fund were a trust, would be allocated to income under pars. (b) and (d) for that accounting period, or 4 percent 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. subdivision, and may change the method of determining "plan income" under this subd. 1. a. subdivision for any subsequent accounting period.

SB384,154,23 2. 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 percent 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.

SB384,268 Section 268. 701.20 (18) (c) 2. of the statutes is renumbered 701.1123 (3) and amended to read:

SB384,155,7 701.1123 (3) 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) sub. (2), 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.

SB384,269 Section 269. 701.20 (18) (d) of the statutes is renumbered 701.1123 (5) and amended to read:

SB384,155,13 701.1123 (5) 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 section, the trustee shall allocate to income the additional amount necessary to obtain the marital deduction.

SB384,270 Section 270. 701.20 (18) (e) of the statutes is renumbered 701.1123 (6) and amended to read:

SB384,155,17 701.1123 (6) This subsection section does not apply to payments a payment to which sub. (19) s. 701.1124 applies.

SB384,271 Section 271. 701.20 (19) of the statutes is renumbered 701.1124, and 701.1124 (1), as renumbered, is amended to read:

SB384,156,4 701.1124 (1) In this subsection section, "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) s. 701.1123, resources subject to sub. (20) s. 701.1125, timber subject to sub. (21) s. 701.1126, an activity subject to sub. (23) s. 701.1128, an asset subject to sub. (24) s. 701.1129, or any asset for which the trustee establishes a reserve for depreciation under sub. (27) s. 701.1132.