Amendment SSA1-SB667

Analysis by the Legislative Reference Bureau

2023 Senate Bill 667 creates a new chapter 669, stats., that governs a new type of trust, called a legacy trust. This substitute amendment places all of the bill language from 2023 Senate Bill 667 in a new subchapter of the Wisconsin Trust Code. In addition, under the substitute amendment, if a person who creates a legacy trust is married and transfers marital property to the legacy trust, the person must provide to that person's spouse written notice of the transfer of the property at the time of the transfer. For further information, see the analysis for 2023 Senate Bill 667.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

SB667-SSA1,1 Section 1 . Subchapter XIII of chapter 701 [precedes 701.1301] of the statutes is created to read:

SB667-SSA1,1,5 Chapter 701

SB667-SSA1,2,1 subchapter xiii

SB667-SSA1,2,2 legacy trusts

SB667-SSA1,2,3 701.1301 Definitions. In this subchapter:

SB667-SSA1,2,5 (1) “Advisor" means a person who, under the terms of a legacy trust, is granted the power to do any of the following:

SB667-SSA1,2,6 (a) Remove or appoint a trustee of the legacy trust.

SB667-SSA1,2,8 (b) Direct, consent to, or disapprove a trustee's actual or proposed investment, distribution, or any other action related to assets of the legacy trust.

SB667-SSA1,2,10 (2) “Asset" means property of a transferor but does not include any of the following:

SB667-SSA1,2,11 (a) Property to the extent it is encumbered by a valid lien.

SB667-SSA1,2,13 (b) Property to the extent it is generally exempt under nonbankruptcy law at the time of a qualified disposition.

SB667-SSA1,2,17 (c) Property held as marital property with rights of survivorship to the extent that under the law governing the marital property at the time of a qualified disposition the property is not subject to process by a creditor holding a claim against only one spouse.

SB667-SSA1,2,20 (d) Property transferred from a nonlegacy trust to a legacy trust to the extent that the property would not be subject to attachment under applicable nonbankruptcy law that governs the nonlegacy trust.

SB667-SSA1,2,23 (3) “Claim" means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.

SB667-SSA1,2,25 (4) “Creditor" means a person who has a claim against a transferor and includes any transferee of, assignee of, or successor to the claim.

SB667-SSA1,3,1 (5) “Debt" means liability on a claim.

SB667-SSA1,3,5 (6) “Disposition" means a transfer, conveyance, or assignment of a property interest, including a partial, contingent, undivided, or co-ownership property interest. “Disposition" includes an exercise of a general power of appointment that results in a transfer of property to a trustee but does not include any of the following:

SB667-SSA1,3,7 (a) The release or relinquishment of a property interest that is subject to a qualified disposition until the release or relinquishment.

SB667-SSA1,3,9 (b) The exercise of a special power of appointment that results in a transfer of property to a trustee.

SB667-SSA1,3,10 (c) A disclaimer under s. 700.27 or 854.13.

SB667-SSA1,3,13 (7) “Investment decision" means a decision regarding the retention, purchase, sale, exchange, tender, or other action affecting the ownership of or rights in an investment.

SB667-SSA1,3,15 (8) “Legacy trust" means a trust created by a written instrument, the terms of which do all of the following:

SB667-SSA1,3,18 (a) Appoint at least one qualified trustee to accept property that is the subject of a disposition, regardless of whether the terms of the trust also appoint a nonqualified trustee.

SB667-SSA1,3,20 (b) Expressly designate the laws of this state to govern the meaning and effect of the terms of the trust, in whole or in part.

SB667-SSA1,3,21 (c) Expressly provide that the trust is irrevocable.

SB667-SSA1,3,23 (d) Include a spendthrift provision that applies to an interest of a beneficiary in trust property, including an interest of a transferor who is a beneficiary.

SB667-SSA1,3,24 (9) “Lien" has the meaning given in s. 242.01 (8).

SB667-SSA1,3,25 (10) “Nonlegacy trust" means a trust that is not a legacy trust.

SB667-SSA1,4,1 (11) “Nonqualified trustee" means a trustee who is not a qualified trustee.

SB667-SSA1,4,3 (12) “Qualified disposition" means a disposition by a transferor to any trustee of a legacy trust.

SB667-SSA1,4,5 (13) “Qualified trustee" means a trustee who is not a transferor and to whom one of the following applies:

SB667-SSA1,4,7 (a) If the trustee is an individual, the individual resides and is domiciled in this state.

SB667-SSA1,4,10 (b) If the trustee is a trust company or a bank, the trust company or bank is organized under federal law, state law, or the laws of another state, and the trust company or bank maintains an office in this state.

SB667-SSA1,4,12 (14) “Transferor" means a person who directly or indirectly makes a disposition to a legacy trust, including a settlor, as defined in s. 701.0103 (23).

SB667-SSA1,4,13 (15) “Valid lien" has the meaning given in s. 242.01 (13).

SB667-SSA1,4,17 701.1302 Applicability. (1) Unless the terms of a legacy trust provide otherwise, this subchapter governs the construction, operation, and enforcement in this state of a legacy trust, whether created in this state or any other state, if any of the following applies:

SB667-SSA1,4,19 (a) Any of the land, rents, issues, or profits that are the subject of a qualified disposition are located in this state.

SB667-SSA1,4,21 (b) Any portion of personal property, interest of money, or dividends of stock that is the subject of a qualified disposition is located in this state.

SB667-SSA1,4,22 (c) The transferor's legal residence is in this state.

SB667-SSA1,4,25 (d) A qualified trustee of the legacy trust has the power to maintain records and prepare income tax returns for the trust, and all or part of the administration of the trust is performed in this state.

SB667-SSA1,5,2 (2) (a) If the transferor is married at the time of a qualified disposition, this subchapter applies to the following:

SB667-SSA1,5,4 1. Any of the transferor's individual property that is the subject of the qualified disposition.

SB667-SSA1,5,8 2. Any marital property that is the subject of the qualified disposition if the transferor's spouse at the time of the disposition was provided with notice of the qualified disposition as provided in par. (b) or executed a written consent to the qualified disposition after being provided the information set forth in the notice.

SB667-SSA1,5,10 (b) All of the following apply to a notice of a qualified disposition under this subchapter:

SB667-SSA1,5,12 1. The notice shall contain the following language, in capital letters, at or near the top of the notice:

SB667-SSA1,5,14 YOUR SPOUSE OR FORMER SPOUSE IS CREATING A PERMANENT TRUST INTO WHICH PROPERTY IS BEING TRANSFERRED.

SB667-SSA1,5,18 YOUR RIGHTS TO THIS PROPERTY MAY BE AFFECTED DURING YOUR MARRIAGE, UPON DIVORCE (INCLUDING THE PAYMENT OF CHILD SUPPORT OR ALIMONY OR A DIVISION OR DISTRIBUTION OF PROPERTY IN A DIVORCE), OR AT THE DEATH OF YOUR SPOUSE OR FORMER SPOUSE.

SB667-SSA1,5,20 YOU HAVE A VERY LIMITED PERIOD OF TIME TO OBJECT TO THE TRANSFER OF PROPERTY INTO THIS TRUST.

SB667-SSA1,5,22 YOU MAY, UPON REQUEST TO THE TRUSTEE AT THE ADDRESS BELOW, BE FURNISHED A COPY OF THE TRUST DOCUMENT.

SB667-SSA1,5,24 IF YOU HAVE ANY QUESTIONS, YOU SHOULD IMMEDIATELY SEEK INDEPENDENT LEGAL ADVICE.

SB667-SSA1,6,2 IF YOU FAIL TO OBJECT WITHIN 30 DAYS, YOU WILL HAVE CONSENTED TO THE TRANSFER OF PROPERTY INTO THIS TRUST.

SB667-SSA1,6,3 .... (address)

SB667-SSA1,6,5 2. The notice shall contain a description of the property that is the subject of the qualified disposition.

SB667-SSA1,6,8 3. The notice may require that any person who is eligible to receive information under this subsection be bound by the duty of confidentiality that binds the trustee before receiving such information from the trustee.

SB667-SSA1,6,10 4. The notice shall be provided by the transferor, the transferor's agent, the trustee, or another fiduciary of the legacy trust.

SB667-SSA1,6,15 (c) If a notice is provided under this subsection before the qualified disposition, the period to commence an action under s. 701.1306 (3) begins to run on the date the notice is provided. The period to commence an action to challenge a qualified disposition under this subsection and s. 701.1306 (3) may not exceed the period set forth in s. 893.425.

SB667-SSA1,6,19 701.1303 Spendthrift provision; legacy trust. (1) Notwithstanding s. 701.0502 (1), a spendthrift provision of a legacy trust is not invalid because a transferor or a person who is treated as a settlor under s. 701.0505 (2) is also a beneficiary of the legacy trust.

SB667-SSA1,7,2 (2) Except as otherwise provided in this section, a spendthrift provision in a legacy trust restrains both voluntary and involuntary transfers of a transferor's interest in the legacy trust. A spendthrift provision in a legacy trust is enforceable under any applicable nonbankruptcy law within the meaning of 11 USC 541 (c) (2) regardless of whether the legacy trust instrument makes any reference to that enforceability. The terms of a legacy trust, including in a spendthrift provision, may provide for any other restraint of alienation that are permitted under the laws of this state.

SB667-SSA1,7,4 (3) Section 701.0503 (2) does not apply to a spendthrift provision in a legacy trust.

SB667-SSA1,7,5 (4) Section 701.0505 (1) (a) 2. does not apply to a legacy trust.

SB667-SSA1,7,8 (5) Nothing in this section may deprive a beneficiary of any exemption right that the beneficiary has under any applicable law after the trust property is received by the beneficiary.

SB667-SSA1,7,12 701.1304 Implied power to revoke or to transfer an interest in a legacy trust. None of the following is considered to be, including in combination, a power to revoke a legacy trust or to voluntarily or involuntarily transfer an interest in the legacy trust:

SB667-SSA1,7,14 (1) A transferor's power to veto a distribution of income or principal from the legacy trust.

SB667-SSA1,7,17 (2) A special power of appointment, as defined in s. 702.02 (7), exercisable by a transferor by will or another written document that is effective during the lifetime of the transferor or upon the death of the transferor.

SB667-SSA1,7,19 (3) The right of a transferor to receive income from the legacy trust in accordance with the terms of the legacy trust.

SB667-SSA1,7,25 (4) That a transferor is a beneficiary of the legacy trust regardless of whether the trust qualifies as a charitable remainder annuity trust under 26 USC 664 (d) (1) or as a charitable remainder unitrust under 26 USC 664 (d) (2), even if the transferor has the right to release the transferor's retained interest, in whole or in part, in the charitable remainder annuity trust or charitable remainder unitrust at any time in favor of one or more of the remainder beneficiaries of the legacy trust.

SB667-SSA1,8,6 (5) A transferor's annual receipt of a percentage of the value of the legacy trust assets, as determined in accordance with the terms of the trust, as long as the amount the transferor receives in a year is not more than the amount defined as the income of the legacy trust under 26 USC 643 (b) or, for any qualified retirement plan or eligible deferred compensation plan that is an asset of the legacy trust, the minimum required distribution, as defined in 26 USC 4974 (b).

SB667-SSA1,8,8 (6) A transferor's potential or actual receipt or use of principal or income of the legacy trust if the potential or actual receipt or use is the result of any of the following:

SB667-SSA1,8,12 (a) A qualified trustee's discretion. For purposes of this paragraph, a qualified trustee has discretion with respect to the distribution and use of the principal and income of a legacy trust unless the terms of the legacy trust expressly provide otherwise.

SB667-SSA1,8,14 (b) A qualified trustee applying a standard that governs the distribution or use of principal or income of the legacy trust.

SB667-SSA1,8,19 (c) A qualified trustee acting at the direction of an advisor if the advisor's direction is discretionary or pursuant to a standard that governs the distribution or use of principal or income under the terms of the legacy trust. For purposes of this paragraph, an advisor's direction is discretionary unless the terms of the legacy trust expressly provide otherwise.

SB667-SSA1,8,21 (7) A transferor's potential or actual right to use real or tangible personal property owned by the legacy trust.

SB667-SSA1,8,24 (8) A transferor's right to possess and enjoy a qualified interest, as defined in 26 USC 2702 (b), or property held under a qualified personal residence trust, as described in 26 USC 2702 (c).

SB667-SSA1,9,3 (9) A qualified trustee's mandatory or discretionary power to use the income or principal of the legacy trust to pay, in whole or in part, income taxes due on the income of the legacy trust.

SB667-SSA1,9,6 (10) That a qualified trustee, whether pursuant to the qualified trustee's discretion, the terms of the legacy trust, or the direction of an advisor pays any of the following:

SB667-SSA1,9,7 (a) A transferor's debt that is outstanding at the time of the transferor's death.

SB667-SSA1,9,8 (b) The expenses of administering the transferor's estate.

SB667-SSA1,9,10 (c) Any estate, gift, generation-skipping transfer, or inheritance tax on behalf of the transferor or the transferor's estate.

SB667-SSA1,9,12 (11) A provision in the legacy trust that transfers all or part of the trust assets to the transferor's estate or revocable trust.

SB667-SSA1,9,16 (12) A transferor is a beneficiary of the legacy trust and is authorized to receive a payment of income or principal from a qualified annuity interest, as defined in 26 CFR 25.2702-3 (b), or a qualified unitrust interest, as defined in 26 CFR 25.2702-3 (c).

SB667-SSA1,9,21 701.1305 Transferor's powers. (1) A transferor of a legacy trust has only the powers and rights that are granted to the transferor by the trust instrument. An agreement or understanding, express or implied, between the transferor and a trustee that attempts to grant or permit the retention of greater rights or authority than is stated in the trust instrument is void.

SB667-SSA1,9,24 (2) Notwithstanding s. 701.1304, the terms of a legacy trust may grant a transferor, whether or not the transferor is a trustee, the power to do any of the following:

SB667-SSA1,9,25 (a) Remove and replace a trustee.

SB667-SSA1,10,1 (b) Remove and replace an advisor.

SB667-SSA1,10,2 (c) Direct trust investments.