Amendment SSA1-SB93

SB93-SSA1,7,24 9. If the trust is an express unitrust.

SB93-SSA1,8,3 (d) If par. (c) 5., 6., or 7. applies to a trustee and there is more than one trustee, a cotrustee to whom the provision does not apply may make the adjustment unless the terms of the trust do not permit the exercise of the power by that cotrustee.

SB93-SSA1,8,10 (e) A trustee may release the entire power conferred by par. (a) or may release only the power to adjust from income to principal or the power to adjust from principal to income if the trustee is uncertain about whether possessing or exercising the power will cause a result described in par. (c) 1. to 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. (c). The release may be permanent or for a specified period, including a period measured by the life of an individual.

SB93-SSA1,8,14 (f) Terms of a trust that limit the power of a trustee to make an adjustment between principal and income do not affect the application of this subsection unless it is clear from the terms of the trust that the terms are intended to deny the trustee the power of adjustment conferred by par. (a).

SB93-SSA1,8,17 (4c) Notice to beneficiaries of proposed action. (b) A trustee may, but is not required to, obtain approval of a proposed action under sub. (4) (a) by providing a written notice that complies with all of the following:

SB93-SSA1,8,19 1. Is given at least 30 days before the proposed effective date of the proposed action.

SB93-SSA1,8,21 2. Is given in the manner provided in ch. 879, except that notice by publication is not required.

SB93-SSA1,8,22 3. Is given to all sui juris beneficiaries who are any of the following:

SB93-SSA1,8,23 a. Income beneficiaries currently eligible to receive income from the trust.

SB93-SSA1,9,3 b. Eligible to receive, if no powers of appointment were exercised, income from the trust if the interest of all of those eligible to receive income under subd. 3. a. were to terminate immediately before the giving of notice.

SB93-SSA1,9,5 c. A recipient, if no powers of appointment were exercised, of a distribution of principal if the trust were to terminate immediately before the giving of the notice.

SB93-SSA1,9,7 4. States that it is given in accordance with this subsection and discloses the following information:

SB93-SSA1,9,8 a. The identification of the trustee.

SB93-SSA1,9,9 b. A description of the proposed action.

SB93-SSA1,9,11 c. The time within which a beneficiary may object to the proposed action, which shall be at least 30 days after the giving of the notice.

SB93-SSA1,9,13 d. The effective date of the proposed action if no objection is received from any beneficiary within the time specified in subd. 4. c.

SB93-SSA1,9,16 (c) If a trustee gives notice of a proposed action under this subsection, the trustee is not required to give notice to a sui juris beneficiary who consents to the proposed action in writing at any time before or after the proposed action is taken.

SB93-SSA1,9,18 (d) A sui juris beneficiary may object to the proposed action by giving a written objection to the trustee within the time specified in the notice under par. (b) 4. c.

SB93-SSA1,9,22 (e) A trustee may decide not to take a proposed action after the trustee receives a written objection to the proposed action or at any other time for any other reason. In that case, the trustee shall give written notice to the sui juris beneficiaries of the decision not to take the proposed action.

SB93-SSA1,9,25 (f) If a trustee receives a written objection to a proposed action within the time specified in the notice under par. (b) 4. c., either the trustee or the beneficiary making the written objection may petition the court to have the proposed action approved, modified, or prohibited. In the court proceeding, the beneficiary objecting to the proposed action has the burden of proving that the proposed action should be modified or prohibited. A beneficiary who did not make the written objection may oppose the proposed action in the court proceeding.

SB93-SSA1,10,6 (g) For purposes of this subsection, a proposed action under sub. (4) includes a course of action or a decision not to take action under sub. (4).

SB93-SSA1,10,8 (4g) Conversion to unitrust. (a) Subject to par. (d), a trust may be converted to a unitrust in any of the following ways:

SB93-SSA1,10,10 1. By the trustee, at his or her own discretion or at the request of a beneficiary, if all of the following apply:

SB93-SSA1,10,12 a. The trustee determines that the conversion will enable the trustee to better carry out the purposes of the trust.

SB93-SSA1,10,16 b. The trustee provides notice in the same manner as provided in sub. (4c) (b) of the trustee's intention to convert the trust to a unitrust, and the notice advises how the unitrust will operate, including the fixed percentage under par. (c) 1. and any other initial determinations under par. (c) 4. that the trustee intends to follow.

SB93-SSA1,10,18 c. There is at least one sui juris beneficiary under sub. (4c) (b) 3. a. and at least one other sui juris beneficiary under sub. (4c) (b) 3. b. or c.

SB93-SSA1,10,20 d. Every sui juris beneficiary consents to the conversion to a unitrust in a writing delivered to the trustee.

SB93-SSA1,10,22 e. The terms of the trust describe the amount that may or must be distributed by referring to the trust income.

SB93-SSA1,10,24 2. By a court on the petition of the trustee or a beneficiary, if all of the following apply:

SB93-SSA1,11,4 a. The trustee or beneficiary has provided notice under sub. (4c) of the intention to request the court to convert the trust to a unitrust, and the notice advises how the unitrust will operate, including the fixed percentage under par. (c) 1. and any other initial determinations under par. (c) 4. that will be requested.

SB93-SSA1,11,6 b. The court determines that the conversion to a unitrust will enable the trustee to better carry out the purposes of the trust.

SB93-SSA1,11,8 (b) In deciding whether to convert the trust to a unitrust under par. (a) 1., the trustee shall consider all relevant factors under sub. (4) (b) 1. to 9.

SB93-SSA1,11,16 (c) 1. If a trust is converted to a unitrust under this subsection by the trustee or a court, notwithstanding sub. (3) (a) 1. and 4. and s. 701.21 (4) the trustee shall make distributions in accordance with the creating instrument, except that any reference in the creating instrument to "income" means a fixed percentage of the net fair market value of the unitrust's assets, whether such assets otherwise would be considered income or principal under this section, averaged over a preceding period determined by the trustee, which is at least 3 years but not more than 5 years, or the period since the original trust was created, whichever is less.

SB93-SSA1,11,21 2. a. Subject to subd. 2. b., if the trust is converted to a unitrust under par. (a) 1., the trustee shall determine the fixed percentage to be applied under subd. 1., and the notice under par. (a) 1. b. must state the fixed percentage. If the trust is converted to a unitrust under par. (a) 2., the court shall determine the fixed percentage to be applied under subd. 1.

SB93-SSA1,11,23 b. Any fixed percentage under subd. 1. that is determined by a trustee may not be less than 3 percent nor more than 5 percent.

SB93-SSA1,12,3 3. After a trust is converted to a unitrust, the trustee may, subject to the notice requirement under sub. (4c) and with the consent of every sui juris beneficiary, do any of the following:

SB93-SSA1,12,5 a. Convert the unitrust back to the original trust under the creating instrument.

SB93-SSA1,12,6 b. Change the fixed percentage under subd. 1., subject to subd. 2. b.

SB93-SSA1,12,8 4. After a trust is converted to a unitrust, a trustee may determine or change any of the following:

SB93-SSA1,12,9 a. The frequency of distributions during the year.

SB93-SSA1,12,11 b. Standards for prorating a distribution for a short year in which a beneficiary's right to payments commences or ceases.

SB93-SSA1,12,13 c. The effect on the valuation of the unitrust's assets of other payments from, or contributions to, the unitrust.

SB93-SSA1,12,14 d. How, and how frequently, to value the unitrust's assets.

SB93-SSA1,12,15 e. The valuation dates to use.

SB93-SSA1,12,17 f. Whether to omit from the calculation of the value of the unitrust's assets unitrust property occupied by or in the possession of a beneficiary.

SB93-SSA1,12,19 g. The averaging under subd. 1. to a different preceding period, which is at least 3 years but not more than 5 years.

SB93-SSA1,12,20 h. Any other matters necessary for the proper functioning of the unitrust.

SB93-SSA1,12,22 5. The trustee may not deduct from a unitrust distribution expenses that would be deducted from income if the trust were not a unitrust.

SB93-SSA1,12,25 6. Unless otherwise provided by the creating instrument, the unitrust distribution is considered to have been paid from the following sources in the order of priority:

SB93-SSA1,13,1 a. Net income, determined as if the trust were not a unitrust.

SB93-SSA1,13,3 b. Ordinary income for federal income tax purposes that is not net income under subd. 6. a.

SB93-SSA1,13,4 c. Net realized short-term capital gains for federal income tax purposes.

SB93-SSA1,13,5 d. Net realized long-term capital gain for federal income tax purposes.

SB93-SSA1,13,6 e. Principal.

SB93-SSA1,13,8 7. A court may, on the petition of the trustee or a beneficiary, do any of the following:

SB93-SSA1,13,10 a. Change the fixed percentage that was determined under subd. 2. by the trustee or by a prior court order.

SB93-SSA1,13,12 b. If necessary to preserve a tax benefit, provide for a distribution of net income, determined as if the trust were not a unitrust, that exceeds the unitrust distribution.

SB93-SSA1,13,14 c. Average the valuation of the unitrust's assets over a period other than that specified in subd. 1.

SB93-SSA1,13,16 d. Require the unitrust to be converted back to the original trust under the creating instrument.

SB93-SSA1,13,19 8. Conversion to a unitrust under this subsection does not affect a provision in the creating instrument that directs or authorizes the trustee to distribute principal or that authorizes a beneficiary to withdraw a portion or all of the principal.

SB93-SSA1,13,21 (d) 1. A trust may not be converted under this subsection to a unitrust if any of the following applies:

SB93-SSA1,13,22 a. The creating instrument specifically prohibits the conversion.

SB93-SSA1,13,24 b. Payment of the unitrust distribution will change the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets.

SB93-SSA1,14,4 c. The unitrust distribution will be made from any amount that is permanently set aside for charitable purposes under the creating instrument and for which an estate or gift tax charitable deduction has been taken, unless both income and principal are so set aside.

SB93-SSA1,14,7 d. Converting to a unitrust will cause an individual to be treated as the owner of all or part of the trust for income tax purposes and the individual would not be treated as the owner if the trust were not converted.

SB93-SSA1,14,11 e. Converting to a unitrust will cause all or a part of the trust assets to be subject to estate or gift tax with respect to an individual and the trust assets would not be subject to estate or gift tax with respect to the individual if the trust were not converted.

SB93-SSA1,14,13 f. Converting to a unitrust will result in the disallowance of an estate or gift tax marital deduction that would be allowed if the trust were not converted.

SB93-SSA1,14,14 g. A trustee is a beneficiary of the trust.

SB93-SSA1,14,19 2. Notwithstanding subd. 1., if a trust may not be converted to a unitrust solely because subd. 1. g. applies to a trustee, a cotrustee, if any, to whom subd. 1. g. does not apply may convert the trust to a unitrust under par. (a) 1., unless prohibited by the creating instrument, or a court may convert the trust to a unitrust under par. (a) 2. on the petition of a trustee or beneficiary.

SB93-SSA1,14,25 (e) A trustee may release the power conferred by par. (a) 1. if the trustee is uncertain about whether possessing or exercising the power will cause a result described in par. (d) 1. b. to f. 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. The release may be permanent or for a specified period, including a period measured by the life of an individual.

SB93-SSA1,15,6 (4j) Express unitrusts. (a) In this subsection "express unitrust" means any trust that by its governing 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.

SB93-SSA1,15,7 (b) The following apply to an express unitrust:

SB93-SSA1,15,12 1. To the extent not otherwise provided for in the governing 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.

SB93-SSA1,15,15 2. Distribution of such a fixed percentage unitrust amount of not less than 3 percent nor more than 5 percent is a distribution of all of the income of the unitrust and is an income interest.

SB93-SSA1,15,17 3. Such a distribution of a fixed percentage of not less than 3 percent nor more than 5 percent is a reasonable apportionment of the total return of the trust.

SB93-SSA1,15,22 4. A trust that provides for a fixed annual percentage payout in excess of 5 percent per year of the net fair market value of the trust is considered to be a 5 percent express unitrust, paying out all of the income of the unitrust, and to have paid out principal of the trust to the extent that the fixed percentage payout exceeds 5 percent per year.

SB93-SSA1,16,2 5. The governing 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.

SB93-SSA1,16,5 6. Unless the terms of the trust specifically provide otherwise, a distribution of the unitrust amount is considered to have been made from the following sources in the following order of priority:

SB93-SSA1,16,6 a. Net income determined as if the trust were not a unitrust.

SB93-SSA1,16,8 b. Ordinary income for federal income tax purposes that is not net income under subd. 6. a.

SB93-SSA1,16,9 c. Net realized short-term capital gains for federal income tax purposes.

SB93-SSA1,16,10 d. Net realized long-term capital gains for federal income tax purposes.

SB93-SSA1,16,11 e. Principal.

SB93-SSA1,16,15 7. The trust document 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.

SB93-SSA1,16,17 8. In the absence of contrary provisions in the governing document of an express unitrust, the provisions of sub. (4g) (c) 1., 4., and 5. apply.

SB93-SSA1,16,23 (4k) Power to treat capital gains as part of a distribution. Unless prohibited by the governing instrument, a trustee may cause gains from the sale or exchange of trust assets, 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), of a unitrust distribution, of a fixed annuity distribution, or of a principal distribution to a beneficiary.

SB93-SSA1,17,4 (4m) Judicial review of discretionary power. (a) Nothing in this section creates a duty to make an adjustment under sub. (4) or to convert a trust to a unitrust under sub. (4g). 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) or (4g).

SB93-SSA1,17,9 (am) An action taken under sub. (4) or (4g) is not an abuse of a fiduciary's discretion if the fiduciary gave written notice of the proposed action under sub. (4c) 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) or to convert under sub. (4g).

SB93-SSA1,17,12 (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.