Amendment SSA1-SB93

2005 - 2006 LEGISLATURE

SENATE SUBSTITUTE AMENDMENT 1, TO 2005 SENATE BILL 93

April 7, 2005 - Offered by Committee on Housing and Financial Institutions.

SB93-SSA1,1,5 An Act to renumber and amend 701.24; to amend 20.907 (1), 23.0918 (2), 25.70, 701.12 (3), 701.21 (1), 705.21 (12) (a) and 861.015 (2); to repeal and recreate 701.20; and to create 701.24 (2) and 705.21 (12) (am) of the statutes; relating to: providing rules for allocations between principal and income for trusts and estates and authorizing the conversion of a trust to a unitrust.

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

SB93-SSA1, s. 1 Section 1. 20.907 (1) of the statutes is amended to read:

SB93-SSA1,2,8 20.907 (1) Acceptance and investment. Unless otherwise provided by law, all gifts, grants, bequests, and devises to the state or to any state agency for the benefit or advantage of the state, whether made to trustees or otherwise, shall be legal and valid when approved by the joint committee on finance and shall be executed and enforced according to the provisions of the instrument making the same, including all provisions and directions in any such instrument for accumulation of the income of any fund or rents and profits of any real estate without being subject to the limitations and restrictions provided by law in other cases; but no such accumulation shall be allowed to produce a fund more than 20 times as great as that originally given. When such gifts, grants, bequests or devises include common stocks or other investments which are not authorized by s. 881.01, such common stocks or other investments may be held and may be exchanged, invested or reinvested in similar types of investments without being subject to the limitations provided by law in other cases.

SB93-SSA1, s. 2 Section 2. 23.0918 (2) of the statutes is amended to read:

SB93-SSA1,2,16 23.0918 (2) Unless the natural resources board determines otherwise in a specific case, only the income from the gifts, grants, or bequests in the fund is available for expenditure. The natural resources board may authorize expenditures only for preserving, developing, managing, or maintaining land under the jurisdiction of the department that is used for any of the purposes specified in s. 23.09 (2) (d). In this subsection, unless otherwise provided in a gift, grant, or bequest, principal and income are determined as provided under s. 701.20 (3).

SB93-SSA1, s. 3 Section 3. 25.70 of the statutes is amended to read:

SB93-SSA1,2,24 25.70 Historical society trust fund. There is established a separate nonlapsible trust fund designated as the historical society trust fund, consisting of all endowment principal and income and all cash balances of the historical society. Unless the board of curators of the historical society determines otherwise in each case, only the income from the assets in the historical society trust fund is available for expenditure. In this section, unless otherwise provided in the gift, grant, or bequest, principal and income are determined as provided under s. 701.20 (3).

SB93-SSA1, s. 4 Section 4. 701.12 (3) of the statutes is amended to read:

SB93-SSA1,3,3 701.12 (3) Nothing in this section shall prevent revocation, modification, or termination of a trust pursuant to its terms or otherwise in accordance with law or prevent conversion of a trust to a unitrust under s. 701.20 (4g).

SB93-SSA1, s. 5 Section 5. 701.20 of the statutes is repealed and recreated to read:

SB93-SSA1,3,5 701.20 Principal and income. (2) Definitions. In this section:

SB93-SSA1,3,9 (a) "Accounting period" means a calendar year, unless a fiduciary selects another 12-month period, and includes a portion of a calendar year or other 12-month period that begins when an income interest begins or that ends when an income interest ends.

SB93-SSA1,3,12 (b) "Beneficiary" means a person who has a beneficial interest in a trust or an estate and includes, in the case of a decedent's estate, an heir, a legatee, and a devisee and, in the case of a trust, an income beneficiary and a remainder beneficiary.

SB93-SSA1,3,15 (c) "Fiduciary" means a personal representative or a trustee and includes an executor, administrator, successor personal representative, special administrator, and a person performing substantially the same function as any of those.

SB93-SSA1,3,19 (d) "Income" means money or property that a fiduciary receives as current return from a principal asset. "Income" includes a portion of receipts from a sale, exchange, or liquidation of a principal asset, to the extent provided in subs. (10) to (24).

SB93-SSA1,3,21 (e) "Income beneficiary" means a person to whom net income of a trust is or may be payable.

SB93-SSA1,3,24 (f) "Income interest" means the right of an income beneficiary to receive all or part of net income, whether the terms of the trust require it to be distributed or authorize it to be distributed in the trustee's discretion.

SB93-SSA1,4,2 (g) "Mandatory income interest" means the right of an income beneficiary to receive net income that the terms of the trust require the fiduciary to distribute.

SB93-SSA1,4,5 (h) "Net income" means the total receipts allocated to income during an accounting period, minus the disbursements made from income during the period, plus or minus transfers under this section to or from income during the period.

SB93-SSA1,4,9 (i) "Person" means an individual; corporation; business trust; estate; trust; partnership; limited liability company; association; joint venture; government; governmental subdivision, agency, or instrumentality; public corporation; or any other legal or commercial entity.

SB93-SSA1,4,11 (j) "Principal" means property held in trust for distribution to a remainder beneficiary when the trust terminates or property held in trust in perpetuity.

SB93-SSA1,4,13 (k) "Remainder beneficiary" means a person entitled to receive principal when an income interest ends.

SB93-SSA1,4,15 (L) "Sui juris beneficiary" means a beneficiary not under a legal disability. The term includes all of the following:

SB93-SSA1,4,17 1. A court-appointed guardian of a beneficiary who is incompetent, as defined in s. 880.01 (4).

SB93-SSA1,4,18 2. An agent for an incapacitated beneficiary.

SB93-SSA1,4,20 3. A court-appointed guardian of a minor beneficiary's estate or, if there is no court-appointed guardian, the parents of the minor beneficiary.

SB93-SSA1,4,23 (m) "Terms of a trust" means the manifestation of the intent of a settlor or decedent with respect to a trust, expressed in a manner that admits of its proof in a judicial proceeding, whether by written or spoken words or by conduct.

SB93-SSA1,4,25 (n) "Trustee" includes an original, additional, or successor trustee, whether or not appointed or confirmed by a court.

SB93-SSA1,5,3 (3) Fiduciary duties; general principles. (a) In allocating receipts and disbursements to income or principal or between income and principal, and with respect to any matter within the scope of subs. (5) to (9), a fiduciary:

SB93-SSA1,5,5 1. Shall first administer a trust or estate in accordance with the terms of the trust or the will, even if there is a different provision in this section.

SB93-SSA1,5,9 2. May administer a trust or estate by the exercise of a discretionary power of administration given to the fiduciary by the terms of the trust or the will, even if the exercise of the power produces a result different from a result required or permitted by this section.

SB93-SSA1,5,12 3. Shall administer a trust or estate in accordance with this section if the terms of the trust or the will do not contain a different provision or do not give the fiduciary a discretionary power of administration.

SB93-SSA1,5,15 4. Shall add a receipt or charge a disbursement to principal to the extent that the terms of the trust and this section do not provide a rule for allocating the receipt or disbursement to principal or income or between principal and income.

SB93-SSA1,5,23 (b) In exercising the power to adjust under sub. (4) (a) or a discretionary power of administration regarding a matter within the scope of this section, whether granted by the terms of a trust, a will, or this section, a fiduciary shall administer a trust or estate impartially, based on what is fair and reasonable to all of the beneficiaries, except to the extent that the terms of the trust or the will clearly manifest an intention that the fiduciary shall or may favor one or more of the beneficiaries. A determination in accordance with this section is presumed to be fair and reasonable to all of the beneficiaries.

SB93-SSA1,6,4 (4) Trustee's power to adjust. (a) A trustee may adjust between principal and income to the extent the trustee considers necessary if the trustee invests and manages trust assets as a prudent investor, the terms of the trust describe the amount that may or must be distributed to a beneficiary by referring to the trust's income, and the trustee determines, after applying the rules in sub. (3) (a), that the trustee is unable to comply with sub. (3) (b).

SB93-SSA1,6,7 (b) In deciding whether and to what extent to exercise the power conferred by par. (a), a trustee shall consider all factors relevant to the trust and its beneficiaries, including the following factors to the extent they are relevant:

SB93-SSA1,6,8 1. The nature, purpose, and expected duration of the trust.

SB93-SSA1,6,9 2. The intent of the settlor.

SB93-SSA1,6,10 3. The identity and circumstances of the beneficiaries.

SB93-SSA1,6,12 4. The needs for liquidity, regularity of income, and preservation and appreciation of capital.

SB93-SSA1,6,16 5. The assets held in the trust; the extent to which they consist of financial assets, interests in closely held enterprises, tangible and intangible personal property, or real property; the extent to which an asset is used by a beneficiary; and whether an asset was purchased by the trustee or received from the settlor.

SB93-SSA1,6,20 6. The net amount allocated to income under the other subsections of this section and the increase or decrease in the value of the principal assets, which the trustee may estimate in the case of assets for which market values are not readily available.

SB93-SSA1,6,24 7. Whether and to what extent the terms of the trust give the trustee the power to invade principal or accumulate income or prohibit the trustee from invading principal or accumulating income, and the extent to which the trustee has exercised a power from time to time to invade principal or accumulate income.

SB93-SSA1,7,2 8. The actual and anticipated effect of economic conditions on principal and income and effects of inflation and deflation.

SB93-SSA1,7,3 9. The anticipated tax consequences of an adjustment.

SB93-SSA1,7,4 (c) A trustee may not make an adjustment:

SB93-SSA1,7,6 1. If possessing or exercising the power to make an adjustment would disqualify an estate tax or gift tax marital or charitable deduction in whole or in part.

SB93-SSA1,7,8 2. That reduces the actuarial value of the income interest in a trust to which a person transfers property with the intent to qualify for a gift tax exclusion.

SB93-SSA1,7,10 3. That changes the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets.

SB93-SSA1,7,13 4. From any amount that is permanently set aside for charitable purposes under a will or the terms of a trust and for which an estate tax or gift tax charitable deduction has been taken unless both income and principal are so set aside.

SB93-SSA1,7,17 5. If possessing or exercising the power to make an adjustment causes 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 trustee did not possess the power to make an adjustment.

SB93-SSA1,7,21 6. If possessing or exercising the power to make an adjustment causes all or part of the trust assets to be included for estate tax purposes in the estate of an individual and the assets would not be included in the estate of the individual if the trustee did not possess the power to make an adjustment.

SB93-SSA1,7,22 7. If the trustee is a beneficiary of the trust.

SB93-SSA1,7,23 8. If the trust has been converted under sub. (4g) to a unitrust.

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.