AB140: Bill Text

AB140,10,17 4. States that it is given in accordance with this subsection and discloses the following information:

AB140,10,18 a. The identification of the trustee.

AB140,10,19 b. A description of the proposed action.

AB140,10,21 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.

AB140,10,23 d. The effective date of the proposed action if no objection is received from any beneficiary within the time specified in subd. 4. c.

AB140,11,3 (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.

AB140,11,5 (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.

AB140,11,9 (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.

AB140,11,16 (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 prohibited. A beneficiary who did not make the written objection may oppose the proposed action in the court proceeding.

AB140,11,18 (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).

AB140,11,20 (4g) Conversion to unitrust. (a) Subject to par. (d), a trust may be converted to a unitrust in any of the following ways:

AB140,11,22 1. By the trustee, at his or her own discretion or at the request of a beneficiary, if all of the following apply:

AB140,11,24 a. The trustee determines that the conversion will enable the trustee to better carry out the purposes of the trust.

AB140,12,4 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.

AB140,12,9 c. There is at least one sui juris beneficiary who is an income beneficiary who is currently eligible to receive income from the trust and at least one other sui juris beneficiary who is a remainder beneficiary who would receive, if no powers of appointment were exercised, a distribution of principal if the trust were to terminate immediately before the notice under subd. 1. b. is given.

AB140,12,11 d. Every sui juris beneficiary consents to the conversion to a unitrust in a writing delivered to the trustee.

AB140,12,13 e. The terms of the trust describe the amount that may or must be distributed by referring to the trust income.

AB140,12,14 f. The trustee invests and manages the trust assets as provided in s. 881.01.

AB140,12,16 2. By a court on the petition of the trustee or a beneficiary, if all of the following apply:

AB140,12,20 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.

AB140,12,22 b. The court determines that the conversion to a unitrust will enable the trustee to better carry out the purposes of the trust.

AB140,12,24 (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.

AB140,13,7 (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 3-year period or the period since the original trust was created, whichever is less.

AB140,13,12 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.

AB140,13,14 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.

AB140,13,17 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:

AB140,13,19 a. Convert the unitrust back to the original trust under the creating instrument.

AB140,13,20 b. Change the fixed percentage under subd. 1., subject to subd. 2. b.

AB140,13,22 4. After a trust is converted to a unitrust, a trustee may determine or change any of the following:

AB140,13,23 a. The frequency of distributions during the year.

AB140,13,25 b. Standards for prorating a distribution for a short year in which a beneficiary's right to payments commences or ceases.

AB140,14,2 c. The effect on the valuation of the unitrust's assets of other payments from, or contributions to, the unitrust.

AB140,14,3 d. How, and how frequently, to value the unitrust's assets.

AB140,14,4 e. The valuation dates to use.

AB140,14,6 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.

AB140,14,7 g. Any other matters necessary for the proper functioning of the unitrust.

AB140,14,9 5. The trustee may not deduct from a unitrust distribution expenses that would be deducted from income if the trust were not a unitrust.

AB140,14,11 6. Unless otherwise provided by the creating instrument, a unitrust distribution shall be paid as follows:

AB140,14,12 a. From net income, determined as if the trust were not a unitrust.

AB140,14,14 b. To the extent that net income under subd. 6. a. is insufficient, from net realized short-term capital gains.

AB140,14,16 c. To the extent that net income under subd. 6. a. and short-term capital gains under subd. 6. b. are insufficient, from net realized long-term capital gains.

AB140,14,19 d. To the extent that net income under subd. 6. a., short-term capital gains under subd. 6. b., and net realized long-term capital gains under subd. 6. c. are insufficient, from principal.

AB140,14,21 7. A court may, on the petition of the trustee or a beneficiary, do any of the following:

AB140,14,23 a. Change the fixed percentage that was determined under subd. 2. by the trustee or by a prior court order.

AB140,14,25 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.

AB140,15,2 c. Average the valuation of the unitrust's assets over a period other than that specified in subd. 1.

AB140,15,4 d. Require the unitrust to be converted back to the original trust under the creating instrument.

AB140,15,7 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.

AB140,15,9 (d) 1. A trust may not be converted under this subsection to a unitrust if any of the following applies:

AB140,15,10 a. The creating instrument specifically prohibits the conversion.

AB140,15,12 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.

AB140,15,16 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 a federal estate or gift tax deduction has been taken, unless both income and principal are so set aside.

AB140,15,19 d. Converting to a unitrust will cause an individual to be treated as the owner of all or part of the trust for federal income tax purposes and the individual would not be treated as the owner if the trust were not converted.

AB140,15,23 e. Converting to a unitrust will cause all or a part of the trust assets to be subject to federal estate or gift tax with respect to an individual and the trust assets would not be subject to federal estate or gift tax with respect to the individual if the trust were not converted.

AB140,15,25 f. Converting to a unitrust will result in the disallowance of a federal estate or gift tax marital deduction that would be allowed if the trust were not converted.

AB140,16,1 g. A trustee is a beneficiary of the trust.

AB140,16,6 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.

AB140,16,12 (4m) Judicial review of discretionary power. (a) Nothing in this section requires a trustee to make an adjustment under sub. (4) or to convert a trust to a unitrust under sub. (4g) (a) 1. 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).

AB140,16,15 (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.

AB140,16,18 (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.

AB140,16,22 (c) If the court determines that a fiduciary has abused the fiduciary's discretion, the remedy shall be to restore the income and remainder beneficiaries to the positions that they would have occupied had the discretion not been abused, according to the following rules:

AB140,17,2 1. To the extent that the abuse of discretion has resulted in no distribution to a beneficiary or in a distribution that is too small, the court shall order the fiduciary to distribute from the trust to the beneficiary an amount that the court determines will restore the beneficiary, in whole or in part, to the beneficiary's appropriate position.

AB140,17,8 2. To the extent that the abuse of discretion has resulted in a distribution to a beneficiary that is too large, the court shall place the beneficiaries, the trust, or both, in whole or in part, in their appropriate positions by ordering the fiduciary to withhold an amount from one or more future distributions to the beneficiary who received the distribution that was too large or by ordering that beneficiary to return some or all of the distribution to the trust.

AB140,17,13 3. To the extent that the court is unable, after applying subds. 1. and 2., 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.

AB140,17,23 (d) Upon petition by the fiduciary, the court having jurisdiction over a trust shall determine whether a proposed exercise or nonexercise by the fiduciary of a discretionary power conferred under this section will result in an abuse of the fiduciary's discretion. The petition must describe the proposed exercise or nonexercise of the power and contain sufficient information to inform the beneficiaries of the reasons for the proposal, the facts upon which the fiduciary relies, and an explanation of how the income and remainder beneficiaries will be affected by the proposed exercise or nonexercise of the power. A beneficiary who challenges the proposed exercise or nonexercise of the power has the burden of establishing that it will result in an abuse of discretion.

AB140,17,25 (5) Determination and distribution of net income. In the case of an estate of a decedent or after an income interest in a trust ends, the following rules apply:

AB140,18,5 (a) 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) to (30) that apply to trustees and the rules in par. (e). The fiduciary shall distribute the net income and net principal receipts to the beneficiary who is to receive the specific property.

AB140,18,8 (b) A fiduciary shall determine the remaining net income of a decedent's estate or a terminating income interest under the rules in subs. (7) to (30) that apply to trustees and by:

AB140,18,10 1. Including in net income all income from property used to discharge liabilities.

AB140,18,16 2. Paying from income or principal, in the fiduciary's discretion, fees of attorneys, accountants, and fiduciaries; court costs and other expenses of administration; and interest on death taxes, but the fiduciary may pay those expenses from income of property passing to a trust for which the fiduciary claims an estate tax marital or charitable deduction only to the extent that the payment of those expenses from income will not cause the reduction or loss of the deduction.

AB140,18,22 3. Paying from principal all other disbursements made or incurred in connection with the settlement of a decedent's estate or the winding up of a terminating income interest, including debts, funeral expenses, disposition of remains, family allowances, and death taxes and related penalties that are apportioned to the estate or terminating income interest by the will, the terms of the trust, or applicable law.

AB140,19,4 (c) A fiduciary shall distribute to a beneficiary, including a trustee, who receives a pecuniary amount not determined by a pecuniary formula 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 shall be distributed from net income determined under par. (b) or from principal to the extent that net income is insufficient.

AB140,19,8 (d) A fiduciary shall distribute the net income remaining after distributions required by par. (c) in the manner described in sub. (6) to all other beneficiaries, including a beneficiary who receives a pecuniary amount determined by a pecuniary formula.

AB140,19,19 (e) A fiduciary may not reduce principal or income receipts from property described in par. (a) because of a payment described in sub. (25) or (26) 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.

AB140,20,3 (6) Distribution to residuary and remainder beneficiaries. (a) Each beneficiary described in sub. (5) (d) 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 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.

AB140,20,4 (b) In determining a beneficiary's share of net income, the following rules apply:

AB140,20,8 1. The beneficiary is entitled to receive a portion of the net income equal to the beneficiary's fractional interest in the undistributed principal assets immediately before the distribution date, including assets that later may be sold to meet principal obligations.

AB140,20,11 2. The beneficiary's fractional interest in the undistributed principal assets must be calculated without regard to property specifically given to a beneficiary and property required to pay pecuniary amounts not determined by a pecuniary formula.

AB140,20,14 3. The beneficiary's fractional interest in the undistributed principal assets must be calculated on the basis of the aggregate value of those assets as of the distribution date without reducing the value by any unpaid principal obligation.

AB140,20,17 4. The distribution date for purposes of this subsection 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.

AB140,20,20 (c) If a fiduciary does not distribute all of the collected but undistributed net income to each person as of a distribution date, the fiduciary shall maintain appropriate records showing the interest of each beneficiary in that net income.

AB140,20,24 (d) A trustee may apply the rules in this subsection, 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 applies to the income from the asset.

AB140,21,4 (7) When right to income begins and ends. (a) An income beneficiary is entitled to net income from the date on which the income interest begins. An income interest begins on the date specified in the terms of the trust or, if no date is specified, on the date an asset becomes subject to a trust or successive income interest.

AB140,21,5 (b) An asset becomes subject to a trust:

AB140,21,7 1. On the date it is transferred to the trust in the case of an asset that is transferred to a trust during the transferor's life.

AB140,21,10 2. On the date of a testator's death in the case of an asset that becomes subject to a trust by reason of a will, even if there is an intervening period of administration of the testator's estate.

AB140,21,12 3. On the date of an individual's death in the case of an asset that a 3rd party transfers to a fiduciary because of the individual's death.

AB140,21,15 (c) An asset becomes subject to a successive income interest on the day after the preceding income interest ends, as determined under par. (d), even if there is an intervening period of administration to wind up the preceding income interest.

AB140,21,18 (d) An income interest ends on the day before an income beneficiary dies or another terminating event occurs, or on the last day of a period during which there is no beneficiary to whom a trustee may distribute income.