AB490: Bill Text

AB490,72,2 701.0504 Discretionary trusts; effect of standard. (1) For purposes of this subchapter, and except as provided in sub. (3), a beneficiary's interest in a trust that is subject to the trustee's discretion does not constitute an interest in property or an enforceable right even if the discretion is expressed in the form of a standard of distribution or the beneficiary is then serving as sole trustee or cotrustee.

AB490,72,7 (2)   Except as provided in this subchapter, a creditor or other claimant may not attach present or future distributions from a beneficiary's interest in property or an enforceable right, obtain an order from a court forcing the judicial sale of the interest or compelling the trustee to make distributions, or reach the interest or right by any other means, even if the trustee has abused the trustee's discretion.

AB490,72,11 (3) Subsections (1) and (2) do not apply if a beneficiary is acting as sole trustee of a trust for his or her benefit and his or her discretion to make distributions to himself or herself is not limited by an ascertainable standard or the consent of a party holding an adverse interest to the beneficiary.

AB490,72,14 (4)   (a) Except as provided in par. (b), this section does not limit the right of a beneficiary to maintain a judicial proceeding against a trustee for an abuse of discretion or failure to comply with a standard for distribution.

AB490,72,16 (b) The right of a beneficiary described in par. (a) may not be exercised by a creditor.

AB490,99 Section 99. 701.0505 of the statutes is created to read:

AB490,72,20 701.0505 Creditor's claim against settlor. (1) (a) Whether or not the terms of a trust include a spendthrift provision and except as provided in par. (b), the following rules apply to claims of a settlor's creditors:

AB490,72,22 1. During the lifetime of the settlor, the property of a revocable trust is subject to claims of the settlor's creditors.

AB490,73,5 2. With respect to an irrevocable trust that is not a trust for an individual with a disability, upon application of a judgment creditor of the settlor, the court may, if the trust instrument requires or authorizes the trustee to make payments of income or principal to or for the settlor, order the trustee to satisfy part or all of the judgment out of part or all of the payments of income or principal as they are due, presently or in the future, or which are payable in the trustee's discretion. If a trust has more than one settlor, the amount the judgment creditor of a particular settlor may reach may not exceed the settlor's interest in the trust.

AB490,73,12 3. After the death of a settlor, and subject to the settlor's right to direct the source from which liabilities will be paid, the property of a trust that was revocable at the settlor's death is subject to claims of the settlor's creditors, costs of administration of the settlor's estate, the expenses of the settlor's funeral and disposal of remains, and statutory allowances to a surviving spouse and children to the extent the settlor's probate estate is inadequate to satisfy those claims, costs, expenses, and allowances.

AB490,73,14 (b) Assets of a trust that are exempt from claims of creditors under other statutes are not subject to par. (a).

AB490,73,15 (2) For purposes of this subchapter, all of the following apply:

AB490,73,18 (a) During the period the power may be exercised, the holder of a power of withdrawal is treated in the same manner as the settlor of a revocable trust to the extent of the property subject to the power.

AB490,73,20 (e) 1. Contributions to the following trusts are not considered to have been contributed by the settlor:

AB490,73,24 a. An irrevocable marital trust that is treated as qualified terminable interest property under section 2523 (f) of the Internal Revenue Code if after the death of the settlor's spouse the settlor is a beneficiary of the trust or an irrevocable trust that receives property from the trust.

AB490,74,4 b. An irrevocable marital trust that is treated as a general power of appointment trust under section 2523 (e) of the Internal Revenue Code if after the death of the settlor's spouse the settlor is a beneficiary of the trust or an irrevocable trust that receives property from the trust.

AB490,74,7 c. An irrevocable trust for the settlor's spouse if after the death of the settlor's spouse the settlor is a beneficiary of the trust or an irrevocable trust that receives property from the trust.

AB490,74,10 d. An irrevocable trust for the benefit of a person, the settlor of which is the person's spouse, regardless of whether or when the person was the settlor of an irrevocable trust for the benefit of that spouse.

AB490,74,12 e. An irrevocable trust for the benefit of a person to the extent that the property of the trust was subject to a general power of appointment in another person.

AB490,74,14 2. A person who would otherwise be treated as a settlor of a trust described in subd. 1. a. to e. is not treated as a settlor of the trust.

AB490,74,18 3. For purposes of this paragraph, notwithstanding s. 701.0103 (3), "beneficiary" means a person who satisfies s. 701.0103 (3) (a) or (b) and who is designated in a trust instrument or through the exercise of a special or general power of appointment.

AB490,74,20 (3) Any order entered by a court under this section is subject to modification upon application of an interested person.

AB490,100 Section 100. 701.0506 of the statutes is created to read:

AB490,75,2 701.0506 Overdue distribution. (1) In this section, "mandatory distribution" means a distribution of income or principal that the trustee is required to make to a beneficiary under the terms of the trust, including a distribution upon termination of the trust. "Mandatory distribution" does not include a distribution subject to the exercise of the trustee's discretion even if any of the following applies:

AB490,75,3 (a) The discretion is expressed in the form of a standard of distribution.

AB490,75,5 (b) The terms of the trust authorizing a distribution couple language of discretion with language of direction.

AB490,75,10 (2) Whether or not a trust contains a spendthrift provision, a creditor or assignee of a beneficiary may reach a mandatory distribution of income or principal, including a distribution upon termination of the trust, if the trustee has not made the distribution to the beneficiary within a reasonable time after the designated distribution date.

AB490,101 Section 101. 701.0507 of the statutes is created to read:

AB490,75,14 701.0507 Personal obligations of trustee. Trust property is not subject to personal obligations of the trustee, even if the trustee becomes insolvent or bankrupt.

AB490,102 Section 102. 701.06 (title), (1), (2), (3) and (6) (title) and (a) of the statutes are repealed.

AB490,103 Section 103. 701.06 (4) of the statutes is renumbered 701.0503 (1), and 701.0503 (1) (intro.) and (b), as renumbered, is amended to read:

AB490,75,22 701.0503 (1) Claims for child support. (intro.) Notwithstanding any provision in the creating instrument or subs. (1) and (2) s. 701.0502, upon application of a person having a valid order directing a beneficiary to make payment for support of the beneficiary's child, the court may do any of the following:

AB490,76,2 (b) In If the case of a beneficiary under a discretionary may receive income or principal at the trustee's discretion under the trust, order the trustee to satisfy part or all of the claim out of part or all of future payments of income or principal which that are to be made pursuant to the exercise of the trustee's discretion in favor of such beneficiary.

AB490,104 Section 104. 701.06 (5) (intro.) and (a) of the statutes are renumbered 701.0503 (2) (intro.) and (a) and amended to read:

AB490,76,12 701.0503 (2) Claims for public support. (intro.) Notwithstanding any provision in the creating instrument or subs. (1) and (2) s. 701.0502 and except as provided in sub. (3), if the settlor is legally obligated to pay for the public support of a beneficiary under s. 46.10, 49.345, or 301.12 or the beneficiary is legally obligated to pay for the beneficiary's public support or that for support furnished to the beneficiary's spouse or minor child under s. 46.10, 49.345, or 301.12, upon application by the appropriate state department or county official, the court may do any of the following:

AB490,76,15 (a) If such the beneficiary is entitled to receive income or principal under the trust, order the trustee to satisfy part or all of the liability out of part or all of payments of income or principal as they are due, presently or in the future;

AB490,105 Section 105. 701.06 (5) (b) of the statutes is renumbered 701.0503 (2) (b) 1. and amended to read:

AB490,76,23 701.0503 (2) (b) 1. Except as otherwise provided in par. (c), in the case of a beneficiary under a discretionary trust subd. 2., if the beneficiary may receive income or principal at the trustee's discretion under the trust, order the trustee to satisfy part or all of the liability out of part or all of future payments of income or principal which are to be made pursuant to the exercise of the trustee's discretion in favor of such the beneficiary; .

AB490,106 Section 106. 701.06 (5) (c) of the statutes is renumbered 701.0503 (2) (b) 2. and amended to read:

AB490,77,5 701.0503 (2) (b) 2. In the case of a beneficiary under a discretionary trust who may receive income or principal of the trust at the trustee's discretion and who is a settlor or a spouse or minor child of the settlor, order the trustee to satisfy part or all of the liability without regard to whether the trustee has then exercised or may thereafter exercise the trustee's discretion in favor of the beneficiary.

AB490,107 Section 107. 701.06 (5m) of the statutes is renumbered 701.0503 (3) and amended to read:

AB490,77,16 701.0503 (3) Trust for disabled an individual with a disability. Subsection (5) (2) does not apply to any trust that is established for the benefit of an individual who has with a disability which has continued or can be expected to continue indefinitely, substantially impairs the individual from adequately providing for his or her own care or custody, and constitutes a substantial handicap to the afflicted individual if the trust does not result in ineligibility for public assistance under ch. 49. A trustee of a trust which is exempt from claims for public support under this subsection shall notify the county department under s. 46.215 or 46.22 in the county where the disabled beneficiary resides of the existence of the trust.

AB490,108 Section 108. 701.06 (6) (b) of the statutes is renumbered 701.0505 (2) (b), and 701.0505 (2) (b) 2., as renumbered, is amended to read:

AB490,77,21 701.0505 (2) (b) 2. The beneficiary's right to withdraw part of the trust property, to the extent that the value of the property affected by the lapse, waiver, or release in any year does not exceed the greater of the amount in following:

AB490,77,23 a. Section The amount referenced in section 2041 (b) (2) or 2514 (e), of the Internal Revenue Code of 1986.

AB490,78,2 b. Section The amount referenced in section 2503 (b), of the Internal Revenue Code of 1986 for each individual other than the beneficiary who makes a transfer to the trust or who is deemed to make a transfer to the trust pursuant to an election to split gifts under section 2513 (a) of the Internal Revenue Code.

AB490,109 Section 109. 701.06 (6) (c) of the statutes is renumbered 701.0505 (2) (c), and 701.0505 (2) (c) (intro.), 1. a. and b. and 4., as renumbered, are amended to read:

AB490,78,9 701.0505 (2) (c) (intro.) A beneficiary of a trust is not a settlor, has not made a voluntary or involuntary transfer of the beneficiary's interest in the trust, or and does not have the power to make a voluntary or involuntary transfer of the beneficiary's interest in the trust solely because the beneficiary holds or, exercises, or allows in any capacity, any of the following:

AB490,78,11 1. a. Exercisable only on with the consent of another person holding an interest adverse to the beneficiary's interest.

AB490,78,13 b. Limited by an ascertainable standard, such as health, education, support, or maintenance of the beneficiary.

AB490,78,14 4. A presently exercisable right described in par. (b) 2. sub. (2) (b).

AB490,110 Section 110. 701.06 (6) (d) of the statutes is renumbered 701.0505 (2) (d).

AB490,111 Section 111. 701.06 (7) of the statutes is renumbered 701.0503 (4) and amended to read:

AB490,78,20 701.0503 (4) Subsequent modification of court's order. Any order entered by a court under sub. (4), (5) (1) or (6) (a) is subject to modification (2) may be modified upon application of an interested person.

AB490,112 Section 112. 701.06 (8) of the statutes is renumbered 701.0503 (5) and amended to read:

AB490,78,25 701.0503 (5) Exempt assets. Assets of a trust, to the extent they that are exempt from claims of creditors under other statutes, shall are not be subject to sub. (4), (5), (1) or (6) (a) (2).

AB490,113 Section 113. Subchapter VI (title) of chapter 701 [precedes 701.0601] of the statutes is created to read:

AB490,79,3 chapter 701

AB490,79,4 subchapter VI

AB490,79,5 Revocable trusts

AB490,114 Section 114. 701.0601 of the statutes is created to read:

AB490,79,9 701.0601 Capacity of settlor of revocable trust. The capacity required to create, amend, revoke, or add property to a revocable trust, or to direct the actions of the trustee of a revocable trust, is the same as that required to make a will.

AB490,115 Section 115. 701.0602 of the statutes is created to read:

AB490,79,15 701.0602 Revocation or amendment of revocable trust. (1) Unless the terms of a trust expressly provide that the trust is irrevocable, the settlor may revoke or amend the trust. This subsection does not apply to a trust created under an instrument executed before the effective date of this subsection .... [LRB inserts date].

AB490,79,17 (2) If a revocable trust is created or funded by more than one settlor, all of the following apply:

AB490,79,20 (a) To the extent the trust consists of marital or community property, the trust may be revoked by either spouse acting alone but may be amended only by joint action of both spouses.

AB490,79,23 (b) To the extent the trust consists of property other than marital or community property, each settlor may revoke or amend the trust with regard to the portion of the trust property attributable to that settlor's contribution.

AB490,80,3 (c) Upon the revocation or amendment of the trust by fewer than all of the settlors, the trustee shall promptly notify the other settlors of the revocation or amendment.

AB490,80,5 (3) A settlor may revoke or amend a revocable trust by any of the following means:

AB490,80,6 (a) By substantial compliance with a method provided in the terms of the trust.

AB490,80,8 (b) If the terms of the trust do not provide a method, by any of the following means:

AB490,80,10 1. A later will or codicil that expressly refers to the trust or specifically devises property that would otherwise have passed according to the terms of the trust.

AB490,80,12 2. Any other method manifesting clear and convincing evidence of the settlor's intent.

AB490,80,16 (4) Upon revocation of a revocable trust, the trustee shall transfer the trust property as the settlor directs. However, with respect to marital or community property, the trustee shall transfer the property to both spouses as marital or community property.

AB490,80,19 (5) A settlor's powers with respect to revocation, amendment, or distribution of trust property may be exercised by an agent under a power of attorney only to the extent expressly authorized by the terms of the power of attorney.

AB490,80,23 (6) A guardian of the estate or a conservator of the settlor may exercise a settlor's powers with respect to revocation, amendment, or distribution of trust property only with the approval of the court supervising the guardianship or conservatorship.

AB490,81,2 (7) A trustee who does not know that a trust has been revoked or amended is not liable for distributions made and other actions taken on the assumption that the trust had not been amended or revoked, or for distributions made pursuant to sub. (5).

AB490,116 Section 116. 701.0603 of the statutes is created to read:

AB490,81,7 701.0603 Settlor's powers; powers of withdrawal. (1) While a trust is revocable, the rights of the beneficiaries are subject to the control of, and the duties of the trustee, a directing party, and a trust protector are owed exclusively to, the settlor.

AB490,81,9 (2) If a revocable trust has more than one settlor, the duties of the trustee, a directing party, and a trust protector are owed to all of the settlors.

AB490,81,12 (3) During the period in which a power of withdrawal may be exercised, the holder of the power has the rights of a settlor of a revocable trust under this section to the extent of the property subject to the power.

AB490,117 Section 117. 701.0604 of the statutes is created to read:

AB490,81,17 701.0604 Limitation on action contesting validity of revocable trust; distribution of trust property. (1) A person must commence a judicial proceeding to contest the validity of a trust that was revocable immediately before the settlor's death within the earlier of the following:

AB490,81,18 (a) One year after the settlor's death.

AB490,81,23 (b) Four months after the trustee sent the person a copy of the trust instrument and a notice informing the person of the trust's existence, of the trustee's name and address, and of the time allowed for commencing a proceeding. Except as provided in s. 701.0813 (2), a trustee is not liable to any person for not providing the information described in this paragraph.

AB490,82,2 (2) Upon the death of the settlor of a trust that was revocable immediately before the settlor's death, the trustee may proceed to distribute the trust property in accordance with the terms of the trust. The trustee is not subject to liability for doing so unless one of the following applies:

AB490,82,4 (a) The trustee knows of a pending judicial proceeding contesting the validity of the trust.

AB490,82,7 (b) A potential contestant has notified the trustee of a possible judicial proceeding to contest the trust and a judicial proceeding is commenced within 60 days after the contestant sent the notification.

AB490,82,9 (3) A beneficiary of a trust that is determined to have been invalid is liable to return any distribution received.