701.20(4g)(c)8.
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.
701.20(4g)(d)1.1. A trust may not be converted under this subsection to a unitrust if any of the following applies:
701.20(4g)(d)1.b.
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.
701.20(4g)(d)1.c.
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.
701.20(4g)(d)1.d.
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.
701.20(4g)(d)1.e.
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.
701.20(4g)(d)1.f.
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.
701.20(4g)(d)2.
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.
701.20(4g)(e)
(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.
701.20(4j)(a)(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.
701.20(4j)(b)1.
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.
701.20(4j)(b)2.
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.
701.20(4j)(b)3.
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.
701.20(4j)(b)4.
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.
701.20(4j)(b)5.
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.
701.20(4j)(b)6.
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:
701.20(4j)(b)6.c.
c. Net realized short-term capital gains for federal income tax purposes.
701.20(4j)(b)6.d.
d. Net realized long-term capital gains for federal income tax purposes.
701.20(4j)(b)7.
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.
701.20(4j)(b)8.
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.
701.20(4k)
(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.
701.20(4m)
(4m) Judicial review of discretionary power. 701.20(4m)(a)(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).
701.20(4m)(am)
(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).
701.20(4m)(b)
(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.
701.20(4m)(c)
(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:
701.20(4m)(c)1.
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.
701.20(4m)(c)2.
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.
701.20(4m)(c)3.
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.
701.20(4m)(d)
(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.
701.20(5)
(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:
701.20(5)(a)
(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.
701.20(5)(b)
(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:
701.20(5)(b)1.
1. Including in net income all income from property used to discharge liabilities.
701.20(5)(b)2.
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.
701.20(5)(b)3.
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.
701.20(5)(c)
(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. For purposes of this paragraph, the deferred marital property elective share amount elected by a surviving spouse under
s. 861.02 (1) is a bequest of a specific amount of money not determined by a pecuniary formula.
701.20(5)(d)
(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.
701.20(5)(e)
(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.
701.20(6)
(6) Distribution to residuary and remainder beneficiaries. 701.20(6)(a)(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.
701.20(6)(b)
(b) In determining a beneficiary's share of net income, the following rules apply:
701.20(6)(b)1.
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.
701.20(6)(b)2.
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.
701.20(6)(b)3.
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.
701.20(6)(b)4.
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.
701.20(6)(c)
(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.
701.20(6)(d)
(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.
701.20(7)
(7) When right to income begins and ends. 701.20(7)(a)(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.
701.20(7)(b)1.
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.
701.20(7)(b)2.
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.
701.20(7)(b)3.
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.
701.20(7)(c)
(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.
701.20(7)(d)
(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.
701.20(8)
(8) Apportionment of receipts and disbursements when decedent dies or income interest begins. 701.20(8)(a)(a) A trustee shall allocate to principal an income receipt or disbursement other than one to which
sub. (5) (a) applies if its due date occurs before a decedent dies in the case of an estate or before an income interest begins in the case of a trust or successive income interest.
701.20(8)(b)
(b) A trustee shall allocate to income an income receipt or disbursement if its due date occurs on or after the date on which a decedent dies or an income interest begins and it is a periodic due date. An income receipt or disbursement must be treated as accruing from day to day if its due date is not periodic or it has no due date. The portion of the receipt or disbursement accruing before the date of death or an income interest begins must be allocated to principal and the balance must be allocated to income.
701.20(8)(c)
(c) An item of income or an obligation is due on the date the payer is required to make a payment. If a payment date is not stated, there is no due date for the purposes of this section. Distributions to shareholders or other owners from an entity, as defined in
sub. (10), are due on the date fixed by the entity for determining who is entitled to receive the distribution or, if no date is fixed, on the declaration date for the distribution. A due date is periodic for receipts or disbursements that must be paid at regular intervals under a lease or an obligation to pay interest or if an entity customarily makes distributions at regular intervals.
701.20(9)
(9) Apportionment when income interest ends. 701.20(9)(a)(a) In this subsection, "undistributed income" means net income received before the date on which an income interest ends. "Undistributed income" does not include an item of income or expense that is due or accrued or net income that has been added or is required to be added to principal under the terms of the trust.
701.20(9)(b)
(b) When a mandatory income interest ends, the trustee shall pay to a mandatory income beneficiary who survives that date, or to the estate of a deceased mandatory income beneficiary whose death causes the interest to end, the beneficiary's share of the undistributed income that is not disposed of under the terms of the trust unless the beneficiary has an unqualified power to revoke more than 5 percent of the trust immediately before the income interest ends. In the latter case, the undistributed income from the portion of the trust that may be revoked must be added to principal.
701.20(9)(c)
(c) When a trustee's obligation to pay a fixed annuity or a fixed fraction of the value of the trust's assets ends, the trustee shall prorate the final payment if and to the extent required by applicable law to accomplish a purpose of the trust or its settlor relating to income, gift, estate, or other tax requirements.
701.20(10)(a)(a) In this subsection, "entity" means a corporation, partnership, limited liability company, regulated investment company, real estate investment trust, common trust fund, or any other organization in which a trustee has an interest other than a trust or estate to which
sub. (11) applies, a business or activity to which
sub. (12) applies, or an asset-backed security to which
sub. (24) applies.
701.20(10)(b)
(b) Except as otherwise provided in this subsection, a trustee shall allocate to income money received from an entity.
701.20(10)(c)
(c) A trustee shall allocate the following receipts from an entity to principal:
701.20(10)(c)2.
2. Money received in one distribution or a series of related distributions in exchange for part or all of a trust's interest in the entity.
701.20(10)(c)3.
3. Money received in total or partial liquidation of the entity.
701.20(10)(c)4.
4. Money received from an entity that is a regulated investment company or a real estate investment trust if the money distributed is a capital gain dividend for federal income tax purposes.
701.20(10)(d)1.
1. To the extent that the entity, at or near the time of a distribution, indicates that it is a distribution in partial liquidation.
701.20(10)(d)2.
2. If the total amount of money and property distributed in a distribution or series of related distributions is greater than 20 percent of the entity's gross assets, as shown by the entity's year-end financial statements immediately preceding the initial receipt.
701.20(10)(e)
(e) Money is not received in partial liquidation, nor may it be taken into account under
par. (d) 2., to the extent that it does not exceed the amount of income tax that a trustee or beneficiary must pay on taxable income of the entity that distributes the money.
701.20(10)(f)
(f) A trustee may rely upon a statement made by an entity about the source or character of a distribution if the statement is made at or near the time of distribution by the entity's board of directors or other person or group of persons authorized to exercise powers to pay money or transfer property comparable to those of a corporation's board of directors.
701.20(11)
(11) Distribution from trust or estate. A trustee shall allocate to income an amount received as a distribution of income from a trust or an estate in which the trust has an interest other than a purchased interest, and shall allocate to principal an amount received as a distribution of principal from such a trust or estate. If a trustee purchases an interest in a trust that is an investment entity, or a decedent or donor transfers an interest in such a trust to a trustee,
sub. (10) or
(24) applies to a receipt from the trust.
701.20(12)
(12) Business and other activities conducted by trustee. 701.20(12)(a)(a) If a trustee who conducts a business or other activity determines that it is in the best interest of all the beneficiaries to account separately for the business or activity instead of accounting for it as part of the trust's general accounting records, the trustee may maintain separate accounting records for its transactions, whether or not its assets are segregated from other trust assets.
701.20(12)(b)
(b) A trustee who accounts separately for a business or other activity may determine the extent to which its net cash receipts must be retained for working capital, the acquisition or replacement of fixed assets, and other reasonably foreseeable needs of the business or activity and the extent to which the remaining net cash receipts are accounted for as principal or income in the trust's general accounting records. If a trustee sells assets of the business or other activity, other than in the ordinary course of the business or activity, the trustee shall account for the net amount received as principal in the trust's general accounting records to the extent the trustee determines that the amount received is no longer required in the conduct of the business.
