SB759: Bill Text

SB759,55,14 (a) The distribution is applied for the benefit of the beneficiary.

SB759,55,17 (b) The beneficiary is under a legal disability or the trustee reasonably believes the beneficiary is incapacitated, and the distribution is made as permitted under this chapter.

SB759,55,19 (c) The distribution is made as permitted under the terms of the first-trust instrument and the 2nd-trust instrument for the benefit of the beneficiary.

SB759,55,23 (5) If an authorized fiduciary has limited distributive discretion over part but not all of the principal of a first trust, the fiduciary may exercise the decanting power under this section over that part of the principal over which the authorized fiduciary has limited distributive discretion.

SB759,55,24 701.1313 Trust for beneficiary with disability. (1) In this section:

SB759,56,2 (a) “Beneficiary with a disability” means a beneficiary of a first trust who the special-needs fiduciary believes in good faith is an individual with a disability.

SB759,56,4 (b) “Special-needs fiduciary” means, with respect to a trust that has a beneficiary with a disability, any of the following:

SB759,56,7 1. A trustee or other fiduciary, other than a settlor, that has discretion to distribute part or all of the principal of a first trust to one or more current beneficiaries.

SB759,56,10 2. If no trustee or fiduciary has discretion under subd. 1., a trustee or other fiduciary, other than a settlor, that has discretion to distribute part or all of the income of the first trust to one or more current beneficiaries.

SB759,56,13 3. If no trustee or fiduciary has discretion under subds. 1. and 2., a trustee or other fiduciary, other than a settlor, that is required to distribute part or all of the income or principal of the first trust to one or more current beneficiaries.

SB759,56,17 (c) “Special-needs trust” means a trust the trustee believes would not be considered a resource for purposes of determining whether an individual with a disability is eligible for the supplemental security income program or the medical assistance program.

SB759,56,21 (2) A special-needs fiduciary may exercise the decanting power under s. 701.1311 over the principal of a first trust as if the fiduciary had authority to distribute principal to a beneficiary with a disability subject to expanded distributive discretion if all of the following apply:

SB759,56,23 (a) A 2nd trust is a special-needs trust that benefits the beneficiary with a disability.

SB759,56,25 (b) The special-needs fiduciary determines that exercise of the decanting power will further the purposes of the first trust.

SB759,57,2 (3) In an exercise of the decanting power under this section, the following rules apply:

SB759,57,4 (a) Notwithstanding s. 701.1311 (3) (b), the interest in the 2nd trust of a beneficiary with a disability may do any of the following:

SB759,57,7 1. Be an account in a pooled trust for the benefit of the beneficiary with a disability described in 42 USC 1396p (d) (4) (C) that includes the trust retention provisions permitted by 42 USC 1396p (d) (4) (C) (iv).

SB759,57,9 2. Contain payback provisions complying with reimbursement requirements of Medicaid law under 42 USC 1396p (d) (4) (A) or (C).

SB759,57,11 (b) Section 701.1311 (3) (c) does not apply to the interests of the beneficiary with a disability.

SB759,57,18 (c) Except as affected by any change to the interests of the beneficiary with a disability or by the effects on remainder beneficiaries of a transfer to a 2nd trust under par. (a), if the special needs fiduciary has limited distributive discretion over the principal of the 2nd trust, or if there are 2 or more 2nd trusts, the 2nd trusts in the aggregate must grant each other beneficiary of the first trust beneficial interests in the 2nd trusts that are substantially similar to the beneficiary's beneficial interests in the first trust.

SB759,57,19 701.1314 Protection of charitable interest. (1) In this section:

SB759,57,21 (a) “Determinable charitable interest” means an interest that is all of the following:

SB759,57,22 1. A charitable interest.

SB759,57,24 2. Entitled to receive a mandatory distribution currently, periodically, on the occurrence of a specified event, or after the passage of a specified time.

SB759,57,25 3. Unconditional or held solely for charitable purposes.

SB759,58,5 (b) “Unconditional” means not subject to the occurrence of a specified event that is not certain to occur, other than a requirement in a trust instrument that a charitable organization be in existence or qualify under a particular provision of the Internal Revenue Code, on the date of the distribution, if the charitable organization meets the requirement on the date of determination.

SB759,58,8 (2) The attorney general may represent and bind a charitable interest only when the attorney general has the rights of a qualified beneficiary as provided in s. 701.0110 (3).

SB759,58,10 (3) If a first trust contains a charitable interest, the 2nd trust or trusts may not do any of the following:

SB759,58,11 (a) Diminish the charitable interest.

SB759,58,13 (b) Diminish the interest of an identified charitable organization that holds the charitable interest.

SB759,58,14 (c) Alter any charitable purpose stated in the first-trust instrument.

SB759,58,15 (d) Alter any condition or restriction related to the charitable interest.

SB759,58,19 (3m) Notwithstanding subs. (3) and (5), if the first trust is an account in a pooled trust described in 42 USC 1396p (d) (4) (C), the 2nd trust may be an account in another pooled trust described in 42 USC 1396p (d) (4) (C) or a trust described in 42 USC 1396p (d) (4) (A) regardless of any of the following:

SB759,58,21 (a) Any effect on a charitable interest in property that is permitted to be retained in the first trust under 42 USC 1396p (d) (4) (C) (iv).

SB759,58,23 (b) Any effect the trust retention and Medicaid reimbursement provisions of the 2nd trust may have on a charitable interest in the first trust.

SB759,58,24 (c) Any change in the identified charitable organization.

SB759,59,2 (d) Any change in the governing law or principal place of administration of the trust.

SB759,59,6 (4) If there are 2 or more 2nd trusts, the 2nd trusts shall be treated as one trust for purposes of determining whether the exercise of the decanting power diminishes the charitable interest or diminishes the interest of an identified charitable organization for purposes of sub. (3).

SB759,59,9 (5) If a first trust contains a determinable charitable interest, the 2nd trust or trusts that include a charitable interest pursuant to sub. (3) must be administered under the law of this state unless any of the following applies:

SB759,59,11 (a) The attorney general, after receiving notice under s. 701.1307, fails to object in a signed record delivered to the authorized fiduciary within the notice period.

SB759,59,13 (b) The attorney general consents in a signed record to the 2nd trust or trusts being administered under the law of another jurisdiction.

SB759,59,14 (c) The court approves the exercise of the decanting power.

SB759,59,16 (d) The identified charitable organization consents in a signed record delivered to the authorized fiduciary.

SB759,59,18 (6) This subchapter does not limit the powers and duties of the attorney general under the laws of this state other than this subchapter.

SB759,59,21 701.1315 Trust limitation on decanting. (1) An authorized fiduciary may not exercise the decanting power to the extent the first-trust instrument expressly prohibits exercise of any of the following:

SB759,59,22 (a) The decanting power.

SB759,59,24 (b) A power granted by state law to the fiduciary to distribute part or all of the principal of the trust to another trust or to modify the trust.

SB759,60,2 (2) Exercise of the decanting power is subject to any restriction in the first-trust instrument that expressly applies to exercise of any of the following:

SB759,60,3 (a) The decanting power.

SB759,60,5 (b) A power granted by state law to a fiduciary to distribute part or all of the principal of the trust to another trust or to modify the trust.

SB759,60,8 (3) A general prohibition of the amendment or revocation of a first trust, a spendthrift clause, or a clause restraining the voluntary or involuntary transfer of a beneficiary's interest does not preclude exercise of the decanting power.

SB759,60,12 (4) Subject to subs. (1) and (2), an authorized fiduciary may exercise the decanting power under this subchapter even if the first-trust instrument permits the authorized fiduciary or another person to modify the first-trust instrument or to distribute part or all of the principal of the first trust to another trust.

SB759,60,14 (5) If a first-trust instrument contains an express restriction described in sub. (2), the provision must be included in the 2nd-trust instrument.

SB759,60,18 701.1316 Change in compensation. (1) If a first-trust instrument specifies an authorized fiduciary's compensation, the fiduciary may not exercise the decanting power to increase the fiduciary's compensation above the specified compensation unless any of the following applies:

SB759,60,20 (a) All qualified beneficiaries of the 2nd trust consent to the increase in a signed record.

SB759,60,21 (b) The increase is approved by the court.

SB759,60,25 (2) If a first-trust instrument does not specify an authorized fiduciary's compensation, the fiduciary may not exercise the decanting power to increase the fiduciary's compensation above the compensation permitted by this chapter unless any of the following applies:

SB759,61,2 (a) All qualified beneficiaries of the 2nd trust consent to the increase in a signed record.

SB759,61,3 (b) The increase is approved by the court.

SB759,61,6 (3) A change in an authorized fiduciary's compensation that is incidental to other changes made by the exercise of the decanting power is not an increase in the fiduciary's compensation for purposes of subs. (1) and (2).

SB759,61,9 (4) This section does not apply to a decanting from a first trust that is a pooled trust described in 42 USC 1396p (d) (4) (C), or to a decanting to a 2nd trust that is a pooled trust described in 42 USC 1396p (d) (4) (C).

SB759,61,13 701.1317 Relief from liability and indemnification. (1) Except as otherwise provided in this section, a 2nd-trust instrument may not relieve an authorized fiduciary from liability for breach of trust to a greater extent than the first-trust instrument unless any of the following applies:

SB759,61,15 (a) All the qualified beneficiaries of the 2nd trust consent to the relief from liability in a signed record.

SB759,61,16 (b) The relief from liability is approved by the court.

SB759,61,20 (2) A 2nd-trust instrument may provide for indemnification of an authorized fiduciary of the first trust or another person acting in a fiduciary capacity under the first trust for any liability or claim that would have been payable from the first trust if the decanting power had not been exercised.

SB759,61,23 (3) Absent consent of all qualified beneficiaries or the approval of the court, the 2nd-trust instrument may not reduce the aggregate fiduciary liability of all fiduciaries of the 2nd trust.

SB759,62,3 (4) Subject to sub. (3), a 2nd-trust instrument may divide and reallocate fiduciary powers among fiduciaries, including one or more trustees, directing parties, trust protectors, or other persons, and relieve a fiduciary from liability for an act or failure to act of another fiduciary as permitted by law of this state other than this subchapter.

SB759,62,7 701.1318 Removal or replacement of authorized fiduciary. (1) An authorized fiduciary may not exercise the decanting power to modify a provision in a first-trust instrument granting another person power to remove or replace the fiduciary unless any of the following applies:

SB759,62,9 (a) The person holding the power consents to the modification in a signed record and the modification applies only to the person.

SB759,62,12 (b) The person holding the power and the qualified beneficiaries of the 2nd trust consent to the modification in a signed record and the modification grants a substantially similar power to another person.

SB759,62,14 (c) The court approves the modification and the modification grants a substantially similar power to another person.

SB759,62,17 (2) This section does not apply to a decanting from a first trust that is a pooled trust described in 42 USC 1396p (d) (4) (C), or to a decanting to a 2nd trust that is a pooled trust described in 42 USC 1396p (d) (4) (C).

SB759,62,18 701.1319 Tax-related limitations. (1) In this section:

SB759,62,21 (a) “Grantor trust” means a trust as to which a settlor of a first trust is considered the owner under sections 671 to 677 of the Internal Revenue Code or section 679 of the Internal Revenue Code.

SB759,62,22 (b) “Nongrantor trust” means a trust that is not a grantor trust.

SB759,63,2 (c) “Qualified benefits property” means property subject to the minimum distribution requirements of section 401 (a) (9) of the Internal Revenue Code, and any applicable regulations, or to any similar requirements that refer to section 401 (a) (9) of the Internal Revenue Code or the regulations.

SB759,63,3 (2) An exercise of the decanting power is subject to the following limitations:

SB759,63,12 (a) If a first trust contains property that qualified, or would have qualified but for provisions of this subchapter other than this section, for a marital deduction for purposes of the gift or estate tax under the Internal Revenue Code or a state gift, estate, or inheritance tax, the 2nd-trust instrument must not include or omit any term that, if included in or omitted from the trust instrument for the trust to which the property was transferred, would have prevented the transfer from qualifying for the deduction, or would have reduced the amount of the deduction, under the same provisions of the Internal Revenue Code or state law under which the transfer qualified.

SB759,63,21 (b) If the first trust contains property that qualified, or would have qualified but for provisions of this subchapter other than this section, for a charitable deduction for purposes of the income, gift, or estate tax under the Internal Revenue Code or a state income, gift, estate, or inheritance tax, the 2nd-trust instrument must not include or omit any term that, if included in or omitted from the trust instrument for the trust to which the property was transferred, would have prevented the transfer from qualifying for the deduction, or would have reduced the amount of the deduction, under the same provisions of the Internal Revenue Code or state law under which the transfer qualified.

SB759,64,10 (c) If the first trust contains property that qualified, or would have qualified but for provisions of this subchapter other than this section, for the exclusion from the gift tax described in section 2503 (b) of the Internal Revenue Code, the 2nd-trust instrument must not include or omit a term that, if included in or omitted from the trust instrument for the trust to which the property was transferred, would have prevented the transfer from qualifying under section 2503 (b) of the Internal Revenue Code. If the first trust contains property that qualified, or would have qualified but for provisions of this subchapter other than this section, for the exclusion from the gift tax described in the Internal Revenue Code section 2503 (b) by application of section 2503 (c) of the Internal Revenue Code, the 2nd-trust instrument must not include or omit a term that, if included or omitted from the trust instrument for the trust to which the property was transferred, would have prevented the transfer from qualifying under section 2503 (c) of the Internal Revenue Code.

SB759,64,22 (d) If the property of the first trust includes shares of stock in an S corporation, as defined in section 1361 of the Internal Revenue Code, and the first trust is, or but for provisions of this subchapter other than this section would be, a permitted shareholder under any provision of section 1361 of the Internal Revenue Code, an authorized fiduciary may exercise the power with respect to part or all of the S-corporation stock only if any 2nd trust receiving the stock is a permitted shareholder under section 1361 (c) (2) of the Internal Revenue Code. If the property of the first trust includes shares of stock in an S corporation and the first trust is, or but for provisions of this subchapter other than this section would be, a qualified subchapter S trust within the meaning of section 1361 (d) of the Internal Revenue Code, the 2nd-trust instrument must not include or omit a term that prevents the 2nd trust from qualifying as a qualified subchapter S trust.

SB759,65,4 (e) If the first trust contains property that qualified, or would have qualified but for provisions of this subchapter other than this section, for a zero inclusion ratio for purposes of the generation-skipping transfer tax under section 2642 (c) of the Internal Revenue Code, the 2nd-trust instrument must not include or omit a term that, if included in or omitted from the first-trust instrument, would have prevented the transfer to the first trust from qualifying for a zero inclusion ratio under section 2642 (c) of the Internal Revenue Code.

SB759,65,15 (f) If the first trust is directly or indirectly the beneficiary of qualified benefits property, the 2nd-trust instrument may not include or omit any term that, if included in or omitted from the first-trust instrument, would have increased the minimum distributions required with respect to the qualified benefits property under section 401 (a) (9) of the Internal Revenue Code and any applicable regulations, or any similar requirements that refer to section 401 (a) (9) of the Internal Revenue Code or the regulations. If an attempted exercise of the decanting power violates this paragraph, the trustee is deemed to have held the qualified benefits property and any reinvested distributions of the property as a separate share from the date of the exercise of the power and s. 701.1322 applies to the separate share.

SB759,65,20 (g) If the first trust qualifies as a grantor trust because of the application of section 672 (f) (2) (A) of the Internal Revenue Code, the 2nd trust may not include or omit a term that, if included in or omitted from the first-trust instrument, would have prevented the first trust from qualifying under section 672 (f) (2) (A) of the Internal Revenue Code.

SB759,66,2 (h) In this paragraph, “tax benefit” means a federal or state tax deduction, exemption, exclusion, or other benefit not otherwise listed in this section, except for a benefit arising from being a grantor trust. Subject to par. (i), a 2nd-trust instrument may not include or omit a term that, if included in or omitted from the first-trust instrument, would have prevented qualification for a tax benefit if all of the following apply:

SB759,66,5 1. The first-trust instrument expressly indicates an intent to qualify for the benefit or the first-trust instrument clearly is designed to enable the first trust to qualify for the benefit.

SB759,66,8 2. The transfer of property held by the first trust or the first trust qualified, or but for provisions of this subchapter other than this section, would have qualified for the tax benefit.

SB759,66,9 (i) Subject to par. (d), all of the following apply:

SB759,66,11 1. Except as otherwise provided in par. (g), the 2nd trust may be a nongrantor trust, even if the first trust is a grantor trust.