SB759: Bill Text

SB759,,484 (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,,485 (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,,486 701.1318 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,,487 (a) The person holding the power consents to the modification in a signed record and the modification applies only to the person.

SB759,,488 (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,,489 (c) The court approves the modification and the modification grants a substantially similar power to another person.

SB759,,490 (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,,491 701.1319 Tax-related limitations. (1) In this section:

SB759,,492 (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,,493 (b) “Nongrantor trust” means a trust that is not a grantor trust.

SB759,,494 (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,,495 (2) An exercise of the decanting power is subject to the following limitations:

SB759,,496 (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,,497 (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,,498 (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,,499 (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,,500 (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,,501 (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,,502 (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,,503 (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,,504 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,,505 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,,506 (i) Subject to par. (d), all of the following apply:

SB759,,507 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.

SB759,,508 2. Except as otherwise provided in par. (j), the 2nd trust may be a grantor trust, even if the first trust is a nongrantor trust.

SB759,,509 (j) An authorized fiduciary may not exercise the decanting power if a settlor objects in a signed record delivered to the fiduciary within the notice period and any of the following applies:

SB759,,510 1. The first trust and a 2nd trust are both grantor trusts, in whole or in part, the first trust grants the settlor or another person the power to cause the first trust to cease to be a grantor trust, and the 2nd trust does not grant an equivalent power to the settlor or other person.

SB759,,511 2. The first trust is a nongrantor trust and a 2nd trust is a grantor trust, in whole or in part, with respect to the settlor, unless any of the following applies:

SB759,,512 a. The settlor has the power at all times to cause the 2nd trust to cease to be a grantor trust.

SB759,,513 b. The first-trust instrument contains a provision granting the settlor or another person a power that would cause the first trust to cease to be a grantor trust and the 2nd-trust instrument contains the same provision.

SB759,,514 701.1320 Duration of 2nd trust. (1) Subject to sub. (2), a 2nd trust may have a duration that is the same as or different from the duration of the first trust.

SB759,,515 (2) To the extent that property of a 2nd trust is attributable to property of the first trust, the property of the 2nd trust is subject to any rules governing maximum perpetuity, accumulation, or suspension of the power of alienation that apply to property of the first trust.

SB759,,516 701.1321 Need to distribute not required. An authorized fiduciary may exercise the decanting power whether or not under the first trust’s discretionary distribution standard the fiduciary would have made or could have been compelled to make a discretionary distribution of principal at the time of the exercise.

SB759,,517 701.1322 Saving provision. (1) If exercise of the decanting power would be effective under this subchapter except that the 2nd-trust instrument in part does not comply with this subchapter, the exercise of the power is effective and the following rules apply with respect to the principal of the 2nd trust attributable to the exercise of the power:

SB759,,518 (a) A provision in the 2nd-trust instrument that is not permitted under this subchapter is void to the extent necessary to comply with this subchapter.

SB759,,519 (b) A provision required by this subchapter to be in the 2nd-trust instrument that is not contained in the instrument is deemed to be included in the instrument to the extent necessary to comply with this subchapter.

SB759,,520 (2) If a trustee or other fiduciary of a 2nd trust determines that sub. (1) applies to a prior exercise of the decanting power, the fiduciary shall take corrective action consistent with the fiduciary’s duties.

SB759,,521 701.1323 Trust for care of animal. (1) The decanting power may be exercised over an animal trust that has an animal protector to the extent the trust could be decanted under this subchapter if each animal that benefits from the trust were an individual, if the animal protector consents in a signed record to the exercise of the power.

SB759,,522 (2) An animal protector has the rights under this subchapter of a qualified beneficiary.

SB759,,523 (3) Notwithstanding any other provision of this subchapter, if a first trust is an animal trust, in an exercise of the decanting power, the 2nd trust must provide that trust property may be applied only to its intended purpose for the period the first trust benefitted the animal.

SB759,,524 701.1324 Terms of 2nd trust. A reference in this chapter to a trust instrument or terms of the trust includes a 2nd-trust instrument and the terms of the 2nd trust.

SB759,,525 701.1325 Settlor. (1) For purposes of law of this state other than this subchapter and subject to sub. (2), a settlor of a first trust is deemed to be the settlor of the 2nd trust with respect to the portion of the principal of the first trust subject to the exercise of the decanting power.

SB759,,526 (2) In determining settlor intent with respect to a 2nd trust, the intent of a settlor of the first trust, a settlor of the 2nd trust, and the authorized fiduciary may be considered.

SB759,,527 701.1326 Later-discovered property. (1) Except as otherwise provided in sub. (3), if exercise of the decanting power was intended to distribute all the principal of the first trust to one or more 2nd trusts, later-discovered property belonging to the first trust and property paid to or acquired by the first trust after the exercise of the power is part of the trust estate of the 2nd trust or trusts.

SB759,,528 (2) Except as otherwise provided in sub. (3), if exercise of the decanting power was intended to distribute less than all the principal of the first trust to one or more 2nd trusts, later-discovered property belonging to the first trust or property paid to or acquired by the first trust after exercise of the power remains part of the trust estate of the first trust.

SB759,,529 (3) An authorized fiduciary may provide in an exercise of the decanting power or by the terms of a 2nd trust for disposition of later-discovered property belonging to the first trust or property paid to or acquired by the first trust after exercise of the power.

SB759,,530 701.1327 Obligations. A debt, liability, or other obligation enforceable against property of a first trust is enforceable to the same extent against the property when held by the 2nd trust after exercise of the decanting power.

SB759,118 Section 118. Chapter 702 of the statutes is repealed and recreated to read:

SB759,,532 CHAPTER 702

SB759,,533 UNIFORM POWERS OF APPOINTMENT ACT

SB759,,534 SUBCHAPTER I

SB759,,535 GENERAL PROVISIONS

SB759,,536 702.101 Short title. This act may be cited as the Uniform Powers of Appointment Act.

SB759,,537 702.102 Definitions. In this chapter:

SB759,,538 (1) “Appointee” means a person to which a powerholder makes an appointment of appointive property.

SB759,,539 (2) “Appointive property” means the property or property interest subject to a power of appointment.

SB759,,540 (3) “Blanket-exercise clause” means a clause in an instrument that exercises a power of appointment and is not a specific-exercise clause. “Blanket-exercise clause” includes a clause that does any of the following:

SB759,,541 (a) Expressly uses the words “any power” in exercising a power of appointment the powerholder has.

SB759,,542 (b) Expressly uses the words “any property” in appointing any property over which a powerholder has a power of appointment.

SB759,,543 (c) Disposes of all property subject to disposition by the powerholder.

SB759,,544 (4) “Broad limited power of appointment” means a power of appointment exercisable in favor of anyone other than the powerholder, the powerholder’s estate, the powerholder’s creditors, or the creditors of the powerholder’s estate.

SB759,,545 (5) “Donor” means a person that creates a power of appointment.

SB759,,546 (6) “Exclusionary power of appointment” means a power of appointment exercisable in favor of one or more permissible appointees to the exclusion of the other permissible appointees.

SB759,,547 (7) “General power of appointment” means a power of appointment exercisable in favor of the powerholder, the powerholder’s estate, a creditor of the powerholder, or a creditor of the powerholder’s estate.

SB759,,548 (8) “Gift-in-default clause” means a clause that identifies a taker in default of appointment.

SB759,,549 (9) “Impermissible appointee” means a person that is not a permissible appointee.

SB759,,550 (10) “Instrument” means a writing.

SB759,,551 (11) “Nongeneral power of appointment” means a power of appointment that is not a general power of appointment.

SB759,,552 (12) “Permissible appointee” means a person in whose favor a powerholder may exercise a power of appointment.

SB759,,553 (13) “Person” means an individual, estate, trust, business or nonprofit entity, public corporation, government or governmental subdivision, agency, or instrumentality, or other legal entity.

SB759,,554 (14) “Power of appointment” means a power that enables a powerholder acting in a nonfiduciary capacity to designate a recipient of an ownership interest in or another power of appointment over the appointive property. “Power of appointment” does not include a power of attorney.

SB759,,555 (15) “Powerholder” means a person in which a donor creates a power of appointment.

SB759,,556 (16) “Presently exercisable power of appointment” means a power of appointment exercisable by the powerholder at the relevant time. “Presently exercisable power of appointment” includes a power of appointment that is not exercisable until the occurrence of a specified event, the satisfaction of an ascertainable standard, or the passage of a specified time, and only after the occurrence of the specified event, the satisfaction of the ascertainable standard, or the passage of the specified time, but does not include a power exercisable only at the powerholder’s death.

SB759,,557 (17) “Specific-exercise clause” means a clause in an instrument that specifically refers to and exercises a particular power of appointment.

SB759,,558 (18) “Taker in default of appointment” means a person that takes all or part of the appointive property to the extent the powerholder does not effectively exercise the power of appointment.

SB759,,559 (19) “Terms of the instrument” means the manifestation of the intent of the maker of the instrument regarding the instrument’s provisions as expressed in the instrument or as may be established by other evidence that would be admissible in a legal proceeding.

SB759,,560 702.103 Governing law. Unless the terms of the instrument creating a power of appointment manifest a contrary intent, the creation, revocation, or amendment of a power of appointment is governed by the law of the donor’s domicile at the relevant time. The exercise, release, or disclaimer of a power of appointment, or the revocation or amendment of an exercise, release, or disclaimer of a power of appointment is governed by the law of the powerholder’s domicile at the relevant time.

SB759,,561 702.104 Common law and principles of equity. The common law and principles of equity supplement this chapter, except to the extent modified by this chapter or any other state law.

SB759,,562 702.105 Default rules. The terms of a governing instrument prevail over any provision of this subchapter.

SB759,,563 SUBCHAPTER II

SB759,,565 CREATION, REVOCATION, AND AMENDMENT OF POWER OF APPOINTMENT

SB759,,566 702.201 Creation of power of appointment. (1) A power of appointment is created only if the instrument creating the power satisfies all of the following:

SB759,,567 (a) The instrument is valid under applicable law.

SB759,,568 (b) Except as provided in sub. (2), the instrument governs the disposition of the appointive property.

SB759,,569 (c) The terms of the instrument manifest the donor’s intent to create in a powerholder a power of appointment over the appointive property exercisable in favor of a permissible appointee.

SB759,,570 (2) Subsection (1) (b) does not apply to a power of appointment that is created by the exercise of a power of appointment.

SB759,,571 (3) A power of appointment may not be created in a deceased individual.

SB759,,572 (4) A power of appointment may be created in an unborn or unascertained powerholder.

SB759,,573 702.202 Nontransferability. A powerholder may not transfer a power of appointment. If a powerholder dies without exercising or releasing a power of appointment, the power lapses.