SB759: Bill Text

SB759,,3 Analysis by the Legislative Reference Bureau

This bill makes several changes to the administration of trusts, the power to decant trusts, the creation and exercise of powers of appointment, the disclosure of certain digital property, and the classification of digital property as individual property for purposes of determining marital property. Important provisions of the bill are summarized as follows:

Administration of trusts

The bill makes several technical changes to the administration and regulation of trusts in the state, including the following:

1. The bill provides that notice given to any trustee when more than one person is serving as trustee is considered to be given to all persons serving as trustee, except that notice must be given to all corporations and attorneys that are serving as trustee.

2. The bill expands the concept of representation in a trust proceeding. Under the bill, a person holding a general power of appointment or a broad limited power of appointment may represent and bind the interests of all persons whose interests may be eliminated, regardless of whether there is a conflict of interest. A person holding a nongeneral power of appointment may represent and bind the interests of any person whose interest may be limited by the exercise of the power, provided there is no conflict of interest. A presumptive remainder beneficiary may represent and bind the interests of a contingent successor remainder beneficiary or a more remote contingent successor beneficiary, regardless of whether the beneficiary lacks capacity and provided there is no conflict of interest. If a presumptive remainder beneficiary does not represent a more remote contingent successor remainder beneficiary, a contingent successor remainder beneficiary may represent and bind a more remote contingent successor remainder beneficiary. The bill also confirms that a settlor can nominate in the trust instrument a designated representative to represent and bind any beneficiary.

3. The bill allows for the creation of a trust without initially funding the trust. To create such a trust, the bill requires a person to declare the intention to create a trust with the intention that the trust will be funded by assets of the person who created the trust or by another person with legal authority to fund the trust. Under the bill, the person making the declaration is considered to have created the trust regardless of whether the person funds the trust with the person’s own assets.

4. The bill provides for the resolution of debts against a deceased settlor of a trust that was revocable until the settlor’s death. First, the bill provides that a claimant must assert a claim for payment of a debt of a deceased settlor within any applicable deadline established by law. A trustee of a trust that was revocable at the settlor’s death may shorten the time period and set a deadline for filing claims with the trustee by publishing a legal notice or giving notice to a potential claimant. A claim that was barred by a statute of limitations at the time of the deceased settlor’s death is barred and the claimant may not pursue a claim against the trustee, the trust property, or recipients with respect to trust property. However, a claim not barred by a statute of limitations at the time of the settlor’s death is not barred thereafter by a statute of limitations if the claim is filed by the deadline for filing a claim after the death of the settlor. The deadlines established for filing a claim after the death of the settlor do not extend the time for commencement of a claim beyond the time provided by any statute of limitations applicable to that claim. Failure of a claimant to file a claim within applicable deadlines does not bar the claimant from satisfying the claim, if not otherwise barred, from property other than trust property.

5. The bill further provides for the form and verification of claims against a deceased settlor, the trustee response to claims against a deceased settlor, contest and enforcement of claims against a deceased settlor, compromise of claims against a deceased settlor, payment of claims against a deceased settlor, and the priority of claims against a deceased settlor.

6. The bill provides that a trustee of a trust has an insurable interest in the life of an insured under a life insurance policy that is owned by the trustee of the trust acting in a fiduciary capacity or that designates the trust itself as the owner if, on the date the policy is issued, the insured is a settlor of the trust or is an individual in whom a settlor of the trust has, or would have if living at the time the life insurance policy was issued, an insurable interest in the life of the insured and the life insurance proceeds are primarily for the benefit of one or more trust beneficiaries who either have an insurable interest in the life of the insured or have a substantial interest engendered by love or affection in the continuation of the life of the insured and, if the beneficiary does not have an insurable interest in the life of the insured, are related to the insured as provided in the bill.

Uniform Trust Decanting Act

Current law allows a trustee to transfer the assets of a trust to a second trust subject to certain requirements. The bill adopts the Uniform Trust Decanting Act (UTDA). The UTDA, as adopted, replaces the current language governing the transfer of assets to a second trust and makes several substantive changes to current law.

The bill defines “decanting power” as the power to 1) modify the terms of a trust or 2) distribute the property of a trust to a second trust. Under the bill, an authorized fiduciary may exercise the decanting power. An “authorized fiduciary” is defined as 1) a trustee or another fiduciary, other than the settlor, that has discretion to distribute or direct a trustee to distribute principal from a trust to a beneficiary; 2) a special fiduciary appointed by a court to exercise the decanting power; 3) a trustee or fiduciary that has the discretion or obligation to distribute property to beneficiaries of a trust that has a beneficiary with a disability; or 4) a trust protector who has been granted the decanting power.

The decanting power under this bill applies only to a trust that 1) is irrevocable or revocable by the settlor only with the consent of the trustee or a person that has an adverse interest in the revocation of the trust and 2) is not held solely for charitable purposes. The bill specifies that a first-trust instrument is deemed to include the decanting power unless the first-trust instrument explicitly prohibits or restricts exercise of the decanting power. The UTDA provisions of the bill apply to any trust created before, on, or after the effective date of the bill if the trust is governed or administered under the law of this state.

Under current law, a trustee may only transfer assets to a second trust with court approval or through a notice procedure. The current notice procedure requires giving notice to the settlor, beneficiaries, and certain powerholders of a trust 30 days prior to transferring assets from that first trust to a second trust. The bill requires a similar 30-day notice for exercise of the decanting power, but requires notice to be provided to additional powerholders and fiduciaries of the first trust as well as powerholders and fiduciaries of the second trust and, for certain trusts with a charitable interest, the attorney general. Under the bill, an exercise of the decanting power is effective if the authorized fiduciary acted with reasonable care to comply with the notice requirement, even if the fiduciary failed to provide notice to every person entitled to notice.

In addition, under current law, a trustee may not appoint assets to a second trust if a contribution to the first trust qualified for a marital or charitable deduction for federal income, gift, or estate tax purposes and the second trust would prevent the asset from qualifying for the deduction or reduce the amount of the deduction. The bill retains this prohibition and expands it to other tax benefits, including deductions for state income, gift, estate, and inheritance taxes and any tax benefit for which a first trust is clearly designed to qualify. The bill also prohibits the use of the decanting power to 1) increase an authorized fiduciary’s compensation, 2) relieve an authorized fiduciary from liability for breach of trust in a second-trust instrument to a greater extent than in the first-trust instrument, or 3) reduce the aggregate fiduciary liability of all fiduciaries of a second trust without court approval or the consent of all of the qualified beneficiaries of a second trust.

The bill includes additional provisions about the decanting power for certain types of trusts. Specifically, in a trust that has a beneficiary with a disability, an authorized fiduciary may exercise the decanting power if the second trust is a special needs trust that benefits the beneficiary with a disability and the authorized fiduciary determines that exercise of the decanting power will further the purposes of the first trust. Under the bill, a “special needs trust” means a trust that the trustee believes would not be considered a resource for purposes of determining whether a beneficiary with a disability is eligible for governmental benefits based on disability. Also, if a first trust contains a charitable interest, a second trust may not diminish the charitable interest, diminish the interest of an identified charitable organization that holds the charitable interest, alter any charitable purpose stated in the first-trust instrument, or alter any condition or restriction related to the charitable interest. In addition, the bill specifies that the decanting power may be exercised over an animal trust. An “animal trust” is defined under the bill as a trust created to provide for the care of an animal that has a person appointed to enforce the trust on behalf of the animal. If a first trust is an animal trust, a second trust must provide that trust property may be applied only to its intended purpose for the period the first trust benefitted the animal.

If the trust instrument for a second trust does not comply with all of the requirements of the UTDA but the exercise of the decanting power would otherwise be effective, then 1) any provision that is included in the second-trust instrument in violation of the UTDA is void and 2) any provision omitted from the second-trust instrument in violation of the UTDA is deemed to be included in the second-trust instrument.

Uniform Powers of Appointment Act

The bill adopts the Uniform Powers of Appointment Act. Under the bill, a “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. A power of appointment is created only if the instrument creating the power governs the disposition of the appointive property and the terms of the instrument manifest the donor’s intention to create in a powerholder a power of appointment over the appointive property exercisable in favor of a permissible appointee. Under the bill, unless the terms of the instrument creating the power of appointment state otherwise, a power of appointment is presumed to be a presently exercisable power of appointment, an exclusionary power of appointment, and a general power of appointment. An “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. A “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. The bill provides, however, that a power of appointment is presumed to be a nongeneral power of appointment if the power is exercisable only at the powerholder’s death and the permissible appointees of the power are a defined and limited class that does not include the powerholder’s estate, the powerholder’s creditors, or the creditors of the powerholder’s estate.

Under the bill, a power of appointment is exercised only if the instrument exercising the power is valid under law, the terms of the instrument manifest the powerholder’s intent to exercise the power, and the instrument satisfies any requirements of exercise imposed by the donor, if any. If a power of appointment is vested in two or more persons, then the powerholders may only exercise the power of appointment unanimously. Under the bill, a powerholder may exercise their power of appointment by including a residuary clause in the powerholder’s will, or a comparable clause in the powerholder’s revocable trust, if the will or trust instrument manifests intent to do so, the power of appointment is a general power of appointment, there is no gift-in-default clause in the instrument creating the power of appointment, and the powerholder did not previously release the power of appointment.

If the powerholder releases or fails to exercise a general power of appointment, the bill provides that the gift-in-default clause controls the unappointed property or, if there is no gift-in-default clause, the bill provides default rules for how the unappointed property is disposed. A personal representative, trustee, or other fiduciary who holds property subject to a power of appointment may administer the appointive property as if the power of appointment was not exercised if the personal representative, trustee, or other fiduciary has no notice of the existence of any documentation of the powerholder purporting to exercise the power of appointment by will or otherwise within six months after the death of the powerholder.

Classification of digital property as individual property

The bill establishes an exception to Wisconsin’s general marital property law, allowing digital property to be classified as individual property if the property meets certain criteria. Under the bill, an account and the digital property held in an account, including the content of electronic communications such as personal email, that is created and maintained for personal use is classified as individual property, unless either the account or the digital property in the account was not originally created, purchased, or otherwise acquired exclusively for the personal, noneconomic purposes of the account holder, or the account or the digital property in the account has at any time been used for purposes other than the personal, noneconomic purposes of the spouse holding the account. Under the bill, in the event of a sale, exchange, or other disposition, all property received in exchange for that account, or the digital property in the account, is classified as marital property; and, further, income during marriage and after the determination date attributable to the account, or the digital property in the account, is classified as marital property.

Disclosure of digital property

Under current law, a user may use an online tool to direct a custodian of digital property to disclose or not to disclose to a designated recipient some or all of the user’s digital property in certain circumstances. If an online tool allows the user to modify or delete a direction at all times, a direction regarding disclosure using an online tool overrides a contrary direction by the user in a will, trust, power of attorney, or any other governing instrument. If a user has not used an online tool or if the custodian has not provided an online tool, the user may allow or prohibit disclosure to a fiduciary of some or all of the user’s digital property, including the content of electronic communications sent or received by the user, in a will, trust, power of attorney, or any other governing instrument.

The bill provides that a user may allow or prohibit the disclosure to a fiduciary of some or all of the user’s digital property in a consent instrument. A consent instrument is defined as a written notarized document in physical or electronic form evidencing the user’s consent to the disclosure of the contents of electronic communications to a then acting fiduciary. However, a direction regarding disclosure using an online tool overrides a contrary direction by the user in a consent instrument in the same way that an online tool overrides a will, trust, power of attorney, or other governing instrument under current law.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

SB759,,4 The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

SB759,1 Section 1. 30.541 (3) (d) 1. a. of the statutes is amended to read:

SB759,,6 30.541 (3) (d) 1. a. Evidence satisfactory to the department of the appointment of a trustee in bankruptcy, of a certification of trust under s. 701.1013 or the appointment of a trustee, or of the issuance of domiciliary letters testamentary or other letters authorizing the administration of a decedent’s estate, letters of guardianship, conservatorship, special administration, or letters of trust.

SB759,2 Section 2. 101.9211 (4) (a) 1. of the statutes is amended to read:

SB759,,8 101.9211 (4) (a) 1. Evidence satisfactory to the department of the appointment of a trustee in bankruptcy, of a certification of trust under s. 701.1013 or the appointment of a trustee, or of the issuance of domiciliary letters testamentary or other letters authorizing the administration of a decedent’s estate, letters of guardianship, conservatorship, special administration, or letters of trust.

SB759,3 Section 3. 342.17 (4) (a) 1. of the statutes is amended to read:

SB759,,10 342.17 (4) (a) 1. Evidence satisfactory to the department of the issuance of the letters testamentary or other letters authorizing the administration of an estate, letters of guardianship, or letters of trust, appointment of a trustee in bankruptcy, of a certification of trust under s. 701.1013 or the appointment of a testamentary trustee, or of the appointment of the trustee in bankruptcy issuance of domiciliary letters or other letters authorizing the administration of a decedent’s estate, guardianship, conservatorship, special administration, or trust;

SB759,4 Section 4. 700.16 (1) (c) of the statutes is amended to read:

SB759,,12 700.16 (1) (c) If a future interest or trust is created by exercise of a power of appointment, the permissible period is computed from the time the power of appointment is exercised if the power of appointment is a general power of appointment, as defined in s. 702.02 (5) 702.102 (7), even if the general power of appointment is exercisable only by will. In the case of other powers of appointment the permissible period is computed from the time the power of appointment is created but facts at the time the power of appointment is exercised are considered in determining whether the power of alienation is suspended beyond a life or lives in being at the time of creation of the power of appointment plus 30 years.

SB759,5 Section 5. 700.27 (1) (d) of the statutes is amended to read:

SB759,,14 700.27 (1) (d) “Power of appointment” has the meaning given in s. 702.02 (6) 702.102 (14).

SB759,6 Section 6. 701.0102 (12m) of the statutes is created to read:

SB759,,16 701.0102 (12m) An account that is part of a qualified ABLE program under section 529A (b) of the Internal Revenue Code.

SB759,7 Section 7. 701.0103 (1m) of the statutes is created to read:

SB759,,18 701.0103 (1m) “Animal protector” means a person appointed in an animal trust to enforce the trust on behalf of the animal or, if no such person is appointed in the trust, a person appointed by the court for that purpose.

SB759,8 Section 8. 701.0103 (1n) of the statutes is created to read:

SB759,,20 701.0103 (1n) “Animal trust” means a trust or an interest in a trust created to provide for the care of one or more animals.

SB759,9 Section 9. 701.0103 (3) (c) of the statutes is created to read:

SB759,,22 701.0103 (3) (c) Is an identified charitable organization that will or may receive distributions under the terms of the trust.

SB759,10 Section 10. 701.0103 (3m) of the statutes is created to read:

SB759,,24 701.0103 (3m) “Broad limited power of appointment” has the meaning given in s. 702.102 (4).

SB759,11 Section 11. 701.0103 (3r) of the statutes is created to read:

SB759,,26 701.0103 (3r) “Charitable interest” means an interest in a trust that satisfies any of the following:

SB759,,27 (a) It is held by an identified charitable organization and makes the organization a qualified beneficiary.

SB759,,28 (b) It benefits only charitable organizations and, if the interest were held by an identified charitable organization, would make the organization a qualified beneficiary.

SB759,,29 (c) It is held solely for charitable purposes and, if the interest were held by an identified charitable organization, would make the organization a qualified beneficiary.

SB759,12 Section 12. 701.0103 (3u) of the statutes is created to read:

SB759,,31 701.0103 (3u) “Charitable organization” means any of the following:

SB759,,32 (a) A person, other than an individual, organized and operated exclusively for charitable purposes.

SB759,,33 (b) A government or governmental subdivision, agency, or instrumentality, to the extent it holds funds exclusively for a charitable purpose.

SB759,13 Section 13. 701.0103 (3x) of the statutes is created to read:

SB759,,35 701.0103 (3x) “Charitable purpose” means the relief of poverty, the advancement of education or religion, the promotion of health, a municipal or other governmental purpose, or another purpose the achievement of which is beneficial to the community.

SB759,14 Section 14. 701.0103 (4) of the statutes is amended to read:

SB759,,37 701.0103 (4) “Charitable trust” means a trust, or portion of a trust, created for a charitable purpose described in s. 701.0405 (1). This subsection does not apply in s. 701.1201.

SB759,15 Section 15. 701.0103 (5g) of the statutes is created to read:

SB759,,39 701.0103 (5g) “Court” means the court that is identified in s. 701.0203 (1).

SB759,16 Section 16. 701.0103 (5w) of the statutes is created to read:

SB759,,41 701.0103 (5w) “Current beneficiary” means a beneficiary that on the date the beneficiary’s qualification is determined is a distributee or permissible distributee of trust income or principal or is the holder of a presently exercisable general power of appointment.

SB759,17 Section 17. 701.0103 (9) of the statutes is amended to read:

SB759,,43 701.0103 (9) “General power of appointment” has the meaning given in s. 702.02 (5) 702.102 (7).

SB759,18 Section 18. 701.0103 (11p) of the statutes is created to read:

SB759,,45 701.0103 (11p) “Identified charitable organization” means a charitable organization that is expressly designated to receive distributions under the terms of a charitable trust and that is not subject to a right of substitution by the settlor or by any other party prior to the charitable organization becoming a current beneficiary.

SB759,19 Section 19. 701.0103 (15m) of the statutes is created to read:

SB759,,47 701.0103 (15m) “Issue” has the meaning given in s. 851.13.

SB759,20 Section 20. 701.0103 (18) of the statutes is amended to read:

SB759,,49 701.0103 (18) “Power of appointment” has the meaning given in s. 702.02 (6) 702.102 (14).

SB759,21 Section 21. 701.0103 (19m) of the statutes is created to read:

SB759,,51 701.0103 (19m) “Powerholder” has the meaning given in s. 702.102 (15).

SB759,22 Section 22. 701.0103 (19r) of the statutes is created to read:

SB759,,53 701.0103 (19r) “Presently exercisable power of appointment” has the meaning given in s. 702.102 (16).

SB759,23 Section 23. 701.0103 (19v) of the statutes is created to read:

SB759,,55 701.0103 (19v) “Presumptive remainder beneficiary” means, without considering the existence or exercise of a power of appointment, other than a power of appointment that has been irrevocably exercised and notice of the exercise has been given to the trustee, a beneficiary that on the date the beneficiary’s qualification is determined, would be any of the following:

SB759,,56 (a) A distributee or permissible distributee of trust income or principal if the interests of any current beneficiary terminated on that date without causing the trust to terminate.

SB759,,57 (b) A distributee or permissible distributee of trust income or principal if the trust terminated on that date.

SB759,,58 (c) If the terms of the trust do not provide for its termination, a distributee or permissible distributee of income or principal of the trust if all the current beneficiaries of the trust were deceased or no longer exist.

SB759,24 Section 24. 701.0103 (21) (intro.) of the statutes is amended to read:

SB759,,60 701.0103 (21) (intro.) “Qualified beneficiary” means a beneficiary who that, on the date on which the beneficiary’s qualification is determined, satisfies is any of the following:

SB759,25 Section 25. 701.0103 (21) (a) and (b) of the statutes are repealed and recreated to read:

SB759,,62 701.0103 (21) (a) A current beneficiary.