Chapter 701

701.1104(2)(b) (b) The intent of the settlor.

701.1104(2)(c) (c) The identity and circumstances of the beneficiaries.

701.1104(2)(d) (d) The needs for liquidity, regularity of income, and preservation and appreciation of capital.

701.1104(2)(e) (e) The assets held in the trust; the extent to which they consist of financial assets, interests in closely held enterprises, tangible and intangible personal property, or real property; the extent to which an asset is used by a beneficiary; and whether an asset was purchased by the trustee or received from the settlor.

701.1104(2)(f) (f) The net amount allocated to income under the other subsections of this section and the increase or decrease in the value of the principal assets, which the trustee may estimate in the case of assets for which market values are not readily available.

701.1104(2)(g) (g) Whether and to what extent the terms of the trust give the trustee the power to invade principal or accumulate income or prohibit the trustee from invading principal or accumulating income, and the extent to which the trustee has exercised a power from time to time to invade principal or accumulate income.

701.1104(2)(h) (h) The actual and anticipated effect of economic conditions on principal and income and effects of inflation and deflation.

701.1104(2)(i) (i) The anticipated tax consequences of an adjustment.

701.1104(3) (3) A trustee may not make an adjustment:

701.1104(3)(a) (a) If possessing or exercising the power to make an adjustment would disqualify an estate tax or gift tax marital or charitable deduction in whole or in part.

701.1104(3)(b) (b) That reduces the actuarial value of the income interest in a trust to which a person transfers property with the intent to qualify for a gift tax exclusion.

701.1104(3)(c) (c) That changes the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets.

701.1104(3)(d) (d) From any amount that is permanently set aside for charitable purposes under a will or the terms of a trust and for which an estate tax or gift tax charitable deduction has been taken unless both income and principal are so set aside.

701.1104(3)(e) (e) If possessing or exercising the power to make an adjustment causes 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 trustee did not possess the power to make an adjustment.

701.1104(3)(f) (f) If possessing or exercising the power to make an adjustment causes all or part of the trust assets to be included for estate tax purposes in the estate of an individual and the assets would not be included in the estate of the individual if the trustee did not possess the power to make an adjustment.

701.1104(3)(g) (g) If the trustee is a beneficiary of the trust.

701.1104(3)(h) (h) If the trust has been converted under s. 701.1106 to a unitrust.

701.1104(3)(i) (i) If the trust is an express unitrust, as defined in s. 701.1107 (1).

701.1104(4) (4) If sub. (3) (e), (f), or (g) applies to a trustee and there is more than one trustee, a cotrustee to whom the provision does not apply may make the adjustment unless the terms of the trust do not permit the exercise of the power by that cotrustee.

701.1104(5) (5) A trustee may release the entire power conferred by sub. (1) or may release only the power to adjust from income to principal or the power to adjust from principal to income if the trustee is uncertain about whether possessing or exercising the power will cause a result described in sub. (3) (a) 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 sub. (3). The release may be permanent or for a specified period, including a period measured by the life of an individual.

701.1104(6) (6) Terms of a trust that limit the power of a trustee to make an adjustment between principal and income do not affect the application of this subsection unless it is clear from the terms of the trust that the terms are intended to deny the trustee the power of adjustment conferred by sub. (1).

701.1104 History History: 2013 a. 92 s. 218.

701.1105 701.1105 Notice to beneficiaries of proposed action.

701.1105(1) (1) A trustee may, but is not required to, obtain approval of a proposed action under s. 701.1104 (1) by providing a written notice that complies with all of the following:

701.1105(1)(a) (a) Is given at least 30 days before the proposed effective date of the proposed action.

701.1105(1)(b) (b) Is given in the manner provided in s. 701.0109.

701.1105(1)(c) (c) Is given to all qualified beneficiaries.

701.1105(1)(d) (d) States that it is given in accordance with this section and discloses the following information:

701.1105(1)(d)1. 1. The identification of the trustee.

701.1105(1)(d)2. 2. A description of the proposed action.

701.1105(1)(d)3. 3. The time within which a beneficiary may object to the proposed action, which shall be at least 30 days after the giving of the notice.

701.1105(1)(d)4. 4. The effective date of the proposed action if no objection is received from any beneficiary within the time specified in subd. 3.

701.1105(2) (2) If a trustee gives notice of a proposed action under this section, the trustee is not required to give notice to a qualified beneficiary who consents to the proposed action in writing at any time before or after the proposed action is taken.

701.1105(3) (3) A qualified beneficiary may object to the proposed action by giving a written objection to the trustee within the time specified in the notice under sub. (1) (d) 3.

701.1105(4) (4) A trustee may decide not to take a proposed action after the trustee receives a written objection to the proposed action or at any other time for any other reason. In that case, the trustee shall give written notice to the qualified beneficiaries of the decision not to take the proposed action.

701.1105(5) (5) If a trustee receives a written objection to a proposed action within the time specified in the notice under sub. (1) (d) 3., either the trustee or the qualified beneficiary making the written objection may petition the court to have the proposed action approved, modified, or prohibited. In the court proceeding, the qualified beneficiary objecting to the proposed action has the burden of proving that the proposed action should be modified or prohibited. A qualified beneficiary who did not make the written objection may oppose the proposed action in the court proceeding.

701.1105(6) (6) For purposes of this section, a proposed action under s. 701.1104 includes a course of action or a decision not to take action under s. 701.1104.

701.1105 History History: 2013 a. 92 ss. 219 to 223, 225 to 230; 2023 a. 127.

701.1106 701.1106 Conversion to unitrust.

701.1106(1) (1) Subject to sub. (4), a trust may be converted to a unitrust in any of the following ways:

701.1106(1)(a) (a) By the trustee, at his or her own discretion or at the request of a qualified beneficiary, if all of the following apply:

701.1106(1)(a)1. 1. The trustee determines that the conversion will enable the trustee to better carry out the purposes of the trust.

701.1106(1)(a)2. 2. The trustee provides notice in the same manner as provided in s. 701.1105 (1) of the trustee’s intention to convert the trust to a unitrust, and the notice advises how the unitrust will operate, including the fixed percentage under sub. (3) (a) and any other initial determinations under sub. (3) (d) that the trustee intends to follow.

701.1106(1)(a)3. 3. Every qualified beneficiary consents to the conversion to a unitrust in a writing delivered to the trustee.

701.1106(1)(a)4. 4. The terms of the trust describe the amount that may or must be distributed by referring to the trust income.

701.1106(1)(b) (b) By a court on the petition of the trustee or a qualified beneficiary, if all of the following apply:

701.1106(1)(b)1. 1. The trustee or qualified beneficiary has provided notice under s. 701.1105 of the intention to request the court to convert the trust to a unitrust, and the notice advises how the unitrust will operate, including the fixed percentage under sub. (3) (a) and any other initial determinations under sub. (3) (d) that will be requested.

701.1106(1)(b)2. 2. The court determines that the conversion to a unitrust will enable the trustee to better carry out the purposes of the trust.

701.1106(2) (2) In deciding whether to convert the trust to a unitrust under sub. (1) (a) and in determining the fixed percentage under sub. (3) (b) 1., the trustee shall consider all relevant factors under s. 701.1104 (2) (a) to (i).

701.1106(3) (3) 

701.1106(3)(a) (a) If a trust is converted to a unitrust under this section by the trustee or a court, notwithstanding s. 701.1103 (1) (a) and (d) and s. 701.1136 (4) the trustee shall make distributions in accordance with the trust instrument, except that any reference in the trust instrument to “income” means a fixed percentage of the net fair market value of the unitrust’s assets, whether such assets otherwise would be considered income or principal under this subchapter, averaged over a preceding period determined by the trustee, which is at least 3 years but not more than 5 years, or the period since the original trust was created, whichever is less.

701.1106(3)(b) (b)

701.1106(3)(b)1. 1. Subject to subd. 2., if the trust is converted to a unitrust under sub. (1) (a), the trustee shall determine the fixed percentage to be applied under par. (a), and the notice under sub. (1) (a) 2. must state the fixed percentage. If the trust is converted to a unitrust under sub. (1) (b), the court shall determine the fixed percentage to be applied under par. (a).

701.1106(3)(b)2. 2. Any fixed percentage under par. (a) that is determined by a trustee may not be less than 3 percent nor more than 5 percent.

701.1106(3)(c) (c) After a trust is converted to a unitrust, the trustee may, subject to the notice requirement under s. 701.1105 and with the consent of every qualified beneficiary, do any of the following:

701.1106(3)(c)1. 1. Convert the unitrust back to the original trust under the trust instrument.

701.1106(3)(c)2. 2. Change the fixed percentage under par. (a), subject to par. (b) 2.

701.1106(3)(d) (d) After a trust is converted to a unitrust, a trustee may determine or change any of the following:

701.1106(3)(d)1. 1. The frequency of distributions during the year.

701.1106(3)(d)2. 2. Standards for prorating a distribution for a short year in which a beneficiary’s right to payments commences or ceases.

701.1106(3)(d)3. 3. The effect on the valuation of the unitrust’s assets of other payments from, or contributions to, the unitrust.

701.1106(3)(d)4. 4. How, and how frequently, to value the unitrust’s assets.

701.1106(3)(d)5. 5. The valuation dates to use.

701.1106(3)(d)6. 6. Whether to omit from the calculation of the value of the unitrust’s assets unitrust property occupied by or in the possession of a beneficiary.

701.1106(3)(d)7. 7. The averaging under par. (a) to a different preceding period, which is at least 3 years but not more than 5 years.

701.1106(3)(d)8. 8. Any other matters necessary for the proper functioning of the unitrust.

701.1106(3)(e) (e) The trustee may not deduct from a unitrust distribution expenses that would be deducted from income if the trust were not a unitrust.

701.1106(3)(f) (f) Unless otherwise provided by the trust instrument, the unitrust distribution is considered to have been paid from the following sources in the order of priority:

701.1106(3)(f)1. 1. Net income, determined as if the trust were not a unitrust.

701.1106(3)(f)2. 2. Ordinary income for federal income tax purposes that is not net income under subd. 1.

701.1106(3)(f)3. 3. Net realized short-term capital gains for federal income tax purposes.

701.1106(3)(f)4. 4. Net realized long-term capital gain for federal income tax purposes.

701.1106(3)(f)5. 5. Principal.

701.1106(3)(g) (g) A court may, on the petition of the trustee or a qualified beneficiary, do any of the following:

701.1106(3)(g)1. 1. Change the fixed percentage that was determined under par. (b) by the trustee or by a prior court order.

701.1106(3)(g)2. 2. If necessary to preserve a tax benefit, provide for a distribution of net income, determined as if the trust were not a unitrust, that exceeds the unitrust distribution.

701.1106(3)(g)3. 3. Average the valuation of the unitrust’s assets over a period other than that specified in par. (a).

701.1106(3)(g)4. 4. Require the unitrust to be converted back to the original trust under the creating instrument.

701.1106(3)(h) (h) Conversion to a unitrust under this section does not affect a provision in the trust instrument that directs or authorizes the trustee to distribute principal or that authorizes a beneficiary to withdraw a portion or all of the principal.

701.1106(4) (4) 

701.1106(4)(a) (a) A trust may not be converted under this section to a unitrust if any of the following applies:

701.1106(4)(a)1. 1. The trust instrument specifically prohibits the conversion.

701.1106(4)(a)2. 2. 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.

701.1106(4)(a)3. 3. 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.

701.1106(4)(a)4. 4. 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.

701.1106(4)(a)5. 5. 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.

701.1106(4)(a)6. 6. 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.

701.1106(4)(a)7. 7. A trustee is a beneficiary of the trust.

701.1106(4)(b) (b) Notwithstanding par. (a), if a trust may not be converted to a unitrust solely because par. (a) 7. applies to a trustee, a cotrustee, if any, to whom par. (a) 7. does not apply may convert the trust to a unitrust under sub. (1) (a), unless prohibited by the creating instrument, or a court may convert the trust to a unitrust under sub. (1) (b) on the petition of a trustee or qualified beneficiary.