Chapter 701

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.

701.1106(5) (5) A trustee may release the power conferred by sub. (1) (a) if the trustee is uncertain about whether possessing or exercising the power will cause a result described in sub. (4) (a) 2. to 6. 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. (4) (a). The release may be permanent or for a specified period, including a period measured by the life of an individual.

701.1106(6) (6) Sections 701.0410 to 701.0418 [Sections 701.0410 to 701.0417] do not apply to a conversion of a trust to a unitrust under this section.

701.1106 Note NOTE: The correct cross-reference is shown in brackets. Section 701.0418 was repealed by 2023 Wis. Act 127. Corrective legislation is pending.

701.1106 History History: 2013 a. 92 ss. 181, 231 to 235, 237 to 242.

701.1107 701.1107 Express unitrusts.

701.1107(1) (1) In this section, “express unitrust” means any trust that by its trust 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.

701.1107(2) (2) The following apply to an express unitrust:

701.1107(2)(a) (a) To the extent not otherwise provided for in the trust 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.

701.1107(2)(b) (b) 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.

701.1107(2)(c) (c) 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.

701.1107(2)(d) (d) 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.

701.1107(2)(e) (e) The trust 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.

701.1107(2)(f) (f) 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:

701.1107(2)(f)1. 1. Net income determined as if the trust were not a unitrust.

701.1107(2)(f)2. 2. Ordinary income for federal income tax purposes that is not net income under subd. 1.

701.1107(2)(f)3. 3. Net realized short-term capital gains for federal income tax purposes.

701.1107(2)(f)4. 4. Net realized long-term capital gains for federal income tax purposes.

701.1107(2)(f)5. 5. Principal.

701.1107(2)(g) (g) The trust instrument 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.

701.1107(2)(h) (h) In the absence of contrary provisions in the trust instrument of an express unitrust, the provisions of s. 701.1106 (3) (a), (d), and (e) apply.

701.1107 History History: 2013 a. 92 s. 243.

701.1108 701.1108 Power to treat capital gains as part of a distribution. Unless prohibited by the will or trust instrument, a fiduciary may cause gains from the sale or exchange of estate or trust property, 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 s. 701.1104, of a unitrust distribution, of a fixed annuity distribution, or of a principal distribution to a beneficiary.

701.1108 History History: 2013 a. 92 s. 244.

701.1109 701.1109 Judicial review of discretionary power.

701.1109(1) (1) Nothing in this subchapter creates a duty to make an adjustment under s. 701.1104 or to convert a trust to a unitrust under s. 701.1106. 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 s. 701.1104 or 701.1106.

701.1109(2) (2) An action taken under s. 701.1104 or 701.1106 is not an abuse of a fiduciary’s discretion if the fiduciary gave written notice of the proposed action under s. 701.1105 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 s. 701.1104 or to convert under s. 701.1106.

701.1109(3) (3) 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.

701.1109(4) (4) 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:

701.1109(4)(a) (a) 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.

701.1109(4)(b) (b) 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.

701.1109(4)(c) (c) To the extent that the court is unable, after applying pars. (a) and (b), 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.

701.1109(5) (5) 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.

701.1109 History History: 2013 a. 92 ss. 245 to 250.

701.1110 701.1110 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:

701.1110(1) (1) 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 ss. 701.1112 to 701.1135 that apply to trustees and the rules in sub. (5). The fiduciary shall distribute the net income and net principal receipts to the beneficiary who is to receive the specific property.

701.1110(2) (2) A fiduciary shall determine the remaining net income of a decedent’s estate or a terminating income interest under the rules in ss. 701.1112 to 701.1135 that apply to trustees and by:

701.1110(2)(a) (a) Including in net income all income from property used to discharge liabilities.

701.1110(2)(b) (b) 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.

701.1110(2)(c) (c) 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.

701.1110(3) (3) A fiduciary shall distribute to a beneficiary, including a trustee, who receives a pecuniary amount not determined by a pecuniary formula related to a transfer tax 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 subsection shall be distributed from net income determined under sub. (2) or from principal to the extent that net income is insufficient. For purposes of this subsection, the deferred marital property elective share amount elected by a surviving spouse under s. 861.02 (1) is a bequest of a pecuniary amount not determined by a pecuniary formula related to a transfer tax.

701.1110(4) (4) A fiduciary shall distribute the net income remaining after distributions required under subs. (1) to (3) in the manner described in s. 701.1111 to all other beneficiaries, including a beneficiary who receives a pecuniary amount determined by a pecuniary formula related to a transfer tax.

701.1110(5) (5) A fiduciary may not reduce principal or income receipts from property described in sub. (1) because of a payment described in s. 701.1130 or 701.1131 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.

701.1110 History History: 2013 a. 92 s. 251.

701.1111 701.1111 Distribution to residuary and remainder beneficiaries.

701.1111(1) (1) Each beneficiary described in s. 701.1110 (4) 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 section 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.

701.1111(2) (2) In determining a beneficiary’s share of net income, the following rules apply:

701.1111(2)(a) (a) 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.

701.1111(2)(b) (b) 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.

701.1111(2)(c) (c) 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.

701.1111(2)(d) (d) The distribution date for purposes of this section 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.

701.1111(3) (3) 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.

701.1111(4) (4) A trustee may apply the rules in this section, 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 section applies to the income from the asset.

701.1111 History History: 2013 a. 92 s. 252

701.1112 701.1112 When right to income begins and ends.

701.1112(1) (1) 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.

701.1112(2) (2) An asset becomes subject to a trust:

701.1112(2)(a) (a) 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.

701.1112(2)(b) (b) 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.

701.1112(2)(c) (c) 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.

701.1112(3) (3) An asset becomes subject to a successive income interest on the day after the preceding income interest ends, as determined under sub. (4), even if there is an intervening period of administration to wind up the preceding income interest.

701.1112(4) (4) 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.