Chapter 701

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.

701.1112 History History: 2013 a. 92 s. 253.

701.1113 701.1113 Apportionment of receipts and disbursements when decedent dies or income interest begins.

701.1113(1) (1) A trustee shall allocate to principal an income receipt or disbursement other than one to which s. 701.1110 (1) applies if its due date occurs before a decedent dies in the case of an estate or before an income interest begins in the case of a trust or successive income interest.

701.1113(2) (2) A trustee shall allocate to income an income receipt or disbursement if its due date occurs on or after the date on which a decedent dies or an income interest begins and it is a periodic due date. An income receipt or disbursement must be treated as accruing from day to day if its due date is not periodic or it has no due date. The portion of the receipt or disbursement accruing before the date of death or an income interest begins must be allocated to principal and the balance must be allocated to income.

701.1113(3) (3) An item of income or an obligation is due on the date the payer is required to make a payment. If a payment date is not stated, there is no due date for the purposes of this section. Distributions to shareholders or other owners from an entity, as defined in s. 701.1115, are due on the date fixed by the entity for determining who is entitled to receive the distribution or, if no date is fixed, on the declaration date for the distribution. A due date is periodic for receipts or disbursements that must be paid at regular intervals under a lease or an obligation to pay interest or if an entity customarily makes distributions at regular intervals.

701.1113 History History: 2013 a. 92 s. 254.

701.1114 701.1114 Apportionment when income interest ends.

701.1114(1) (1) In this section, “undistributed income” means net income received before the date on which an income interest ends. “Undistributed income” does not include an item of income or expense that is due or accrued or net income that has been added or is required to be added to principal under the terms of the trust.

701.1114(2) (2) When a mandatory income interest ends, the trustee shall pay to a mandatory income beneficiary who survives that date, or to the estate of a deceased mandatory income beneficiary whose death causes the interest to end, the beneficiary’s share of the undistributed income that is not disposed of under the terms of the trust unless the beneficiary has an unqualified power to revoke more than 5 percent of the trust immediately before the income interest ends. In the latter case, the undistributed income from the portion of the trust that may be revoked must be added to principal.

701.1114(3) (3) When a trustee’s obligation to pay a fixed annuity or a fixed fraction of the value of the trust’s assets ends, the trustee shall prorate the final payment if and to the extent required by applicable law to accomplish a purpose of the trust or its settlor relating to income, gift, estate, or other tax requirements.

701.1114 History History: 2013 a. 92 s. 255; 2013 a. 151 s. 27.

701.1115 701.1115 Character of receipts.

701.1115(1) (1) In this section, “entity” means a corporation, partnership, limited liability company, regulated investment company, real estate investment trust, common trust fund, or any other organization in which a trustee has an interest other than a trust or estate to which s. 701.1116 applies, a business or activity to which s. 701.1117 applies, or an asset-backed security to which s. 701.1129 applies.

701.1115(2) (2) Except as otherwise provided in this section, a trustee shall allocate to income money received from an entity.

701.1115(3) (3) A trustee shall allocate the following receipts from an entity to principal:

701.1115(3)(a) (a) Property other than money.

701.1115(3)(b) (b) Money received in one distribution or a series of related distributions in exchange for part or all of a trust’s interest in the entity.

701.1115(3)(c) (c) Money received in total or partial liquidation of the entity.

701.1115(3)(d) (d) Money received from an entity that is a regulated investment company or a real estate investment trust if the money distributed is a capital gain dividend for federal income tax purposes.

701.1115(4) (4) Money is received in partial liquidation:

701.1115(4)(a) (a) To the extent that the entity, at or near the time of a distribution, indicates that it is a distribution in partial liquidation.

701.1115(4)(b) (b) If the total amount of money and property distributed in a distribution or series of related distributions is greater than 20 percent of the entity’s gross assets, as shown by the entity’s year-end financial statements immediately preceding the initial receipt.

701.1115(5) (5) Money is not received in partial liquidation, nor may it be taken into account under sub. (4) (b), to the extent that it does not exceed the amount of income tax that a trustee or beneficiary must pay on taxable income of the entity that distributes the money.

701.1115(6) (6) A trustee may rely upon a statement made by an entity about the source or character of a distribution if the statement is made at or near the time of distribution by the entity’s board of directors or other person or group of persons authorized to exercise powers to pay money or transfer property comparable to those of a corporation’s board of directors.

701.1115 History History: 2013 a. 92 s. 256.

701.1116 701.1116 Distribution from trust or estate. A trustee shall allocate to income an amount received as a distribution of income from a trust or an estate in which the trust has an interest other than a purchased interest, and shall allocate to principal an amount received as a distribution of principal from such a trust or estate. If a trustee purchases an interest in a trust that is an investment entity, or a decedent or donor transfers an interest in such a trust to a trustee, s. 701.1115 or 701.1129 applies to a receipt from the trust.

701.1116 History History: 2013 a. 92 s. 257.

701.1117 701.1117 Business and other activities conducted by trustee.

701.1117(1) (1) If a trustee who conducts a business or other activity determines that it is in the best interest of all the beneficiaries to account separately for the business or activity instead of accounting for it as part of the trust’s general accounting records, the trustee may maintain separate accounting records for its transactions, whether or not its assets are segregated from other trust assets.

701.1117(2) (2) A trustee who accounts separately for a business or other activity may determine the extent to which its net cash receipts must be retained for working capital, the acquisition or replacement of fixed assets, and other reasonably foreseeable needs of the business or activity and the extent to which the remaining net cash receipts are accounted for as principal or income in the trust’s general accounting records. If a trustee sells assets of the business or other activity, other than in the ordinary course of the business or activity, the trustee shall account for the net amount received as principal in the trust’s general accounting records to the extent the trustee determines that the amount received is no longer required in the conduct of the business.

701.1117(3) (3) Activities for which a trustee may maintain separate accounting records include:

701.1117(3)(a) (a) Retail, manufacturing, service, and other traditional business activities.

701.1117(3)(b) (b) Farming.

701.1117(3)(c) (c) Raising and selling livestock and other animals.

701.1117(3)(d) (d) Management of rental properties.

701.1117(3)(e) (e) Extraction of minerals and other natural resources.

701.1117(3)(f) (f) Timber operations.

701.1117(3)(g) (g) Activities to which s. 701.1128 applies.

701.1117 History History: 2013 a. 92 s. 258.

701.1118 701.1118 Principal receipts. A trustee shall allocate to principal:

701.1118(1) (1) To the extent not allocated to income under this subchapter, assets received from a transferor during the transferor’s lifetime, a decedent’s estate, a trust with a terminating income interest, or a payer under a contract naming the trust or its trustee as beneficiary.

701.1118(2) (2) Money or other property received from the sale, exchange, liquidation, or change in form of a principal asset, including realized profit, subject to ss. 701.1115 to 701.1129.

701.1118(3) (3) Amounts recovered from 3rd parties to reimburse the trust because of disbursements described in s. 701.1131 (1) (g) or for other reasons to the extent not based on the loss of income.

701.1118(4) (4) Proceeds of property taken by eminent domain, but a separate award made for the loss of income with respect to an accounting period during which a current income beneficiary had a mandatory income interest is income.

701.1118(5) (5) Net income received in an accounting period during which there is no beneficiary to whom a trustee may or must distribute income.

701.1118(6) (6) Other receipts as provided in ss. 701.1122 to 701.1129.

701.1118 History History: 2013 a. 92 s. 259.

701.1119 701.1119 Rental property. To the extent that a trustee accounts for receipts from rental property in accordance with this section, the trustee shall allocate to income an amount received as rent of real or personal property, including an amount received for cancellation or renewal of a lease. An amount received as a refundable deposit, including a security deposit or a deposit that is to be applied as rent for future periods, must be added to principal and held subject to the terms of the lease and is not available for distribution to a beneficiary until the trustee’s contractual obligations have been satisfied with respect to that amount.

701.1119 History History: 2013 a. 92 s. 260.

701.1120 701.1120 Obligation to pay money.

701.1120(1) (1) An amount received as interest, whether determined at a fixed, variable, or floating rate, on an obligation to pay money to the trustee, including an amount received as consideration for prepaying principal, must be allocated to income without any provision for amortization of premium.

701.1120(2) (2) A trustee shall allocate to principal an amount received from the sale, redemption, or other disposition of an obligation to pay money to the trustee more than one year after it is purchased or acquired by the trustee, including an obligation whose purchase price or value when it is acquired is less than its value at maturity. If the obligation matures within one year after the trustee purchases or acquires it, an amount received in excess of its purchase price or its value when the trust acquires it must be allocated to income.

701.1120(3) (3) This section does not apply to an obligation to which s. 701.1123, 701.1124, 701.1125, 701.1126, 701.1128, or 701.1129 applies.

701.1120 History History: 2013 a. 92 s. 261.

701.1121 701.1121 Insurance policies and similar contracts.

701.1121(1) (1) Except as provided in sub. (2), a trustee shall allocate to principal the proceeds of a life insurance policy or other contract in which the trust or its trustee is named as beneficiary, including a contract that insures the trust or its trustee against loss for damage to, destruction of, or loss of title to, a trust asset. The trustee shall allocate dividends on an insurance policy to income if the premiums on the policy are paid from income, and to principal if the premiums are paid from principal.

701.1121(2) (2) A trustee shall allocate to income proceeds of a contract that insures the trustee against loss of occupancy or other use by an income beneficiary, loss of income, or, subject to s. 701.1117, loss of profits from a business.

701.1121(3) (3) This section does not apply to a contract to which s. 701.1123 applies.

701.1121 History History: 2013 a. 92 s. 262.

701.1122 701.1122 Insubstantial allocations not required. If a trustee determines that an allocation between principal and income required by s. 701.1120 (2), 701.1123, 701.1124, 701.1125, 701.1126, or 701.1129 is insubstantial, the trustee may allocate the entire amount to principal unless one of the circumstances described in s. 701.1104 (3) applies to the allocation. This power may be exercised by a cotrustee in the circumstances described in s. 701.1104 (4) and may be released for the reasons and in the manner described in s. 701.1104 (5). An allocation is presumed to be insubstantial if:

701.1122(1) (1) The amount of the allocation would increase or decrease net income in an accounting period, as determined before the allocation, by less than 10 percent.

701.1122(2) (2) The value of the asset producing the receipt for which the allocation would be made is less than 10 percent of the total value of the trust’s assets at the beginning of the accounting period.

701.1122 History History: 2013 a. 92 s. 263.

701.1123 701.1123 Deferred compensation, annuities, and similar payments.

701.1123(1) (1) In this section:

701.1123(1)(a) (a) “Marital deduction trust” means a trust for which an election to qualify for a marital deduction under section 2056 (b) (7), 2056A (a) (3), or 2523 (f) of the Internal Revenue Code has been made or a trust that qualified for the marital deduction under other provisions of section 2056 or 2523 of the Internal Revenue Code.

701.1123(1)(b) (b) “Payment” means an amount of money or property received by a trustee that is any of the following:

701.1123(1)(b)1. 1. Part of a series, or eligible to be part of a series, of distributions payable over a fixed number of years or during the life of one or more individuals because of services rendered or property transferred to the payer in exchange for the future distributions.

701.1123(1)(b)2. 2. Distributed from a plan, regardless of the reason for the distribution.

701.1123(1)(c) (c) “Plan” means a contractual, custodial, trust, or other arrangement that provides for distributions to a trust. “Plan” includes a private or commercial annuity, an individual retirement account, a Roth individual retirement account, a qualified retirement plan such as a pension, profit-sharing, stock-bonus, or stock-ownership plan, or any nonqualified deferred compensation plan.

701.1123(1)(d) (d) “Plan income” means any of the following:

701.1123(1)(d)1. 1. With respect to payments received from a plan that maintains separate accounts for its participants or account holders, either the amount of the separate account held for the benefit of the trust that, if the separate account were a trust, would be allocated to income for that accounting period, or 4 percent of the value of the plan account on the first day of the accounting period. The trustee shall choose the method of determining “plan income” under this subdivision, and may change the method of determining “plan income” under this subdivision for any subsequent accounting period.

701.1123(1)(d)2. 2. With respect to payments received from a plan that does not maintain separate accounts for its participants or account holders, 4 percent of the total present value of the trust’s interest in the plan as of the first day of the accounting period, based on reasonable actuarial assumptions as determined by the trustee.

701.1123(1)(e) (e) “Separate account” means an account established or maintained under a plan under which income, gains, and losses, whether or not realized, from assets allocated to the account, are credited to or charged against the account without regard to other income, gains, or losses of the plan.

701.1123(2) (2) To the extent that a payment is characterized as interest, a dividend, or a payment made in lieu of interest or a dividend, a trustee shall allocate the payment to income. The trustee shall allocate to principal the balance of the payment and any other payment received in the same accounting period that is not characterized as interest, a dividend, or a payment in lieu of interest or a dividend.

701.1123(3) (3) For each accounting period of a trust in which the trust receives a payment but no part of any payment is allocated to income under sub. (2), the trustee shall allocate to income that portion of the aggregate value of all payments received by the trustee in that accounting period that is equal to the amount of plan income that is attributable to the trust’s interest in the plan from which payment is received for that accounting period. The trustee shall allocate the balance of any payments to principal.

701.1123(4) (4)