Chapter 701

701.1126(1)(d) (d) To principal to the extent that advance payments, bonuses, and other payments are not allocated under par. (a), (b), or (c).

701.1126(2) (2) In determining net receipts to be allocated under sub. (1), a trustee shall deduct and transfer to principal a reasonable amount for depletion.

701.1126(3) (3) This section applies whether or not a decedent or transferor was harvesting timber from the property before it became subject to the trust.

701.1126(4) (4) If a trust owns an interest in timberland on May 17, 2005, the trustee may allocate net receipts from the sale of timber and related products as provided in this section or in the manner used by the trustee before May 17, 2005. If the trust acquires an interest in timberland after May 17, 2005, the trustee shall allocate net receipts from the sale of timber and related products as provided in this section.

701.1126 History History: 2013 a. 92 ss. 184, 274.

701.1127 701.1127 Property not productive of income.

701.1127(1) (1) If a marital deduction is allowed for all or part of a trust whose assets consist substantially of property that does not provide the surviving spouse with sufficient income from or use of the trust assets, and if the amounts that the trustee transfers from principal to income under s. 701.1104 and distributes to the spouse from principal in accordance with the terms of the trust are insufficient to provide the spouse with the beneficial enjoyment required to obtain the marital deduction, the spouse may require the trustee to make property productive of income, convert property within a reasonable time, or exercise the power conferred by s. 701.1104 (1). The trustee may decide which action or combination of actions to take.

701.1127(2) (2) In cases not governed by sub. (1), proceeds from the sale or other disposition of an asset are principal without regard to the amount of income the asset produces during any accounting period.

701.1127 History History: 2013 a. 92 s. 275.

701.1128 701.1128 Derivatives and options.

701.1128(1) (1) In this section, “derivative” means a contract or financial instrument or a combination of contracts and financial instruments that gives a trust the right or obligation to participate in some or all changes in the price of a tangible or intangible asset or group of assets, or changes in a rate, an index of prices or rates, or another market indicator for an asset or a group of assets.

701.1128(2) (2) To the extent that a trustee does not account under s. 701.1117 for transactions in derivatives, the trustee shall allocate to principal receipts from and disbursements made in connection with those transactions.

701.1128(3) (3) If a trustee grants an option to buy property from the trust, whether or not the trust owns the property when the option is granted, grants an option that permits another person to sell property to the trust, or acquires an option to buy property for the trust or an option to sell an asset owned by the trust, and the trustee or other owner of the asset is required to deliver the asset if the option is exercised, an amount received for granting the option must be allocated to principal. An amount paid to acquire the option must be paid from principal. A gain or loss realized upon the exercise of an option, including an option granted to a settlor of the trust for services rendered, must be allocated to principal.

701.1128 History History: 2013 a. 92 s. 276.

701.1129 701.1129 Asset-backed securities.

701.1129(1) (1) In this section, “asset-backed security” means an asset whose value is based upon the right it gives the owner to receive distributions from the proceeds of financial assets that provide collateral for the security. The term includes an asset that gives the owner the right to receive from the collateral financial assets only the interest or other current return or only the proceeds other than interest or current return. The term does not include an asset to which s. 701.1115 or 701.1123 applies.

701.1129(2) (2) If a trust receives a payment from interest or other current return and from other proceeds of the collateral financial assets, the trustee shall allocate to income the portion of the payment that the payer identifies as being from interest or other current return and shall allocate the balance of the payment to principal.

701.1129(3) (3) If a trust receives one or more payments in exchange for the trust’s entire interest in an asset-backed security in one accounting period, the trustee shall allocate the payments to principal. If a payment is one of a series of payments that will result in the liquidation of the trust’s interest in the security over more than one accounting period, the trustee shall allocate 10 percent of the payment to income and the balance to principal.

701.1129 History History: 2013 a. 92 s. 277.

701.1130 701.1130 Disbursements from income. A trustee shall make the following disbursements from income to the extent that they are not disbursements specified in s. 701.1110 (2) (b) or (c):

701.1130(1) (1) One-half of the regular compensation of the trustee and of any person providing investment advisory or custodial services to the trustee.

701.1130(2) (2) One-half of all expenses for accountings, judicial proceedings, or other matters that involve both the income and remainder interests.

701.1130(3) (3) All of the other ordinary expenses incurred in connection with the administration, management, or preservation of trust property and the distribution of income, including interest, ordinary repairs, regularly recurring taxes assessed against principal, and expenses of a proceeding or other matter that concerns primarily the income interest.

701.1130(4) (4) Recurring premiums on insurance covering the loss of a principal asset or the loss of income from or use of the asset.

701.1130 History History: 2013 a. 92 s. 278.

701.1131 701.1131 Disbursements from principal.

701.1131(1) (1) A trustee shall make the following disbursements from principal:

701.1131(1)(a) (a) The remaining one-half of the disbursements described in s. 701.1130 (1) and (2).

701.1131(1)(b) (b) All of the trustee’s compensation calculated on principal as a fee for acceptance, distribution, or termination, and disbursements made to prepare property for sale.

701.1131(1)(c) (c) Payments on the principal of a trust debt.

701.1131(1)(d) (d) Expenses of a proceeding that concerns primarily principal, including a proceeding to construe the trust or to protect the trust or its property.

701.1131(1)(e) (e) Premiums paid on a policy of insurance not described in s. 701.1130 (4) of which the trust is the owner and beneficiary.

701.1131(1)(f) (f) Estate, inheritance, and other transfer taxes, including penalties, apportioned to the trust.

701.1131(1)(g) (g) Disbursements related to environmental matters, including reclamation, assessing environmental conditions, remedying and removing environmental contamination, monitoring remedial activities and the release of substances, preventing future releases of substances, collecting amounts from persons liable or potentially liable for the costs of those activities, penalties imposed under environmental law and other payments made to comply with environmental law, statutory or common law claims by 3rd parties, and defending claims based on environmental matters.

701.1131(2) (2) If a principal asset is encumbered with an obligation that requires income from that asset to be paid directly to the creditor, the trustee shall transfer from principal to income an amount equal to the income paid to the creditor in reduction of the principal balance of the obligation.

701.1131 History History: 2013 a. 92 s. 279.

701.1132 701.1132 Transfers from income to principal for depreciation.

701.1132(1) (1) In this section, “depreciation” means a reduction in value due to wear, tear, decay, corrosion, or gradual obsolescence of a fixed asset having a useful life of more than one year.

701.1132(2) (2) A trustee may transfer to principal a reasonable amount of the net cash receipts from a principal asset that is subject to depreciation, but may not transfer any amount for depreciation:

701.1132(2)(a) (a) Of that portion of real property used or available for use by a beneficiary as a residence or of tangible personal property held or made available for the personal use or enjoyment of a beneficiary.

701.1132(2)(b) (b) During the administration of a decedent’s estate.

701.1132(2)(c) (c) Under this section if the trustee is accounting under s. 701.1117 for the business or activity in which the asset is used.

701.1132(3) (3) An amount transferred to principal need not be held as a separate fund.

701.1132 History History: 2013 a. 92 s. 280.

701.1133 701.1133 Transfers from income to reimburse principal.

701.1133(1) (1) If a trustee makes or expects to make a principal disbursement described in this section, the trustee may transfer an appropriate amount from income to principal in one or more accounting periods to reimburse principal or to provide a reserve for future principal disbursements.

701.1133(2) (2) Principal disbursements to which sub. (1) applies include the following, but only to the extent that the trustee has not been and does not expect to be reimbursed by a 3rd party:

701.1133(2)(a) (a) An amount chargeable to income but paid from principal because it is unusually large, including extraordinary repairs.

701.1133(2)(b) (b) A capital improvement to a principal asset, whether in the form of changes to an existing asset or the construction of a new asset, including special assessments.

701.1133(2)(c) (c) Disbursements made to prepare property for rental, including tenant allowances, leasehold improvements, and brokers’ commissions.

701.1133(2)(d) (d) Periodic payments on an obligation secured by a principal asset to the extent that the amount transferred from income to principal for depreciation is less than the periodic payments.

701.1133(2)(e) (e) Disbursements described in s. 701.1131 (1) (g).

701.1133(3) (3) If the asset whose ownership gives rise to the disbursements becomes subject to a successive income interest after an income interest ends, a trustee may continue to transfer amounts from income to principal as provided in sub. (1).

701.1133 History History: 2013 a. 92 s. 281.

701.1134 701.1134 Income taxes.

701.1134(1) (1) A tax required to be paid by a trustee based on receipts allocated to income must be paid from income.

701.1134(2) (2) A tax required to be paid by a trustee based on receipts allocated to principal must be paid from principal, even if the tax is called an income tax by the taxing authority.

701.1134(3) (3) A tax required to be paid by a trustee on the trust’s share of an entity’s taxable income must be paid as follows:

701.1134(3)(a) (a) From income to the extent that receipts from the entity are allocated only to income.

701.1134(3)(b) (b) From principal to the extent that receipts from the entity are allocated only to principal.

701.1134(3)(c) (c) Proportionately from principal and income to the extent that receipts from the entity are allocated to both income and principal.

701.1134(3)(d) (d) From principal to the extent that the tax exceeds the total receipts from the entity.

701.1134(4) (4) After applying subs. (1) to (3), the trustee shall adjust income or principal receipts to the extent that the trust’s taxes are reduced because the trust receives a deduction for payments made to a beneficiary.

701.1134 History History: 2013 a. 92 ss. 185, 282 to 287.

701.1135 701.1135 Adjustments between principal and income because of taxes.

701.1135(1) (1) A fiduciary may make adjustments between principal and income to offset the shifting of economic interests or tax benefits between income beneficiaries and remainder beneficiaries which arise from:

701.1135(1)(a) (a) Elections and decisions, other than those described in sub. (2), that the fiduciary makes from time to time regarding tax matters.

701.1135(1)(b) (b) An income tax or any other tax that is imposed upon the fiduciary or a beneficiary as a result of a transaction involving or a distribution from the estate or trust.

701.1135(1)(c) (c) The ownership by an estate or trust of an interest in an entity whose taxable income, whether or not distributed, is includable in the taxable income of the estate or trust or of a beneficiary.

701.1135(2) (2) If the amount of an estate tax marital deduction or charitable contribution deduction is reduced because a fiduciary deducts an amount paid from principal for income tax purposes instead of deducting it for estate tax purposes, and as a result estate taxes paid from principal are increased and income taxes paid by an estate, trust, or beneficiary are decreased, each estate, trust, or beneficiary that benefits from the decrease in income tax shall reimburse the principal from which the increase in estate tax is paid. The total reimbursement must equal the increase in the estate tax to the extent that the principal used to pay the increase would have qualified for a marital deduction or charitable contribution deduction but for the payment. The proportionate share of the reimbursement for each estate, trust, or beneficiary whose income taxes are reduced must be the same as its proportionate share of the total decrease in income tax. An estate or trust shall reimburse principal from income.

701.1135 History History: 2013 a. 92 s. 290.

701.1136 701.1136 Income payments and accumulations.

701.1136(1) (1) Distribution of income. Except as otherwise determined by the trustee or a court under s. 701.1106 with respect to unitrust distributions, if a trust instrument fails to specify how frequently a current beneficiary is to receive income from the trust, the trustee shall distribute the income to which the current beneficiary is entitled at least annually.

701.1136(2) (2) Permitted accumulations. No provision directing or authorizing accumulation of income is invalid.

701.1136(3) (3) Charitable trust accumulations. A trust containing a direction or authorization to accumulate income from property devoted to a charitable purpose shall be subject to the general equitable supervision of the court with respect to any such accumulation of income, including its reasonableness, amount and duration.

701.1136(4) (4) Disposition of accumulated income. Income not required to be distributed by the trust instrument may, in the trustee’s discretion, be held in reserve for future distribution as income or be added to principal subject to retransfer to income of the dollar amount originally transferred to principal. At the termination of the income interest, any undistributed income shall be distributed as principal.

701.1136 History History: 2005 a. 10; 2013 a. 92 s. 292; Stats. 2013 s. 701.1136; 2023 a. 127.

subch. XII of ch. 701 SUBCHAPTER XII

MISCELLANEOUS PROVISIONS

701.1201 701.1201 Private foundations.

701.1201(1) (1) 

701.1201(1)(a) (a) In the administration of any trust that is a private foundation, as defined in section 509 of the Internal Revenue Code, a charitable trust, as described in section 4947 (a) (1) of the Internal Revenue Code, or a split-interest trust as described in section 4947 (a) (2) of the Internal Revenue Code, all of the following acts shall be prohibited:

701.1201(1)(a)1. 1. Engaging in any act of self-dealing, as defined in section 4941 (d) of the Internal Revenue Code, that would give rise to any liability for the tax imposed by section 4941 (a) of the Internal Revenue Code.

701.1201(1)(a)2. 2. Retaining any excess business holdings, as defined in section 4943 (c) of the Internal Revenue Code, that would give rise to any liability for the tax imposed by section 4943 (a) of the Internal Revenue Code.

701.1201(1)(a)3. 3. Making any investments that would jeopardize the carrying out of any of the exempt purposes of the trust, within the meaning of section 4944 of the Internal Revenue Code, so as to give rise to any liability for the tax imposed by section 4944 (a) of the Internal Revenue Code.

701.1201(1)(a)4. 4. Making any taxable expenditures, as defined in section 4945 (d) of the Internal Revenue Code, that would give rise to any liability for the tax imposed by section 4945 (a) of the Internal Revenue Code.

701.1201(1)(b) (b) This subsection does not apply either to those split-interest trusts or to amounts thereof that are not subject to the prohibitions applicable to private foundations by reason of the provisions of section 4947 of the Internal Revenue Code.

701.1201(2) (2) In the administration of any trust that is a private foundation, as defined in section 509 of the Internal Revenue Code, or that is a charitable trust, as described in section 4947 (a) (1) of the Internal Revenue Code, there shall be distributed, for the purposes specified in the trust instrument, for each taxable year, amounts at least sufficient to avoid liability for the tax imposed by section 4942 (a) of the Internal Revenue Code.

701.1201(3) (3) Subsections (1) and (2) do not apply to any trust to the extent that a court of competent jurisdiction determines that the application would be contrary to the terms of the trust and that the same may not properly be changed to conform to such subsections.