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760 ILCS 5/5.3

    (760 ILCS 5/5.3)
    Sec. 5.3. Total return trusts.
    (a) Conversion by trustee. A trustee may convert a trust to a total return trust as described in this Section if all of the following apply:
        (1) The trust describes the amount that may or must
    
be distributed to a beneficiary by referring to the trust's income, and the trustee determines that conversion to a total return trust will enable the trustee to better carry out the purposes of the trust and the conversion is in the best interests of the beneficiaries;
        (2) conversion to a total return trust means the
    
trustee will invest and manage trust assets seeking a total return without regard to whether that return is from income or appreciation of principal, and will make distributions in accordance with this Section (such a trust is called a "total return trust" in this Section);
        (3) the trustee sends a written notice of the
    
trustee's decision to convert the trust to a total return trust, specifying a prospective effective date for the conversion and including a copy of this Section, to the following beneficiaries, determined as of the date the notice is sent and assuming nonexercise of all powers of appointment:
            (A) all of the legally competent beneficiaries
        
who are currently receiving or eligible to receive income from the trust; and
            (B) all of the legally competent beneficiaries
        
who would receive or be eligible to receive a distribution of principal or income if the current interests of beneficiaries currently receiving or eligible to receive income ended;
        (4) there are one or more legally competent income
    
beneficiaries under subdivision (3)(A) of this subsection (a) and one or more legally competent remainder beneficiaries under subdivision (3)(B) of this subsection (a), determined as of the date of sending the notice;
        (5) no beneficiary objects to the conversion to a
    
total return trust in a writing delivered to the trustee within 60 days after the notice is sent; and
        (6) the trustee has signed acknowledgments of receipt
    
confirming that notice was received by each beneficiary required to be sent notice under subdivision (3) of this subsection (a).
    (b) Conversion by agreement. Conversion to a total return trust may be made by agreement between a trustee and all primary beneficiaries, acting either individually or by their respective representatives in accordance with Section 16.1 of this Act. The agreement may include any actions a court could properly order under subsection (g) of this Section; however, any distribution percentage determined by the agreement may not be less than 3% nor greater than 5%.
    (c) Conversion or reconversion by court.
        (1) The trustee may for any reason elect to petition
    
the court to order conversion to a total return trust, including without limitation the reason that conversion under subsection (a) is unavailable because:
            (A) a beneficiary timely objects to the
        
conversion to a total return trust;
            (B) there are no legally competent beneficiaries
        
described in subdivision (3)(A) of subsection (a); or
            (C) there are no legally competent beneficiaries
        
described in subdivision (3)(B) of subsection (a).
        (2) A beneficiary may request the trustee to convert
    
to a total return trust or adjust the distribution percentage. If the trustee declines or fails to act within 6 months after receiving a written request to do so, the beneficiary may petition the court to order the conversion or adjustment.
        (3) The trustee may petition the court prospectively
    
to reconvert from a total return trust or adjust the distribution percentage if the trustee determines that the reconversion or adjustment will enable the trustee to better carry out the purposes of the trust. A beneficiary may request the trustee to petition the court prospectively to reconvert from a total return trust or adjust the distribution percentage. If the trustee declines or fails to act within 6 months after receiving a written request to do so, the beneficiary may petition the court to order the reconversion or adjustment.
        (4) In a judicial proceeding under this subsection
    
(c), the trustee may, but need not, present the trustee's opinions and reasons (A) for supporting or opposing conversion to (or reconversion from or adjustment of the distribution percentage of) a total return trust, including whether the trustee believes conversion (or reconversion or adjustment of the distribution percentage) would enable the trustee to better carry out the purposes of the trust, and (B) about any other matters relevant to the proposed conversion (or reconversion or adjustment of the distribution percentage). A trustee's actions in accordance with this subsection (c) shall not be deemed improper or inconsistent with the trustee's duty of impartiality unless the court finds from all the evidence that the trustee acted in bad faith.
        (5) The court shall order conversion to (or
    
reconversion prospectively from or adjustment of the distribution percentage of) a total return trust if the court determines that the conversion (or reconversion or adjustment of the distribution percentage) will enable the trustee to better carry out the purposes of the trust and the conversion (or reconversion or adjustment of the distribution percentage) is in the best interests of the beneficiaries.
        (6) Notwithstanding any other provision of this
    
Section, a trustee has no duty to inform beneficiaries about the availability of this Section and has no duty to review the trust to determine whether any action should be taken under this Section unless requested to do so in writing by a beneficiary described in subdivision (3) of subsection (a).
    (d) Post conversion. While a trust is a total return trust, all of the following shall apply to the trust:
        (1) the trustee shall make income distributions in
    
accordance with the governing instrument subject to the provisions of this Section;
        (2) the term "income" in the governing instrument
    
means an annual amount (the "distribution amount") equal to a percentage (the "distribution percentage") of the net fair market value of the trust's assets, whether the assets are considered income or principal under the Principal and Income Act, averaged over the lesser of:
            (i) the 3 preceding years; or
            (ii) the period during which the trust has been
        
in existence;
        (3) the distribution percentage for any trust
    
converted to a total return trust by a trustee in accordance with subsection (a) shall be 4%;
        (4) the trustee shall pay to a beneficiary (in the
    
case of an underpayment) and shall recover from a beneficiary (in the case of an overpayment) an amount equal to the difference between the amount properly payable and the amount actually paid, plus interest compounded annually at a rate per annum equal to the distribution percentage in the year or years while the underpayment or overpayment exists; and
        (5) a change in the method of determining a
    
reasonable current return by converting to a total return trust in accordance with this Section and substituting the distribution amount for net trust accounting income is a proper change in the definition of trust income notwithstanding any contrary provision of the Principal and Income Act, and the distribution amount shall be deemed a reasonable current return that fairly apportions the total return of a total return trust.
    (e) Administration. The trustee, in the trustee's discretion, may determine any of the following matters in administering a total return trust as the trustee from time to time determines necessary or helpful for the proper functioning of the trust:
        (1) the effective date of a conversion to a total
    
return trust;
        (2) the manner of prorating the distribution amount
    
for a short year in which a beneficiary's interest commences or ceases;
        (3) whether distributions are made in cash or in kind;
        (4) the manner of adjusting valuations and
    
calculations of the distribution amount to account for other payments from or contributions to the trust;
        (5) whether to value the trust's assets annually or
    
more frequently;
        (6) what valuation dates and how many valuation dates
    
to use;
        (7) valuation decisions about any asset for which
    
there is no readily available market value, including:
            (A) how frequently to value such an asset;
            (B) whether and how often to engage a
        
professional appraiser to value such an asset; and
            (C) whether to exclude the value of such an asset
        
from the net fair market value of the trust's assets under subdivision (d)(2) for purposes of determining the distribution amount. Any such asset so excluded is referred to as an "excluded asset" in this subsection (e), and the trustee shall distribute any net income received from the excluded asset as provided for in the governing instrument, subject to the following principles:
                (i) unless the trustee determines there are
            
compelling reasons to the contrary considering all relevant factors including the best interests of the beneficiaries, the trustee shall treat each asset for which there is no readily available market value as an excluded asset;
                (ii) if tangible personal property or real
            
property is possessed or occupied by a beneficiary, the trustee shall not limit or restrict any right of the beneficiary to use the property in accordance with the governing instrument whether or not the trustee treats the property as an excluded asset;
                (iii) examples of assets for which there is a
            
readily available market value include: cash and cash equivalents; stocks, bonds, and other securities and instruments for which there is an established market on a stock exchange, in an over-the-counter market, or otherwise; and any other property that can reasonably be expected to be sold within one week of the decision to sell without extraordinary efforts by the seller;
                (iv) examples of assets for which there is no
            
readily available market value include: stocks, bonds, and other securities and instruments for which there is no established market on a stock exchange, in an over-the-counter market, or otherwise; real property; tangible personal property; and artwork and other collectibles; and
        (8) any other administrative matters as the trustee
    
determines necessary or helpful for the proper functioning of the total return trust.
    (f) Allocations.
        (1) Expenses, taxes, and other charges that would be
    
deducted from income if the trust were not a total return trust shall not be deducted from the distribution amount.
        (2) Unless otherwise provided by the governing
    
instrument, the trustee shall fund the distribution amount each year from the following sources for that year in the order listed: first from net income (as the term would be determined if the trust were not a total return trust), then from other ordinary income as determined for federal income tax purposes, then from net realized short-term capital gains as determined for federal income tax purposes, then from net realized long-term capital gains as determined for federal income tax purposes, then from trust principal comprised of assets for which there is a readily available market value, and then from other trust principal.
    (g) Court orders. The court may order any of the following actions in a proceeding brought by a trustee or a beneficiary in accordance with subdivision (c)(1), (c)(2), or (c)(3):
        (1) select a distribution percentage other than 4%;
        (2) average the valuation of the trust's net assets
    
over a period other than 3 years;
        (3) reconvert prospectively from or adjust the
    
distribution percentage of a total return trust;
        (4) direct the distribution of net income (determined
    
as if the trust were not a total return trust) in excess of the distribution amount as to any or all trust assets if the distribution is necessary to preserve a tax benefit; or
        (5) change or direct any administrative procedure as
    
the court determines necessary or helpful for the proper functioning of the total return trust.
    Nothing in this subsection (g) limits the equitable powers of the court to grant other relief.
    (h) Restrictions. Conversion to a total return trust does not affect any provision in the governing instrument:
        (1) directing or authorizing the trustee to
    
distribute principal;
        (2) directing or authorizing the trustee to
    
distribute a fixed annuity or a fixed fraction of the value of trust assets;
        (3) authorizing a beneficiary to withdraw a portion
    
or all of the principal; or
        (4) in any manner that would diminish an amount
    
permanently set aside for charitable purposes under the governing instrument unless both income and principal are so set aside.
    (i) Tax limitations. If a particular trustee is a beneficiary of the trust and conversion or failure to convert would enhance or diminish the beneficial interest of the trustee, or if possession or exercise of the conversion power by a particular trustee would alone cause any individual to be treated as owner of a part of the trust for income tax purposes or cause a part of the trust to be included in the gross estate of any individual for estate tax purposes, then that particular trustee may not participate as a trustee in the exercise of the conversion power; however:
        (1) the trustee may petition the court under
    
subdivision (c)(1) to order conversion in accordance with this Section; and
        (2) if the trustee has one or more co-trustees to
    
whom this subsection (i) does not apply, the co-trustee or co-trustees may convert the trust to a total return trust in accordance with this Section.
    (j) Releases. A trustee may irrevocably release the power granted by this Section if the trustee reasonably believes the release is in the best interests of the trust and its beneficiaries. The release may be personal to the releasing trustee or may apply generally to some or all subsequent trustees, and the release may be for any specified period, including a period measured by the life of an individual.
    (k) Remedies. A trustee who reasonably and in good faith takes or omits to take any action under this Section is not liable to any person interested in the trust. If a trustee reasonably and in good faith takes or omits to take any action under this Section and a person interested in the trust opposes the act or omission, the person's exclusive remedy is to obtain an order of the court directing the trustee to convert the trust to a total return trust, to reconvert from a total return trust, to change the distribution percentage, or to order any administrative procedures the court determines necessary or helpful for the proper functioning of the trust. An act or omission by a trustee under this Section is presumed taken or omitted reasonably and in good faith unless it is determined by the court to have been an abuse of discretion. Any claim by any person interested in the trust that an act or omission by a trustee under this Section was an abuse of discretion is barred if not asserted in a proceeding commenced by or on behalf of the person within 2 years after the trustee has sent to the person or the person's personal representative a notice or report in writing sufficiently disclosing facts fundamental to the claim such that the person knew or reasonably should have known of the claim. The preceding sentence shall not apply to a person who was under a legal disability at the time the notice or report was sent and who then had no personal representative. For purposes of this subsection (k), a personal representative refers to a court appointed guardian or conservator of the estate of a person.
    (l) Application. This Section is available to trusts in existence on the effective date of this amendatory Act of the 92nd General Assembly or created after that date. This Section shall be construed as pertaining to the administration of a trust and shall be available to any trust that is administered in Illinois or that is governed by Illinois law with respect to the meaning and effect of its terms unless:
        (1) the trust is a trust described in Internal
    
Revenue Code Section 642(c)(5), 664(d), 2702(a)(3), or 2702(b); or
        (2) the governing instrument expressly prohibits use
    
of this Section by specific reference to this Section. A provision in the governing instrument in the form: "Neither the provisions of Section 5.3 of the Trusts and Trustees Act nor any corresponding provision of future law may be used in the administration of this trust" or a similar provision demonstrating that intent is sufficient to preclude the use of this Section.
    (m) Application to express trusts.
        (1) This subsection (m) does not apply to a
    
charitable remainder unitrust as defined by Section 664(d), Internal Revenue Code of 1986 (26 U.S.C. Section 664), as amended.
        (2) In this subsection (m):
            (A) "Unitrust" means a trust the terms of which
        
require distribution of a unitrust amount, without regard to whether the trust has been converted to a total return trust in accordance with this Section or whether the trust is established by express terms of the governing instrument.
            (B) "Unitrust amount" means an amount equal to a
        
percentage of a trust's assets that may or must be distributed to one or more beneficiaries annually in accordance with the terms of the trust. The unitrust amount may be determined by reference to the net fair market value of the trust's assets as of a particular date or as an average determined on a multiple year basis.
        (3) A unitrust changes the definition of income by
    
substituting the unitrust amount for net trust accounting income as the method of determining current return and shall be given effect notwithstanding any contrary provision of the Principal and Income Act. By way of example and not limitation, a unitrust amount determined by a percentage of not less than 3% nor greater than 5% is conclusively presumed a reasonable current return that fairly apportions the total return of a unitrust.
        (4) The allocations provision of subdivision (2) of
    
subsection (f) of Section 5.3 applies to a unitrust except to the extent its governing instrument expressly provides otherwise.
(Source: P.A. 98-946, eff. 1-1-15.)