760 ILCS 5/ Trusts and Trustees Act.

(760 ILCS 5/1) (from Ch. 17, par. 1651)

Sec. 1. Title. This Act shall be known and may be cited as the Trusts and Trustees Act.

(Source: P.A. 78-625.)

(760 ILCS 5/2) (from Ch. 17, par. 1652)

Sec. 2. Definitions. As used in this Act:

(1) "Trust" means a trust created by will, deed, agreement, declaration or other written instrument;

(2) "Trustee" means the trustee or any successor or added trustee of the trust, whether appointed by or pursuant to the instrument creating the trust, by order of court or otherwise, and includes an individual and a corporation qualified to administer trusts in this State under "An Act to provide for and regulate the administration of trusts by trust companies", approved June 15, 1887, as amended, or under "An Act authorizing foreign corporations, including banks, and national banking associations domiciled in other states, to act in a fiduciary capacity in this State upon certain conditions herein set forth", approved July 13, 1953, as amended.

(Source: P.A. 78-625.)

(760 ILCS 5/3) (from Ch. 17, par. 1653)

Sec. 3. Applicability.

(1) A person establishing a trust may specify in the instrument the rights, powers, duties, limitations and immunities applicable to the trustee, beneficiary and others and those provisions where not otherwise contrary to law shall control, notwithstanding this Act. The provisions of this Act apply to the trust to the extent that they are not inconsistent with the provisions of the instrument.

(2) This Act applies to every trust created by will, deed, agreement, declaration or other instrument, except that the provisions of Sections 4.01 through 4.08, Sections 4.10 through 4.12, and Sections 4.14 through 4.24 apply only to trusts executed on or after October 1, 1973 and, with respect to Section 17, to an order entered on or after that date, and provided further that the provisions of this Act do not apply to any: (a) land trust; (b) voting trust; (c) security instrument such as a trust deed or mortgage; (d) liquidation trust; (e) escrow; (f) instrument under which a nominee, custodian for property or paying or receiving agent is appointed; or (g) a trust created by a deposit arrangement in a banking or savings institution, commonly known as a "Totten trust" unless in the governing instrument any of the provisions of this Act are made applicable by specific reference.

(3) This Act does not apply to the Grain Indemnity Trust Account or any other trust created under the Grain Code.

(Source: P.A. 91-357, eff. 7-29-99.)

(760 ILCS 5/4) (from Ch. 17, par. 1654)

Sec. 4. Powers of Trustee. The trustee has the powers specified in the Sections following this Section and preceding Section 5.

(Source: P.A. 95-605, eff. 6-1-08.)

(760 ILCS 5/4.01) (from Ch. 17, par. 1655)

Sec. 4.01. To sell, contract to sell and grant options to purchase any part or all of the trust estate at public or private sale, for cash or on credit, and to exchange any part or all of the trust estate for other property.

(Source: P.A. 86-1475.)

(760 ILCS 5/4.02) (from Ch. 17, par. 1656)

Sec. 4.02. To enter into leases for any period of time, though extending beyond the termination of the trust.

(Source: P.A. 86-1475.)

(760 ILCS 5/4.03) (from Ch. 17, par. 1657)

Sec. 4.03. To borrow money and to mortgage, pledge or otherwise encumber any part or all of the trust estate.

(Source: P.A. 86-1475.)

(760 ILCS 5/4.04) (from Ch. 17, par. 1658)

Sec. 4.04. To grant easements, subdivide, improve, give consents and enter into contracts relating to real estate or its use and to dedicate any interest in real estate.

(Source: P.A. 86-1475.)

(760 ILCS 5/4.05) (from Ch. 17, par. 1659)

Sec. 4.05. To designate or appoint a trustee to act in any other jurisdiction as sole trustee or co-trustee of any part or all of the trust estate located in such other jurisdiction; to confer upon the appointed trustee any or all of the rights, powers and duties of the appointing trustee; and to remove the appointed trustee.

(Source: P.A. 86-1475.)

(760 ILCS 5/4.06) (from Ch. 17, par. 1660)

Sec. 4.06. To enter into agreements for bank or other deposit accounts, safe deposit boxes, custodian, agency or depositary arrangements for all or any part of the trust estate, including agreements for such services provided by a bank operated by or affiliated with the trustee, and to pay reasonable compensation for those services, including compensation to the bank operated by or affiliated with the trustee, except that nothing in this Section shall be construed as removing any depositary arrangements from the requirements of the prudent person rule.

(Source: P.A. 85-1211; 86-1475.)

(760 ILCS 5/4.07) (from Ch. 17, par. 1661)

Sec. 4.07. (a) To exercise all the rights and powers of an individual owner with respect to shares of stock, bonds or other securities in the trust estate, including, but not by way of limitation, voting, giving proxies, participating in voting trusts, mergers, consolidations, foreclosures, reorganizations or liquidations, and exercising or selling subscription or conversion rights;

(b) If the provisions of the trust instrument direct that the trust estate be invested in obligations issued or guaranteed by the United States or any instrumentality or agency thereof, the trustee, if he does not make such investment directly, may invest the trust estate in interests in any open-end or closed-end management type investment company or investment trust registered under the Investment Company Act of 1940, as from time to time amended, provided that the portfolio of such investment company or investment trust is limited to obligations of the United States hereinabove described and to agreements to repurchase such obligations, which agreements, with respect to principal and interest, are at least 100% collateralized by such obligations marked to market on a daily basis, if the investment company or investment trust takes delivery of such obligations either directly or through an independent custodian designated in accordance with the Investment Company Act of 1940, as from time to time amended. Nothing in this subsection (b) shall be construed as removing any such investment from the requirements of the prudent man rule.

(Source: P.A. 84-541.)

(760 ILCS 5/4.08) (from Ch. 17, par. 1662)

Sec. 4.08. To pay taxes and reasonable expenses incurred in administering the trust estate.

(Source: P.A. 86-1475.)

(760 ILCS 5/4.09) (from Ch. 17, par. 1663)

Sec. 4.09. To appoint attorneys, auditors, financial advisers and other agents and to pay reasonable compensation to such appointees. If the trustee uses reasonable care, skill, and caution in the selection of the agent, the trustee may rely upon the advice or recommendation of the agent without further investigation and, except as may otherwise be provided in subsection (b) of Section 5.1 with respect to investment agents, shall have no responsibility for actions taken or omitted upon the advice or recommendation of the agent.

(Source: P.A. 89-344, eff. 1-1-96.)

(760 ILCS 5/4.10) (from Ch. 17, par. 1664)

Sec. 4.10. To delegate to a co-trustee for any period of time any or all of the trustee's rights, powers and duties.

(Source: P.A. 86-1475.)

(760 ILCS 5/4.11) (from Ch. 17, par. 1665)

Sec. 4.11. To compromise, contest, prosecute or abandon claims or other charges in favor of or against the trust estate.

(Source: P.A. 86-1475.)

(760 ILCS 5/4.12) (from Ch. 17, par. 1666)

Sec. 4.12. To execute contracts, notes, conveyances and other instruments, whether or not containing covenants and warranties binding upon and creating a charge against the trust estate or excluding personal liability.

(Source: P.A. 86-1475.)

(760 ILCS 5/4.13) (from Ch. 17, par. 1667)

Sec. 4.13. Reception of additional trust property. To receive and administer additional property as part of the trust estate or as a separate trust having terms identical to the terms of the existing trust. The provisions of this amendatory Act of 1993 apply to all trusts created and actions taken before, on, or after the effective date of this amendatory Act of 1993.

(Source: P.A. 88-367.)

(760 ILCS 5/4.14) (from Ch. 17, par. 1668)

Sec. 4.14. To invest in or hold undivided interests in property.

(Source: P.A. 86-1475.)

(760 ILCS 5/4.15) (from Ch. 17, par. 1669)

Sec. 4.15. To deal with the executor, trustee or other representative of any other trust or estate in which a beneficiary of the trust estate has an interest, notwithstanding the fact that the trustee is an executor, trustee or other representative of the other trust or estate.

(Source: P.A. 86-1475.)

(760 ILCS 5/4.16) (from Ch. 17, par. 1670)

Sec. 4.16. To make equitable division or distribution in cash or in kind, or both, and for that purpose to value any property divided or distributed in kind.

(Source: P.A. 86-1475.)

(760 ILCS 5/4.17) (from Ch. 17, par. 1671)

Sec. 4.17. To rely upon an affidavit, certificate, letter or other evidence reasonably believed to be genuine and on the basis of any such evidence to make any payment or distribution in good faith without liability.

(Source: P.A. 86-1475.)

(760 ILCS 5/4.18) (from Ch. 17, par. 1672)

Sec. 4.18. To have all of the rights, powers and duties given to or imposed upon the trustee by law and the provisions of the trust instrument during the period between the termination of the trust and the distribution thereof and during any period in which any litigation is pending which may void or invalidate the trust in whole or in part or affect the rights, powers, duties or discretions of the trustee except as otherwise directed by the court.

(Source: P.A. 86-1475.)

(760 ILCS 5/4.19) (from Ch. 17, par. 1673)

Sec. 4.19. To purchase and keep in force insurance of an appropriate nature and form and in a reasonable amount for the protection of the trust estate or the ownership thereof.

(Source: P.A. 86-1475.)

(760 ILCS 5/4.20) (from Ch. 17, par. 1674)

Sec. 4.20. To distribute income and amounts of principal in such one or more of the following ways as the trustee believes to be for the best interests of any beneficiary who at the time of distribution is under legal disability or in the opinion of the trustee is unable properly to manage his affairs because of illness, physical or mental disability or any other cause:

(a) directly to the beneficiary;

(b) to a duly appointed guardian of the beneficiary;

(c) to a custodian for the beneficiary under the Uniform Transfers to Minors Act;

(d) to an adult relative of the beneficiary;

(e) by expending the money or using the property directly for the benefit of the beneficiary; and the trustee is not required to see to the application of any distribution so made; and

(f) to a trust, created prior to the time the distribution becomes payable, for the sole benefit of the beneficiary and those dependent upon the beneficiary during his or her lifetime, to be administered as a part thereof, except that any amounts distributed to the trust pursuant to this paragraph (f) shall be separately accounted for by the trustee of the trust and shall be indefeasibly vested in the beneficiary so that if the beneficiary dies prior to complete distribution of such amounts, the amounts and the accretions, earnings, and income thereon, if any, shall be paid to the beneficiary's estate; provided, however, that this paragraph (f) shall not apply to the extent that it would cause a trust otherwise qualifying for the federal estate tax marital deduction not to so qualify.

(Source: P.A. 93-695, eff. 7-9-04.)

(760 ILCS 5/4.21) (from Ch. 17, par. 1674.1)

Sec. 4.21. To plant and harvest crops; to breed, raise, purchase and sell livestock; to lease land, equipment or livestock for cash or on shares, to purchase and sell, exchange or otherwise acquire or dispose of farm equipment and farm produce of all kinds; to make improvements, construct, repair, or demolish and remove any buildings, structures or fences, to engage agents, managers and employees and delegate powers to them; to engage in drainage and conservation programs; to terrace, clear, ditch and drain lands and install irrigation systems; to replace improvements and equipment; to fertilize and improve the soil; to engage in the growing, improvement, and sale of trees and other forest crops; to participate or decline to participate in governmental agricultural or land programs; and to perform such acts as the trustee deems appropriate, using such methods as are commonly employed by other farm owners in the community in which the farm property is located.

(Source: P.A. 82-354.)

(760 ILCS 5/4.22) (from Ch. 17, par. 1674.2)

Sec. 4.22. To drill, mine and otherwise operate for the development of oil, gas and other minerals; to enter into contracts relating to the installation and operation of absorption and repressuring plants; to enter into unitization or pooling agreements for any purpose including primary, secondary or tertiary recovery; to place and maintain pipe lines; to execute oil, gas and mineral leases, division and transfer orders, grants, deeds, releases and assignments and other instruments; to participate in a cooperative coal marketing association or similar entity; and to perform such other acts as the trustee deems appropriate, using such methods as are commonly employed by owners of such interests in the community in which the interests are located.

(Source: P.A. 82-354.)

(760 ILCS 5/4.23) (from Ch. 17, par. 1674.3)

Sec. 4.23. To continue an unincorporated business and participate in its management by having the trustee or one or more agents of the trustee act as a manager with appropriate compensation from the business and to incorporate the business.

(Source: P.A. 82-354.)

(760 ILCS 5/4.24) (from Ch. 17, par. 1674.4)

Sec. 4.24. To continue a business in the partnership form and participate in its management by having the trustee or one or more agents of the trustee act as a partner, limited partner or employee with appropriate compensation from the business; to enter into new partnership agreements; and to incorporate the business; and with respect to the foregoing activities, the trustee or the agent or agents of the trustee shall not be personally liable to third persons with respect to actions, not sounding in tort, unless he fails to identify the trust estate and reveal that he is acting in a representative capacity. Provided, however, that nothing in this Section shall impair in any way the liability of the trust estate with respect to the foregoing activities to the extent of the assets of the trust estate.

(Source: P.A. 84-518; 84-621.)

(760 ILCS 5/4.25)

Sec. 4.25. Severance and consolidation. To sever any trust estate on a fractional basis into 2 or more separate trusts for any reason; to segregate by allocation to a separate account or trust a specific amount or gift made from any trust to reflect a partial disclaimer, to reflect or result in differences in federal tax attributes, to satisfy any federal tax requirement or election, or to reduce potential generation-skipping transfer tax liability, in a manner consistent with the rules governing disclaimers, such federal tax attributes, such requirements or elections, or any applicable tax rules or regulations, and income earned on a segregated amount or gift after segregation occurs shall pass to the designated take of such amount or gift; and to consolidate 2 or more trusts having substantially similar terms into a single trust. In managing, investing, administering, and distributing the trust property of any separate account or trust and in making applicable tax elections, the trustee may consider the differences in federal tax attributes and all other factors the trustee believes pertinent and may make disproportionate distributions from the separate trusts created. A separate account or trust created by severance or segregation shall be treated as a separate trust for all purposes from and after the date on which the severance or segregation is effective, and shall be held on terms and conditions that are substantially equivalent to the terms of the trust from which it was severed or segregated so that the aggregate interests of each beneficiary in the several trusts are substantially equivalent to the beneficiary's interests in the trust before severance, provided, however, that any terms of the trust before severance that would affect qualification of the trust for any federal tax deduction, exclusion, election, exemption, or other special federal tax status must remain identical in each of the separate trusts created. The provisions of this amendatory Act of 1993 apply to all trusts created, and actions taken before, on, or after the effective date of this amendatory Act of 1993.

(Source: P.A. 88-367.)

(760 ILCS 5/4.26)

Sec. 4.26. Small trust termination. To terminate the trust and distribute the trust estate, including principal and accrued and undistributed income, if the trustee determines, in the trustee's sole discretion with the consent of the recipients, that the market value of a trust is less than $100,000 and that the costs of continuing the trust will substantially impair accomplishment of the purpose of the trust.

Distribution shall be made to the persons then entitled to receive or eligible to have the benefit of the income from the trust in the proportions in which they are entitled thereto, or if their interests are indefinite, to those persons per stirpes if they have a common ancestor, or if not, then in equal shares. The trustee shall give notice to the persons at least 30 days prior to the effective date of the termination.

If a particular trustee is an income beneficiary of the trust or is legally obligated to an income beneficiary, then that particular trustee may not participate as a trustee in the exercise of this termination power; provided, however, that if the trust has one or more co-trustees who are not so disqualified from participating, the co-trustee or co-trustees may exercise this power.

This Section shall not apply to the extent that it would cause a trust otherwise qualifying for a federal or State tax benefit or other benefit not to so qualify, nor shall it apply to trusts for domestic or pet animals.

The provisions of this amendatory Act of the 95th General Assembly apply to all trusts created before, on, or after its effective date.

(Source: P.A. 95-605, eff. 6-1-08.)

(760 ILCS 5/5) (from Ch. 17, par. 1675)

Sec. 5. Investments.

(a) Prudent Investor Rule. A trustee administering a trust has a duty to invest and manage the trust assets as follows:

(1) The trustee has a duty to invest and manage trust assets as a prudent investor would considering the purposes, terms, distribution requirements, and other circumstances of the trust. This standard requires the exercise of reasonable care, skill, and caution and is to be applied to investments not in isolation, but in the context of the trust portfolio as a whole and as a part of an overall investment strategy that should incorporate risk and return objectives reasonably suitable to the trust.

(2) No specific investment or course of action is, taken alone, prudent or imprudent. The trustee may invest in every kind of property and type of investment, subject to this Section. The trustee's investment decisions and actions are to be judged in terms of the trustee's reasonable business judgment regarding the anticipated effect on the trust portfolio as a whole under the facts and circumstances prevailing at the time of the decision or action. The prudent investor rule is a test of conduct and not of resulting performance.

(3) The trustee has a duty to diversify the investments of the trust unless, under the circumstances, the trustee reasonably believes it is in the interests of the beneficiaries and furthers the purposes of the trust not to diversify.

(4) The trustee has a duty, within a reasonable time after the acceptance of the trusteeship, to review trust assets and to make and implement decisions concerning the retention and disposition of original pre-existing investments in order to conform to the provisions of this Section. The trustee's decision to retain or dispose of an asset may properly be influenced by the asset's special relationship or value to the purposes of the trust or to some or all of the beneficiaries, consistent with the trustee's duty of impartiality.

(5) The trustee has a duty to pursue an investment strategy that considers both the reasonable production of income and safety of capital, consistent with the trustee's duty of impartiality and the purposes of the trust. Whether investments are underproductive or overproductive of income shall be judged by the portfolio as a whole and not as to any particular asset.

(6) The circumstances that the trustee may consider in making investment decisions include, without limitation, the general economic conditions, the possible effect of inflation, the expected tax consequences of investment decisions or strategies, the role each investment or course of action plays within the overall portfolio, the expected total return (including both income yield and appreciation of capital), and the duty to incur only reasonable and appropriate costs. The trustee may but need not consider related trusts and the assets of beneficiaries when making investment decisions.

(b) The provisions of this Section may be expanded, restricted, eliminated, or otherwise altered by express provisions of the trust instrument. The trustee is not liable to a beneficiary for the trustee's reasonable and good faith reliance on those express provisions.

(c) Nothing in this Section abrogates or restricts the power of an appropriate court in proper cases (i) to direct or permit the trustee to deviate from the terms of the trust instrument or (ii) to direct or permit the trustee to take, or to restrain the trustee from taking, any action regarding the making or retention of investments.

(d) The following terms or comparable language in the investment powers and related provisions of a trust instrument, unless otherwise limited or modified by that instrument, shall be construed as authorizing any investment or strategy permitted under this Section: "investments permissible by law for investment of trust funds", "legal investments", "authorized investments", "using the judgment and care under the circumstances then prevailing that men of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to the speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital", "prudent man rule", and "prudent person rule".

(e) On and after the effective date of this amendatory Act of 1991, this Section applies to all existing and future trusts, but only as to actions or inactions occurring after that effective date.

(Source: P.A. 87-715.)

(760 ILCS 5/5.1) (from Ch. 17, par. 1675.1)

Sec. 5.1. Duty not to delegate.

(a) The trustee has a duty not to delegate to others the performance of any acts involving the exercise of judgment and discretion, except acts constituting investment functions that a prudent investor of comparable skills might delegate under the circumstances. The trustee may delegate those investment functions to an investment agent as provided in subsection (b).

(b) For a trustee to properly delegate investment functions under subsection (a), all of the following requirements apply:

(1) The trustee must exercise reasonable care, skill, and caution in selecting the investment agent, in establishing the scope and specific terms of any delegation, and in periodically reviewing the agent's actions in order to monitor overall performance and compliance with the scope and specific terms of the delegation.

(2) The trustee must conduct an inquiry into the experience, performance history, professional licensing or registration, if any, and financial stability of the investment agent.

(3) The investment agent shall be subject to the jurisdiction of the courts of the State of Illinois.

(4) The investment agent shall be subject to the same standards that are applicable to the trustee.

(5) The investment agent shall be liable to the beneficiaries of the trust and to the designated trustee to the same extent as if the investment agent were a designated trustee in relation to the exercise or nonexercise of the investment function.

(6) The trustee shall send written notice of its intention to begin delegating investment functions under this Section to the beneficiaries eligible to receive income from the trust on the date of initial delegation at least 30 days before the delegation. This notice shall thereafter, until or unless the beneficiaries eligible to receive income from the trust at the time are notified to the contrary, authorize the trustee to delegate investment functions pursuant to this Section.

(c) If all requirements of subsection (b) are satisfied, the trustee shall not otherwise be responsible for the investment decisions or actions of the investment agent to which the investment functions are delegated.

(d) On and after July 1, 1992, this Section applies to all existing and future trusts, but only as to actions or inactions occurring after that date.

(Source: P.A. 87-715; 87-895.)

(760 ILCS 5/5.2) (from Ch. 17, par. 1675.2)

Sec. 5.2. Investments in mutual funds. A trustee, including a trustee of a common trust fund, may invest and reinvest the trust estate in interests in any open-end or closed-end management type investment company or unit investment trust registered under the Investment Company Act of 1940 or any investment fund exempt from registration under the Investment Company Act of 1940, any of these investment companies, unit investment trusts, or investment funds being a "mutual fund" for purposes of this Section, or may retain, sell, or exchange those interests, provided that the portfolio of the mutual fund, as an entity, is appropriate under the provisions of this Act. A trustee shall not be prohibited from investing, reinvesting, retaining, or exchanging any interests held by the trust estate in any mutual fund for which the trustee or an affiliate acts as advisor or manager or in any other role solely on the basis that the trustee (or its affiliate) provides services to the mutual fund and receives reasonable remuneration for those services. Neither a trustee nor its affiliate shall be required to reduce or waive its compensation for services provided in connection with the investment, management, and administration of the trust estate because the trustee invests, reinvests, or retains the trust estate in a mutual fund, so long as the total compensation paid by the trust estate as trustee's fees and mutual fund fees, including any advisory or management fees, in connection with the investment of a trust estate in a mutual fund is reasonable; provided, however, that a trustee may receive Rule 12b-1 fees equal to the amount of those fees that would be paid to any other party.

(Source: P.A. 90-297, eff. 8-1-97.)

(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 (i) all primary beneficiaries, either individually or by their respective representatives in accordance with subsection 16.1(a)(2) of this Act, or (ii) all beneficiaries currently eligible to receive income or principal from the trust and all beneficiaries who are presumptive remaindermen, either individually or by their respective representatives in accordance with subsection 16.1(a)(3) 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 under Illinois law 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. 96-479, eff. 1-1-10.)

(760 ILCS 5/5.5)

Sec. 5.5. Gift to a deceased beneficiary under an inter vivos trust. Unless the settlor expressly provides otherwise in his or her trust:

(1) if a gift of a present or future interest is to a descendant of the settlor who dies before or after the settlor, the descendants of the deceased beneficiary living when the gift is to take effect in possession or enjoyment take per stirpes the gift so bequeathed;

(2) if a gift of a present or future interest is to a class and any member of the class dies before or after the settlor, the members of the class living when the gift is to take effect in possession or enjoyment take the share or shares that the deceased member would have taken if he or she were then living, except that, if the deceased member of the class is a descendant of the settlor, the descendants of the deceased member then living shall take per stirpes the share or shares that the deceased member would have taken if he or she were then living; and

(3) except as above provided in items (1) and (2), if the gift is not to a descendant of the settlor or is not to a class as provided in items (1) and (2) and if the beneficiary dies either before or after the settlor and before the gift is to take effect in possession or enjoyment, then the gift shall lapse. If the gift lapses by reason of the death of the beneficiary before the gift is to take possession or enjoyment, then the gift so given shall be included in and pass as part of the residue of the trust under the trust. If the gift is or becomes part of the residue, the gift so bequeathed shall pass to and be taken by the beneficiaries remaining, if any, of the residue in proportions and upon trusts corresponding to their respective interests in the residue of the trust.

The provisions of items (1) and (2) do not apply to a future interest that is or becomes indefeasibly vested at the settlor's death or at any time thereafter before it takes effect in possession or enjoyment.

The provisions of this Section apply on and after January 1, 2005 for any gifts to a deceased beneficiary under an inter vivos trust where the deceased beneficiary dies after January 1, 2005 and before the gift is to take effect in possession or enjoyment.

(Source: P.A. 93-991, eff. 8-23-04.)

(760 ILCS 5/6) (from Ch. 17, par. 1676)

Sec. 6. Nominee Registration. The trustee may cause stocks, bonds, and other property, real or personal, belonging to the trust to be registered and held in the name of a nominee without mention of the trust in any instrument or record constituting or evidencing title thereto. The trustee shall be liable for the acts of the nominee with respect to any investment so registered. The records of the trustee shall show at all times the ownership of the investment by the trustee, and the stocks, bonds and other similar investments shall be in the possession and control of the trustee and be kept separate and apart from assets which are the individual property of the trustee.

(Source: P.A. 78-625.)

(760 ILCS 5/7) (from Ch. 17, par. 1677)

Sec. 7. Compensation. The trustee shall be reimbursed for all proper expenses incurred in the management and protection of the trust and shall be entitled to reasonable compensation for services rendered.

(Source: P.A. 78-625.)

(760 ILCS 5/8) (from Ch. 17, par. 1678)

Sec. 8. Relation with Third Persons. Anyone dealing with the trustee is not obliged to inquire as to the trustee's powers or to see to the application of any money or property delivered to the trustee and may assume that the trust is in full force and effect, that the trustee is authorized to act and that his act is in accordance with the provisions of the trust instrument.

(Source: P.A. 78-625.)

(760 ILCS 5/9) (from Ch. 17, par. 1679)

Sec. 9. Custody of Assets. If a corporation is acting as co-trustee with one or more individuals, the corporate trustee shall have custody of the trust estate, unless all the trustees otherwise agree.

(Source: P.A. 78-625.)

(760 ILCS 5/10) (from Ch. 17, par. 1680)

Sec. 10. Majority of Trustees to Act. If there are 3 or more trustees of a trust, a majority of the trustees are competent to act in all cases after prior written notice to, or written waiver of notice by, each other trustee, but a dissenting trustee has no liability for the acts of the majority.

(Source: P.A. 78-625.)

(760 ILCS 5/11) (from Ch. 17, par. 1681)

Sec. 11. Accounts.

(a) Every trustee at least annually shall furnish to the beneficiaries then entitled to receive or receiving the income from the trust estate, or if none, then those beneficiaries eligible to have the benefit of the income from the trust estate a current account showing the receipts, disbursements and inventory of the trust estate. A current account shall be binding on the beneficiaries receiving the account and on such beneficiaries' heirs and assigns unless an action against the trustee is instituted by the beneficiary or such beneficiary's heirs and assigns within 3 years from the date the current account is furnished.

(b) Every trustee shall on termination of the trust furnish to the beneficiaries then entitled to distribution of the trust estate a final account for the period from the date of the last current account to the date of distribution showing the inventory of the trust estate, the receipts, disbursements and distributions and shall make available to such beneficiaries copies of prior accounts not theretofore furnished. Such final accounting shall be binding on the beneficiaries receiving the same and all persons claiming by or through them, unless an action against the trustee is instituted by the beneficiary or person claiming by or through him or her within 3 years from the date the final account is furnished.

(c) With respect to trust estates which terminated and were distributed 10 years or less prior to January 1, 1988, the final account furnished to the beneficiaries entitled to distribution of the trust estate shall be binding on the beneficiaries receiving the same and all persons claiming by or through them, unless an action against the trustee is instituted by the beneficiary or person claiming by or through him or her within 5 years from January 1, 1988 or within 10 years from the date the final account was furnished, whichever is longer.

(d) With respect to trust estates which terminated and were distributed more than 10 years prior to January 1, 1988, the final account furnished to the beneficiaries entitled to distribution of the trust estate shall be binding on the beneficiaries receiving the same and all persons claiming by or through them, unless an action against the trustee is instituted by the beneficiary or person claiming by or through him or her within 2 years from January 1, 1988.

(e) If a beneficiary is under a legal disability, the account shall be provided to the representative of the estate of the beneficiary and shall be binding on the beneficiary and the beneficiary's estate unless an action against the trustee is instituted by the representative within 3 years from the date the account is furnished. If no representative for the estate of a beneficiary under legal disability has been appointed, the account shall be provided to a spouse, parent, adult child, or guardian of the person of the beneficiary and shall be binding on the beneficiary unless an action is instituted against the trustee by the spouse, parent, adult child, or guardian of the person to whom the account is furnished within 3 years from the date it is furnished.

(f) If the trustee is guilty of fraudulent concealment, notwithstanding subsection (a), (b), (c), (d) or (e), the beneficiary may bring the action within the time limit set forth in Section 13-215 of the Code of Civil Procedure.

(g) Receipt of an account by a beneficiary (or other person, as provided) is presumed if the trustee has procedures in place requiring the mailing or delivery of an account to the beneficiary (or other person, as provided). This presumption shall apply to the mailing or delivery of an account by electronic means or the provision of access to an account by electronic means so long as the beneficiary has agreed to receive such electronic delivery or access.

(Source: P.A. 92-222, eff. 8-2-01.)

(760 ILCS 5/12) (from Ch. 17, par. 1682)

Sec. 12. Resignation. A trustee may resign at any time by written notice of the resignation to the settlor, if living, to a co-trustee, if any, and to the beneficiaries then entitled to receive or eligible to have the benefit of the income from the trust estate.

(Source: P.A. 78-625.)

(760 ILCS 5/13) (from Ch. 17, par. 1683)

Sec. 13. Vacancy - Successor Trustee. In the event of the death, resignation, refusal or inability to act of any trustee:

(1) the remaining trustee, if any, shall continue to act, with all the rights, powers and duties, of all of the trustees; or

(2) if there is no remaining trustee, a successor trustee may be appointed by a majority in interest of the beneficiaries then entitled to receive the income from the trust estate or, if the interests of the income beneficiaries are indefinite, by a majority in number of the beneficiaries then eligible to have the benefit of the income of the trust estate, by an instrument in writing delivered to the successor, who shall become a successor trustee upon written acceptance of the appointment, but no beneficiary who is appointed as a successor trustee shall have any discretion to determine the propriety or amount of any distribution of income or principal to himself or to any person to whom he is legally obligated.

(Source: P.A. 78-625.)

(760 ILCS 5/14) (from Ch. 17, par. 1684)

Sec. 14. Powers and Duties of Successor - Liability for Acts of Predecessor - Approval of Accounts. (1) A successor trustee shall have all the rights, powers and duties, which are granted to or imposed on the predecessor. (2) A successor trustee shall be under no duty to inquire into the acts or doings of a predecessor trustee, and is not liable for any act or failure to act of a predecessor trustee. (3) With the approval of a majority in interest of the beneficiaries then entitled to receive or eligible to have the benefit of the income from the trust, a successor trustee may accept the account rendered and the property received as a full and complete discharge to the predecessor trustee without incurring any liability for so doing.

(Source: P.A. 78-625.)

(760 ILCS 5/15) (from Ch. 17, par. 1685)

Sec. 15. Minor or disabled person-Authority of Representative. The representative of the estate of a beneficiary under legal disability or a spouse, parent, adult child, or guardian of the person of a beneficiary for whose estate no representative has been appointed, may act for the beneficiary in receiving and approving any account of the trustee appointing a successor trustee and executing any receipt and receiving any notice from the trustee.

(Source: P.A. 82-354.)

(760 ILCS 5/15.1) (from Ch. 17, par. 1685.1)

Sec. 15.1. Trust for disabled beneficiary. A discretionary trust for the benefit of an individual who has a disability that substantially impairs the individual's ability to provide for his or her own care or custody and constitutes a substantial handicap shall not be liable to pay or reimburse the State or any public agency for financial aid or services to the individual except to the extent the trust was created by the individual or trust property has been distributed directly to or is otherwise under the control of the individual, provided that such exception shall not apply to a trust created with the disabled individual's own property or property within his or her control if the trust complies with Medicaid reimbursement requirements of federal law. Notwithstanding any other provisions to the contrary, a trust created with the disabled individual's own property or property within his or her control shall be liable, after reimbursement of Medicaid expenditures, to the State for reimbursement of any other service charges outstanding at the death of the disabled individual. Property, goods and services purchased or owned by a trust for and used or consumed by a disabled beneficiary shall not be considered trust property distributed to or under the control of the beneficiary. A discretionary trust is one in which the trustee has discretionary power to determine distributions to be made under the trust.

(Source: P.A. 89-205, eff. 1-1-96.)

(760 ILCS 5/15.2)

Sec. 15.2. Trusts for domestic or pet animals.

(a) A trust for the care of one or more designated domestic or pet animals is valid. The trust terminates when no living animal is covered by the trust. A governing instrument shall be liberally construed to bring the transfer within this Section, to presume against a merely precatory or honorary nature of its disposition, and to carry out the general intent of the transferor. Extrinsic evidence is admissible in determining the transferor's intent.

(b) A trust for the care of one or more designated domestic or pet animals is subject to the following provisions:

(1) Except as expressly provided otherwise in the instrument creating the trust, no portion of the principal or income of the trust may be converted to the use of the trustee or to a use other than for the trust's purposes or for the benefit of a covered animal.

(2) Upon termination, the trustee shall transfer the unexpended trust property in the following order:

(A) as directed in the trust instrument;

(B) if there is no such direction in the trust instrument and if the trust was created in a non-residuary clause in the transferor's will, then under the residuary clause in the transferor's will; or

(C) if no taker is produced by the application of subparagraph (A) or (B), then to the transferor's heirs, determined according to Section 2-1 of the Probate Act of 1975.

(3) The intended use of the principal or income may be enforced by an individual designated for that purpose in the trust instrument or, if none, by an individual appointed by a court having jurisdiction of the matter and parties, upon petition to it by an individual.

(4) Except as ordered by the court or required by the trust instrument, no filing, report, registration, periodic accounting, separate maintenance of funds, appointment, or fee is required by reason of the existence of the fiduciary relationship of the trustee.

(5) The court may reduce the amount of the property transferred if it determines that the amount substantially exceeds the amount required for the intended use. The amount of the reduction, if any, passes as unexpended trust property under paragraph (2).

(6) If a trustee is not designated or no designated trustee is willing and able to serve, the court shall name a trustee. The court may order the transfer of the property to another trustee if the transfer is necessary to ensure that the intended use is carried out, and if a successor trustee is not designated in the trust instrument or if no designated successor trustee agrees to serve and is able to serve. The court may also make other orders and determinations as are advisable to carry out the intent of the transferor and the purpose of this Section.

(7) The trust is exempt from the operation of the common law rule against perpetuities.

(Source: P.A. 93-668, eff. 1-1-05.)

(760 ILCS 5/16.1)

Sec. 16.1. Virtual representation.

(a) Representation by person having substantially identical interest; contingent remainder beneficiaries.

(1) To the extent there is no conflict of interest between the representative and the person represented, a minor, disabled, or unborn person, or a person whose identity or location is unknown and not reasonably ascertainable, may be represented by and bound by another individual having a substantially identical interest with respect to the particular question or dispute; provided, however, that such person is not otherwise represented by a court appointed guardian as provided in the next sentence. If a person is represented by a court appointed guardian of the estate or, if none, by a court appointed guardian of the person, the actions of such guardian shall represent and bind that person for purposes of this subsection (a)(1).

(2) If all primary beneficiaries of a trust either are adults and not disabled, or have representatives in accordance with subsection (a)(1) who are adults and not disabled, the actions of such primary beneficiaries, or their respective representatives, shall represent and bind all other persons who have a successor, contingent, future, or other interest in the trust and who would become primary beneficiaries only by reason of surviving a primary beneficiary.

For purposes of this Section, "primary beneficiary" means a beneficiary who is either: (i) currently eligible to receive income or principal from the trust or (ii) assuming nonexercise of all powers of appointment, will be eligible to receive a distribution of principal from the trust if the beneficiary survives to the final date of distribution with respect to the beneficiary's share.

(3) If all presumptive remainder beneficiaries either are adults and not disabled, or have representatives in accordance with subsection (a)(1) who are adults and not disabled, the actions of such presumptive remainder beneficiaries, or their respective representatives, shall represent and bind all other beneficiaries who have a successor, contingent, or other future interest in the trust. For purposes of this Section, "presumptive remainder beneficiaries" means, as of the date of determination and assuming nonexercise of all powers of appointment, all beneficiaries who either (A) would be eligible to receive a distribution of income or principal if the trust terminated on that date, or (B) would be eligible to receive a distribution of income or principal if the interests of all beneficiaries currently eligible to receive income or principal from the trust ended without causing the trust to terminate.

(4) The consent of a person who may represent and bind another person in accordance with this Section is binding on the person represented, and notice to a person who may represent and bind another person in accordance with this Section has the same effect as if notice were given directly to the other person.

(b) Total return trusts. This Section shall apply to enable conversion to a total return trust by agreement in accordance with subsection 5.3(b) of the total return trust provisions of Section 5.3 of this Act, whether such agreement is made between the trustee and (A) all primary beneficiaries, either individually or by their respective representatives in accordance with subsection (a)(1), or (B) all beneficiaries currently eligible to receive income or principal from the trust and all beneficiaries who are presumptive remaindermen of the trust, in each case either individually or by their respective representatives in accordance with subsection (a)(1).

(c) Representation of charity. If a trust provides a beneficial interest or expectancy for one or more charities or charitable purposes that are not specifically named or otherwise represented (the "charitable interest"), the Illinois Attorney General may, in accordance with this Section, represent, bind, and act on behalf of the charitable interest with respect to any particular question or dispute, including without limitation representing the charitable interest in a nonjudicial settlement agreement or in an agreement to convert a trust to a total return trust in accordance with subsection 5.3(b) of the total return trust provisions of Section 5.3 of this Act. This subsection (c) shall be construed as being declarative of existing law and not as a new enactment. Notwithstanding any other provision, nothing in this Section shall be construed to limit or affect the Illinois Attorney General's authority to file an action or take other steps as he or she deems advisable at any time to enforce or protect the general public interest as to a trust that provides a beneficial interest or expectancy for one or more charities or charitable purposes whether or not a specific charity is named in the trust.

(d) Nonjudicial settlement agreements.

(1) For purposes of this Section, "interested persons" means the trustee and all other persons and parties in interest whose consent or joinder would be required in order to achieve a binding settlement were the settlement to be approved by the court.

(2) Except as otherwise provided in subsection (d)(3), interested persons, or their respective representatives determined after giving effect to the preceding provisions of this Section, may enter into a binding nonjudicial settlement agreement with respect to any matter involving a trust.

(3) A nonjudicial settlement agreement is valid only to the extent its terms and conditions could be properly approved under applicable law by a court of competent jurisdiction.

(4) Matters that may be resolved by a nonjudicial settlement agreement include but are not limited to:

(A) interpretation or construction of the terms of the trust;

(B) approval of a trustee's report or accounting;

(C) exercise or nonexercise of any power by a trustee;

(D) the grant to a trustee of any necessary or desirable administrative power;

(E) questions relating to property or an interest in property held by the trust;

(F) resignation or appointment of a trustee;

(G) determination of a trustee's compensation;

(H) transfer of a trust's principal place of administration;

(I) liability or indemnification of a trustee for an action relating to the trust;

(J) resolution of disputes or issues related to administration, investment, distribution or other matters;

(K) modification of terms of the trust pertaining to administration of the trust; and

(L) termination of the trust, provided that court approval of such termination must be obtained in accordance with subsection (d)(5), and the court must conclude continuance of the trust is not necessary to achieve any material purpose of the trust; upon such termination the court may order the trust property distributed as agreed by the parties to the agreement or otherwise as the court determines equitable consistent with the purposes of the trust.

(5) Any interested person may request the court to approve any part or all of a nonjudicial settlement agreement, including whether any representation is adequate and without conflict of interest, provided that the petition for such approval must be filed before or within 60 days after the effective date of the agreement.

(6) An agreement entered into in accordance with this Section shall be final and binding on the trustee and all beneficiaries of the trust, both current and future, as if ordered by a court with competent jurisdiction over all parties in interest.

(7) In the trustee's sole discretion, the trustee may, but is not required to, obtain and rely upon opinion of counsel on any matter relevant to this Section, including that any agreement proposed to be made in accordance with this Section could be properly approved by the court under applicable law, or that there is no conflict of interest between a representative and the person represented or among those being represented with respect to a particular question or dispute.

(e) Application. On and after its effective date, this Section applies to all existing and future trusts, judicial proceedings, or agreements entered into in accordance with this Section on or after the effective date.

(Source: P.A. 96-479, eff. 1-1-10.)

(760 ILCS 5/16.2)

Sec. 16.2. Lapse of power to withdraw. A beneficiary of a trust may not be considered to be a settlor or to have made a transfer to the trust merely because of a lapse, release, or waiver of his or her power of withdrawal to the extent that the value of the affected property does not exceed the greatest of the amounts specified in Sections 2041(b)(2), 2514(e), and 2503(b) of the Internal Revenue Code.

(Source: P.A. 96-980, eff. 7-2-10.)

(760 ILCS 5/16.3)

Sec. 16.3. Directed trusts.

(a) Definitions. In this Section:

(1) "Directing party" means any investment trust advisor, distribution trust advisor, or trust protector as provided in this Section.

(2) "Distribution trust advisor" means any one or more persons given authority by the governing instrument to direct, consent to, veto, or otherwise exercise all or any portion of the distribution powers and discretions of the trust, including but not limited to authority to make discretionary distribution of income or principal.

(3) "Excluded fiduciary" means any fiduciary that by the governing instrument is directed to act in accordance with the exercise of specified powers by a directing party, in which case such specified powers shall be deemed granted not to the fiduciary but to the directing party and such fiduciary shall be deemed excluded from exercising such specified powers. If a governing instrument provides that a fiduciary as to one or more specified matters is to act, omit action, or make decisions only with the consent of a directing party, then such fiduciary is an excluded fiduciary with respect to such matters.

(4) "Fiduciary" means any person expressly given one or more fiduciary duties by the governing instrument, including but not limited to a trustee.

(5) "Governing instrument" refers to the instrument stating the terms of a trust, including but not limited to any court order or nonjudicial settlement agreement establishing, construing, or modifying the terms of the trust in accordance with Section 16.1, 16.4, or 16.6 or other applicable law.

(6) "Investment trust advisor" means any one or more persons given authority by the governing instrument to direct, consent to, veto, or otherwise exercise all or any portion of the investment powers of the trust.

(7) "Power" means authority to take or withhold an action or decision, including but not limited to an expressly specified power, the implied power necessary to exercise a specified power, and authority inherent in a general grant of discretion.

(8) "Trust protector" means any one or more persons given any one or more of the powers specified in subsection (d), whether or not designated with the title of trust protector by the governing instrument.

(b) Powers of investment trust advisor. An investment trust advisor may be designated in the governing instrument of a trust. The powers of an investment trust advisor may be exercised or not exercised in the sole and absolute discretion of the investment trust advisor, and are binding on all other persons, including but not limited to each beneficiary, fiduciary, excluded fiduciary, and any other party having an interest in the trust. The governing instrument may use the title "investment trust advisor" or any similar name or description demonstrating the intent to provide for the office and function of an investment trust advisor. Unless the terms of the governing instrument provide otherwise, the investment trust advisor has the authority to:

(1) direct the trustee with respect to the retention, purchase, transfer, assignment, sale, or encumbrance of trust property and the investment and reinvestment of principal and income of the trust;

(2) direct the trustee with respect to all management, control, and voting powers related directly or indirectly to trust assets, including but not limited to voting proxies for securities held in trust;

(3) select and determine reasonable compensation of one or more advisors, managers, consultants, or counselors, including the trustee, and to delegate to them any of the powers of the investment trust advisor in accordance with subsection (b) of Section 5.1; and

(4) determine the frequency and methodology for valuing any asset for which there is no readily available market value.

(c) Powers of distribution trust advisor. A distribution trust advisor may be designated in the governing instrument of a trust. The powers of a distribution trust advisor may be exercised or not exercised in the sole and absolute discretion of the distribution trust advisor, and are binding on all other persons, including but not limited to each beneficiary, fiduciary, excluded fiduciary, and any other party having an interest in the trust. The governing instrument may use the title "distribution trust advisor" or any similar name or description demonstrating the intent to provide for the office and function of a distribution trust advisor. Unless the terms of the governing instrument provide otherwise, the distribution trust advisor has authority to direct the trustee with regard to all decisions relating directly or indirectly to discretionary distributions to or for one or more beneficiaries.

(d) Powers of trust protector. A trust protector may be designated in the governing instrument of a trust. The powers of a trust protector may be exercised or not exercised in the sole and absolute discretion of the trust protector, and are binding on all other persons, including but not limited to each beneficiary, investment trust advisor, distribution trust advisor, fiduciary, excluded fiduciary, and any other party having an interest in the trust. The governing instrument may use the title "trust protector" or any similar name or description demonstrating the intent to provide for the office and function of a trust protector. The powers granted to a trust protector by the governing instrument may include but are not limited to authority to do any one or more of the following:

(1) modify or amend the trust instrument to achieve favorable tax status or respond to changes in the Internal Revenue Code, federal laws, State law, or the rulings and regulations under such laws;

(2) increase, decrease, or modify the interests of any beneficiary or beneficiaries of the trust;

(3) modify the terms of any power of appointment granted by the trust; provided, however, such modification or amendment may not grant a beneficial interest to any individual, class of individuals, or other parties not specifically provided for under the trust instrument;

(4) remove, appoint, or remove and appoint, a trustee, investment trust advisor, distribution trust advisor, another directing party, investment committee member, or distribution committee member, including designation of a plan of succession for future holders of any such office;

(5) terminate the trust, including determination of how the trustee shall distribute the trust property to be consistent with the purposes of the trust;

(6) change the situs of the trust, the governing law of the trust, or both;

(7) appoint one or more successor trust protectors, including designation of a plan of succession for future trust protectors;

(8) interpret terms of the trust instrument at the request of the trustee;

(9) advise the trustee on matters concerning a beneficiary; or

(10) amend or modify the trust instrument to take advantage of laws governing restraints on alienation, distribution of trust property, or to improve the administration of the trust.

If a charity is a current beneficiary or a presumptive remainder beneficiary of the trust, a trust protector must give notice to the Attorney General's Charitable Trust Bureau at least 60 days before taking any of the actions authorized under item (2), (3), (4), (5), or (6) of this subsection. The Attorney General's Charitable Trust Bureau may, however, waive this notice requirement.

(e) Duty and liability of directing party. A directing party is a fiduciary of the trust subject to the same duties and standards applicable to a trustee of a trust as provided by applicable law unless the governing instrument provides otherwise, but the governing instrument may not, however, relieve or exonerate a directing party from the duty to act or withhold acting as the directing party in good faith reasonably believes is in the best interests of the trust.

(f) Duty and liability of excluded fiduciary. The excluded fiduciary shall act in accordance with the governing instrument and comply with the directing party's exercise of the powers granted to the directing party by the governing instrument. Unless otherwise provided in the governing instrument, an excluded fiduciary has no duty to monitor, review, inquire, investigate, recommend, evaluate, or warn with respect to a directing party's exercise or failure to exercise any power granted to the directing party by the governing instrument, including but not limited to any power related to the acquisition, disposition, retention, management, or valuation of any asset or investment. Except as otherwise provided in this Section or the governing instrument, an excluded fiduciary is not liable, either individually or as a fiduciary, for any action, inaction, consent, or failure to consent by a directing party, including but not limited to any of the following:

(1) if a governing instrument provides that an excluded fiduciary is to follow the direction of a directing party, and such excluded fiduciary acts in accordance with such a direction, then except in cases of willful misconduct on the part of the excluded fiduciary in complying with the direction of the directing party, the excluded fiduciary is not liable for any loss resulting directly or indirectly from following any such direction, including but not limited to compliance regarding the valuation of assets for which there is no readily available market value;

(2) if a governing instrument provides that an excluded fiduciary is to act or omit to act only with the consent of a directing party, then except in cases of willful misconduct on the part of the excluded fiduciary, the excluded fiduciary is not liable for any loss resulting directly or indirectly from any act taken or omitted as a result of such directing party's failure to provide such consent after having been asked to do so by the excluded fiduciary; or

(3) if a governing instrument provides that, or for any other reason, an excluded fiduciary is required to assume the role or responsibilities of a directing party, or if the excluded party appoints a directing party or successor to a directing party, then the excluded fiduciary shall also assume the same fiduciary and other duties and standards that applied to such directing party.

(g) Submission to court jurisdiction; effect on directing party. By accepting an appointment to serve as a directing party of a trust that is subject to the laws of this State, the directing party submits to the jurisdiction of the courts of this State even if investment advisory agreements or other related agreements provide otherwise, and the directing party may be made a party to any action or proceeding if issues relate to a decision or action of the directing party.

(h) Duty to inform excluded fiduciary. Each directing party shall keep the excluded fiduciary and any other directing party reasonably informed regarding the administration of the trust with respect to any specific duty or function being performed by the directing party to the extent that the duty or function would normally be performed by the excluded fiduciary or to the extent that providing such information to the excluded fiduciary or other directing party is reasonably necessary for the excluded fiduciary or other directing party to perform its duties, and the directing party shall provide such information as reasonably requested by the excluded fiduciary or other directing party. Neither the performance nor the failure to perform of a directing party's duty to inform as provided in this subsection affects whatsoever the limitation on the liability of the excluded fiduciary as provided in this Section.

(i) Reliance on counsel. An excluded fiduciary may, but is not required to, obtain and rely upon an opinion of counsel on any matter relevant to this Section.

(j) Applicability. On and after its effective date, this Section applies to:

(1) all existing and future trusts that appoint or provide for a directing party, including but not limited to a party granted power or authority effectively comparable in substance to that of a directing party as provided in this Section; or

(2) any existing or future trust that:

(A) is modified in accordance with applicable law or the terms of the governing instrument to appoint or provide for a directing party; or

(B) is modified to appoint or provide for a directing party, including but not limited to a party granted power or authority effectively comparable in substance to that of a directing party, in accordance with (i) a court order, or (ii) a nonjudicial settlement agreement made in accordance with Section 16.1, whether or not such order or agreement specifies that this Section governs the responsibilities, actions, and liabilities of persons designated as a directing party or excluded fiduciary.

(Source: P.A. 97-921, eff. 1-1-13.)

(760 ILCS 5/16.4)

Sec. 16.4. Distribution of trust principal in further trust.

(a) Definitions. In this Section:

"Absolute discretion" means the right to distribute principal that is not limited or modified in any manner to or for the benefit of one or more beneficiaries of the trust, whether or not the term "absolute" is used. A power to distribute principal that includes purposes such as best interests, welfare, or happiness shall constitute absolute discretion.

"Authorized trustee" means an entity or individual, other than the settlor, who has authority under the terms of the first trust to distribute the principal of the trust for the benefit of one or more current beneficiaries.

"Code" means the United States Internal Revenue Code of 1986, as amended from time to time, including corresponding provisions of subsequent internal revenue laws and corresponding provisions of State law.

"Current beneficiary" means a person who is currently receiving or eligible to receive a distribution of principal or income from the trustee on the date of the exercise of the power.

"Distribute" means the power to pay directly to the beneficiary of a trust or make application for the benefit of the beneficiary.

"First trust" means an existing irrevocable inter vivos or testamentary trust part or all of the principal of which is distributed in further trust under subsection (c) or (d).

"Presumptive remainder beneficiary" means a beneficiary of a trust, as of the date of determination and assuming non-exercise of all powers of appointment, who either (i) would be eligible to receive a distribution of income or principal if the trust terminated on that date, or (ii) would be eligible to receive a distribution of income or principal if the interests of all beneficiaries currently eligible to receive income or principal from the trust ended on that date without causing the trust to terminate.

"Principal" includes the income of the trust at the time of the exercise of the power that is not currently required to be distributed, including accrued and accumulated income.

"Second trust" means any irrevocable trust to which principal is distributed in accordance with subsection (c) or (d).

"Successor beneficiary" means any beneficiary other than the current and presumptive remainder beneficiaries, but does not include a potential appointee of a power of appointment held by a beneficiary.

(b) Purpose. An independent trustee who has discretion to make distributions to the beneficiaries shall exercise that discretion in the trustee's fiduciary capacity, whether the trustee's discretion is absolute or limited to ascertainable standards, in furtherance of the purposes of the trust.

(c) Distribution to second trust if absolute discretion. An authorized trustee who has the absolute discretion to distribute the principal of a trust may distribute part or all of the principal of the trust in favor of a trustee of a second trust for the benefit of one, more than one, or all of the current beneficiaries of the first trust and for the benefit of one, more than one, or all of the successor and remainder beneficiaries of the first trust.

(1) If the authorized trustee exercises the power under this subsection, the authorized trustee may grant a power of appointment (including a presently exercisable power of appointment) in the second trust to one or more of the current beneficiaries of the first trust, provided that the beneficiary granted a power to appoint could receive the principal outright under the terms of the first trust.

(2) If the authorized trustee grants a power of appointment, the class of permissible appointees in favor of whom a beneficiary may exercise the power of appointment granted in the second trust may be broader than or otherwise different from the current, successor, and presumptive remainder beneficiaries of the first trust.

(3) If the beneficiary or beneficiaries of the first trust are described as a class of persons, the beneficiary or beneficiaries of the second trust may include one or more persons of such class who become includible in the class after the distribution to the second trust.

(d) Distribution to second trust if no absolute discretion. An authorized trustee who has the power to distribute the principal of a trust but does not have the absolute discretion to distribute the principal of the trust may distribute part or all of the principal of the first trust in favor of a trustee of a second trust, provided that the current beneficiaries of the second trust shall be the same as the current beneficiaries of the first trust and the successor and remainder beneficiaries of the second trust shall be the same as the successor and remainder beneficiaries of the first trust.

(1) If the authorized trustee exercises the power under this subsection (d), the second trust shall include the same language authorizing the trustee to distribute the income or principal of a trust as set forth in the first trust.

(2) If the beneficiary or beneficiaries of the first trust are described as a class of persons, the beneficiary or beneficiaries of the second trust shall include all persons who become includible in the class after the distribution to the second trust.

(3) If the authorized trustee exercises the power under this subsection (d) and if the first trust grants a power of appointment to a beneficiary of the trust, the second trust shall grant such power of appointment in the second trust and the class of permissible appointees shall be the same as in the first trust.

(4) Supplemental Needs Trusts.

(i) Notwithstanding the other provisions of this subsection (d), the authorized trustee may distribute part or all of the principal of a disabled beneficiary's interest in the first trust in favor of a trustee of a second trust which is a supplemental needs trust if the authorized trustee determines that to do so would be in the best interests of the disabled beneficiary.

(ii) Definitions. For purposes of this subsection (d):

"Best interests" of a disabled beneficiary include, without limitation, consideration of the financial impact to the disabled beneficiary's family.

"Disabled beneficiary" means a current beneficiary, presumptive remainder beneficiary, or successor beneficiary of the first trust who the authorized trustee determines has a disability that substantially impairs the beneficiary's ability to provide for his or her own care or custody and that constitutes a substantial handicap, whether or not the beneficiary has been adjudicated a "disabled person".

"Governmental benefits" means financial aid or services from any State, Federal, or other public agency.

"Supplemental needs second trust" means a trust that complies with paragraph (iii) of this paragraph (4) and that relative to the first trust contains either lesser or greater restrictions on the trustee's power to distribute trust income or principal and which the trustee believes would, if implemented, allow the disabled beneficiary to receive a greater degree of governmental benefits than the disabled beneficiary will receive if no distribution is made.

(iii) Remainder beneficiaries. A supplemental needs second trust may name remainder and successor beneficiaries other than the disabled beneficiary's estate, provided that the second trust names the same presumptive remainder beneficiaries and successor beneficiaries to the disabled beneficiary's interest, and in the same proportions, as exist in the first trust. In addition to the foregoing, where the first trust was created by the disabled beneficiary or the trust property has been distributed directly to or is otherwise under the control of the disabled beneficiary, the authorized trustee may distribute to a "pooled trust" as defined by federal Medicaid law for the benefit of the disabled beneficiary or the supplemental needs second trust must contain pay back provisions complying with Medicaid reimbursement requirements of federal law.

(iv) Reimbursement. A supplemental needs second trust shall not be liable to pay or reimburse the State or any public agency for financial aid or services to the disabled beneficiary except as provided in the supplemental needs second trust.

(e) Notice. An authorized trustee may exercise the power to distribute in favor of a second trust under subsections (c) and (d) without the consent of the settlor or the beneficiaries of the first trust and without court approval if:

(1) there are one or more legally competent current beneficiaries and one or more legally competent presumptive remainder beneficiaries and the authorized trustee sends written notice of the trustee's decision, specifying the manner in which the trustee intends to exercise the power and the prospective effective date for the distribution, to all of the legally competent current beneficiaries and presumptive remainder beneficiaries, determined as of the date the notice is sent and assuming non-exercise of all powers of appointment; and

(2) no beneficiary to whom notice was sent objects to the distribution in writing delivered to the trustee within 60 days after the notice is sent ("notice period").

A trustee is not required to provide a copy of the notice to a beneficiary who is known to the trustee but who cannot be located by the trustee after reasonable diligence or who is not known to the trustee.

If a charity is a current beneficiary or presumptive remainder beneficiary of the trust, the notice shall also be given to the Attorney General's Charitable Trust Bureau.

(f) Court involvement.

(1) The trustee may for any reason elect to petition the court to order the distribution, including, without limitation, the reason that the trustee's exercise of the power to distribute under this Section is unavailable, such as:

(a) a beneficiary timely objects to the distribution in a writing delivered to the trustee within the time period specified in the notice; or

(b) there are no legally competent current beneficiaries or legally competent presumptive remainder beneficiaries.

(2) If the trustee receives a written objection within the notice period, either the trustee or the beneficiary may petition the court to approve, modify, or deny the exercise of the trustee's powers. The trustee has the burden of proving the proposed exercise of the power furthers the purposes of the trust.

(3) In a judicial proceeding under this subsection (f), the trustee may, but need not, present the trustee's opinions and reasons for supporting or opposing the proposed distribution, including whether the trustee believes it would enable the trustee to better carry out the purposes of the trust. A trustee's actions in accordance with this Section 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.

(g) Term of the second trust. The second trust to which an authorized trustee distributes the assets of the first trust may have a term that is longer than the term set forth in the first trust, including, but not limited to, a term measured by the lifetime of a current beneficiary; provided, however, that the second trust shall be limited to the same permissible period of the rule against perpetuities that applied to the first trust, unless the first trust expressly permits the trustee to extend or lengthen its perpetuities period.

(h) Divided discretion. If an authorized trustee has absolute discretion to distribute the principal of a trust and the same trustee or another trustee has the power to distribute principal under the trust instrument which power is not absolute discretion, such authorized trustee having absolute discretion may exercise the power to distribute under subsection (c).

(i) Later discovered assets. To the extent the authorized trustee does not provide otherwise:

(1) The distribution of all of the assets comprising the principal of the first trust in favor of a second trust shall be deemed to include subsequently discovered assets otherwise belonging to the first trust and undistributed principal paid to or acquired by the first trust subsequent to the distribution in favor of the second trust.

(2) The distribution of part but not all of the assets comprising the principal of the first trust in favor of a second trust shall not include subsequently discovered assets belonging to the first trust and principal paid to or acquired by the first trust subsequent to the distribution in favor of a second trust; such assets shall remain the assets of the first trust.

(j) Other authority to distribute in further trust. This Section shall not be construed to abridge the right of any trustee to distribute property in further trust that arises under the terms of the governing instrument of a trust, any provision of applicable law, or a court order. In addition, distribution of trust principal to a second trust may be made by agreement between a trustee and all primary beneficiaries of a first trust, acting either individually or by their respective representatives in accordance with Section 16.1 of this Act.

(k) Need to distribute not required. An authorized trustee may exercise the power to distribute in favor of a second trust under subsections (c) and (d) whether or not there is a current need to distribute principal under the terms of the first trust.

(l) No duty to distribute. Nothing in this Section is intended to create or imply a duty to exercise a power to distribute principal, and no inference of impropriety shall be made as a result of an authorized trustee not exercising the power conferred under subsection (c) or (d). Notwithstanding any other provision of this Section, a trustee has no duty to inform beneficiaries about the availability of this Section and no duty to review the trust to determine whether any action should be taken under this Section.

(m) Express prohibition. A power authorized by subsection (c) or (d) may not be exercised if expressly prohibited by the terms of the governing instrument, but a general prohibition of the amendment or revocation of the first trust or a provision that constitutes a spendthrift clause shall not preclude the exercise of a power under subsection (c) or (d).

(n) Restrictions. An authorized trustee may not exercise a power authorized by subsection (c) or (d) to affect any of the following:

(1) to reduce, limit or modify any beneficiary's current right to a mandatory distribution of income or principal, a mandatory annuity or unitrust interest, a right to withdraw a percentage of the value of the trust or a right to withdraw a specified dollar amount provided that such mandatory right has come into effect with respect to the beneficiary, except with respect to a second trust which is a supplemental needs trust;

(2) to decrease or indemnify against a trustee's liability or exonerate a trustee from liability for failure to exercise reasonable care, diligence, and prudence; except to indemnify or exonerate one party from liability for actions of another party with respect to distribution that unbundles the governance structure of a trust to divide and separate fiduciary and nonfiduciary responsibilities among several parties, including without limitation one or more trustees, distribution advisors, investment advisors, trust protectors, or other parties, provided however that such modified governance structure may reallocate fiduciary responsibilities from one party to another but may not reduce them;

(3) to eliminate a provision granting another person the right to remove or replace the authorized trustee exercising the power under subsection (c) or (d); provided, however, such person's right to remove or replace the authorized trustee may be eliminated if a separate independent, non-subservient individual or entity, such as a trust protector, acting in a nonfiduciary capacity has the right to remove or replace the authorized trustee;

(4) to reduce, limit or modify the perpetuities provision specified in the first trust in the second trust, unless the first trust expressly permits the trustee to do so.

(o) Exception. Notwithstanding the provisions of paragraph (1) of subsection (n) but subject to the other limitations in this Section, an authorized trustee may exercise a power authorized by subsection (c) or (d) to distribute to a second trust; provided, however, that the exercise of such power does not subject the second trust to claims of reimbursement by any private or governmental body and does not at any time interfere with, reduce the amount of, or jeopardize an individual's entitlement to government benefits.

(p) Tax limitations. If any contribution to the first trust qualified for the annual exclusion under Section 2503(b) of the Code, the marital deduction under Section 2056(a) or 2523(a) of the Code, or the charitable deduction under Section 170(a), 642(c), 2055(a) or 2522(a) of the Code, is a direct skip qualifying for treatment under Section 2642(c) of the Code, or qualified for any other specific tax benefit that would be lost by the existence of the authorized trustee's authority under subsection (c) or (d) for income, gift, estate, or generation-skipping transfer tax purposes under the Code, then the authorized trustee shall not have the power to distribute the principal of a trust pursuant to subsection (c) or (d) in a manner that would prevent the contribution to the first trust from qualifying for or would reduce the exclusion, deduction, or other tax benefit that was originally claimed with respect to that contribution.

(1) Notwithstanding the provisions of this subsection (p), the authorized trustee may exercise the power to pay the first trust to a trust as to which the settlor of the first trust is not considered the owner under Subpart E of Part I of Subchapter J of Chapter 1 of Subtitle A of the Code even if the settlor is considered such owner of the first trust. Nothing in this Section shall be construed as preventing the authorized trustee from distributing part or all of the first trust to a second trust that is a trust as to which the settlor of the first trust is considered the owner under Subpart E of Part I of Subchapter J of Chapter 1 of Subtitle A of the Code.

(2) During any period when the first trust owns subchapter S corporation stock, an authorized trustee may not exercise a power authorized by paragraph (c) or (d) to distribute part or all of the S corporation stock to a second trust that is not a permitted shareholder under Section 1361(c)(2) of the Code.

(3) During any period when the first trust owns an interest in property subject to the minimum distribution rules of Section 401(a)(9) of the Code, an authorized trustee may not exercise a power authorized by subsection (c) or (d) to distribute part or all of the interest in such property to a second trust that would result in the shortening of the minimum distribution period to which the property is subject in the first trust.

(q) Limits on compensation of trustee.

(1) Unless the court upon application of the trustee directs otherwise, an authorized trustee may not exercise a power authorized by subsection (c) or (d) solely to change the provisions regarding the determination of the compensation of any trustee; provided, however, an authorized trustee may exercise the power authorized in subsection (c) or (d) in conjunction with other valid and reasonable purposes to bring the trustee's compensation into accord with reasonable limits in accord with Illinois law in effect at the time of the exercise.

(2) The compensation payable to the trustee or trustees of the first trust may continue to be paid to the trustees of the second trust during the terms of the second trust and may be determined in the same manner as otherwise would have applied in the first trust; provided, however, that no trustee shall receive any commission or other compensation imposed upon assets distributed due to the distribution of property from the first trust to a second trust pursuant to subsection (c) or (d).

(r) Written instrument. The exercise of a power to distribute principal under subsection (c) or (d) must be made by an instrument in writing, signed and acknowledged by the trustee, and filed with the records of the first trust and the second trust.

(s) Terms of second trust. Any reference to the governing instrument or terms of the governing instrument in this Act includes the terms of a second trust established in accordance with this Section.

(t) Settlor. The settlor of a first trust is considered for all purposes to be the settlor of any second trust established in accordance with this Section. If the settlor of a first trust is not also the settlor of a second trust, then the settlor of the first trust shall be considered the settlor of the second trust, but only with respect to the portion of second trust distributed from the first trust in accordance with this Section.

(u) 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. 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. 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 exercise authority in accordance with this Section in such manner as the court determines necessary or helpful for the proper functioning of the trust, including without limitation prospectively to modify or reverse a prior exercise of such authority. 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. Except for a distribution of trust principal from a first trust to a second trust made by agreement in accordance with Section 16.1 of this Act, 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 (u), a personal representative refers to a court appointed guardian or conservator of the estate of a person.

(v) Application. This Section is available to trusts in existence on the effective date of this amendatory Act of the 97th General Assembly or created on or after the effective date of this amendatory Act of the 97th General Assembly. 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 under Illinois law or that is governed by Illinois law with respect to the meaning and effect of its terms, including a trust whose governing law has been changed to the laws of this State, unless 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 16.4 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.

(Source: P.A. 97-920, eff. 1-1-13.)

(760 ILCS 5/16.7)

Sec. 16.7. Application. Section 16.3 applies to all trusts in existence on the effective date of this amendatory Act of the 97th General Assembly or created after that date. Section 16.3 shall be construed as pertaining to the administration of a trust and shall be available to any trust that is administered in Illinois under Illinois law or that is governed by Illinois law with respect to the meaning and effect of its terms, except to the extent the governing instrument expressly prohibits that Section by specific reference to that Section. A provision in the governing instrument in the form: "The provisions of Section 16.3 of the Trusts and Trustees Act and any corresponding provision of future law may not be used in the administration of this trust" or a similar provision demonstrating that intent is sufficient to preclude the use of Section 16.3.

(Source: P.A. 97-921, eff. 1-1-13.)

(760 ILCS 5/17) (from Ch. 17, par. 1687)

Sec. 17. Proceeds of Eminent Domain or Partition. If a trustee is appointed by a court of this State to receive money under eminent domain or partition proceedings and to invest it for the benefit of the person who would be entitled to the real estate or income therefrom if it had not been taken or sold, on petition of any interested person describing the real estate to be purchased, the price to be paid, the probable income to be derived and the state of the title, the court may authorize the trustee to invest all or any part of the money in other real estate in this State. Title to the real estate so purchased shall be taken in the name of the trustee. If the interest of the beneficiary in the real estate taken or sold was a legal interest, the court shall direct the trustee to convey to the beneficiary a legal estate upon the same conditions and limitations of title, but the conveyance by the trustee shall preserve any right of entry for condition broken, possibility of reverter created by the instrument of title or any reversion or other vested interest which arose by operation of law at the time the instrument took effect. The court shall not direct the conveyance by the trustee unless there is a person or class of persons in being who would have a vested interest in the real estate taken or sold under the instrument of title to the real estate and who would be entitled to possession of the real estate if it had not been taken or sold.

(Source: P.A. 78-625.)

(760 ILCS 5/17.1) (from Ch. 17, par. 1687.1)

Sec. 17.1. Where lands or any estate therein are subject to any legal or equitable future interest of any kind or to any power of appointment, whether a trust is involved or not, and it is made to appear that such lands or estate are liable to waste or depreciation in value, or that the sale thereof and the safe and proper investment of the proceeds will inure to the benefit and advantage of the persons entitled thereto, or that it is otherwise necessary for the conservation, preservation or protection of the property or estate or of any present or future interest therein that such lands or estate be sold, mortgaged, leased, converted, exchanged, improved, managed or otherwise dealt with, the court may, pending the happening of the contingency, if any, and the vesting in possession of such future interest, declare a trust, and appoint a trustee or trustees for such lands or estate and vest in a trustee or trustees title to the property, and authorize and direct the sale of such property, either at a public sale or at private sale, and upon such terms and conditions as the court may direct, and in such case may authorize the trustee or trustees to make such sale and to receive, hold and invest the proceeds thereof under the direction of the court for the benefit of the persons entitled or who may become entitled thereto according to their respective rights and interests, authorize and direct that all or any portion of the property, or the proceeds thereof, so subject to such future interests or powers of appointment, be leased, mortgaged, converted, exchanged, improved, managed, invested, re-invested, or otherwise dealt with, as the rights and interests of the parties and the equities of the case may require, and to that end may confer all necessary powers on the trustee or trustees.

All orders of every court entered pursuant to this Section subsequent to June 30, 1982 and prior to September 16, 1985 vesting title to property in a trustee are hereby validated and such title is vested in such trustee effective the day the court entered such order.

(Source: P.A. 84-1308.)

(760 ILCS 5/18) (from Ch. 17, par. 1688)

Sec. 18. Liberal Construction - Partial Invalidity. This Act shall be liberally construed and the rule that statutes in derogation of the common law shall be strictly construed does not apply. The invalidity of any provision of this Act shall not affect the remainder of the Act.

(Source: P.A. 78-625.)

(760 ILCS 5/19) (from Ch. 17, par. 1689)

Sec. 19. Saving Clause. The provisions for repeal contained in this Act do not in any way: (1) apply to any trust created by will, deed, agreement, declaration or other instrument executed prior to October 1, 1973; (2) invalidate any act done by a trustee or any order entered by a court prior to October 1, 1973; or (3) affect a claim, right, power or remedy accrued prior to October 1, 1973; under any Act repealed by this Act.

(Source: P.A. 78-625.)

(760 ILCS 5/20) (from Ch. 17, par. 1690)

Sec. 20. Repeal. The following Acts are repealed:

(1) "An Act concerning compensation of trustees", approved June 17, 1891, as amended.

(2) "An Act concerning powers of trustees", filed May 18, 1905, as amended.

(Source: P.A. 78-625.)

(760 ILCS 5/21)

Sec. 21. Reliance on Commissioner of Banks and Real Estate. No trustee or other person shall be liable under this Act for any act done or omitted in good faith in conformity with any rule, interpretation, or opinion issued by the Commissioner of Banks and Real Estate, notwithstanding that after the act or omission has occurred, the rule, opinion, or interpretation upon which reliance is placed is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.

(Source: P.A. 90-161, eff. 7-23-97.)