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Public Act 093-0991


 

Public Act 0991 93RD GENERAL ASSEMBLY



 


 
Public Act 093-0991
 
HB1080 Enrolled LRB093 05447 LRD 05538 b

    AN ACT in relation to financial regulation.
 
    Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
 
    Section 5. The Trusts and Trustees Act is amended by
changing Section 5.3 and adding Section 5.5 as follows:
 
    (760 ILCS 5/5.3)
    Sec. 5.3. Total return trusts.
    (a) Conversion by trustee. A trustee may convert a trust to
a total return trust as described in this Section if all of the
following apply:
        (1) The trust describes the amount that may or must be
    distributed to a beneficiary by referring to the trust's
    income, and the trustee determines that conversion to a
    total return trust will enable the trustee to better carry
    out the purposes of the trust and the conversion is in the
    best interests of the beneficiaries;
        (2) conversion to a total return trust means the
    trustee will invest and manage trust assets seeking a total
    return without regard to whether that return is from income
    or appreciation of principal, and will make distributions
    in accordance with this Section (such a trust is called a
    "total return trust" in this Section);
        (3) the trustee sends a written notice of the trustee's
    decision to convert the trust to a total return trust,
    specifying a prospective effective date for the conversion
    and including a copy of this Section, to the following
    beneficiaries, determined as of the date the notice is sent
    and assuming nonexercise of all powers of appointment:
            (A) all of the legally competent beneficiaries who
        are currently receiving or eligible to receive income
        from the trust; and
            (B) all of the legally competent beneficiaries who
        would receive or be eligible to receive a distribution
        of principal or income if the current interests of
        beneficiaries currently receiving or eligible to
        receive income ended;
        (4) there are one or more legally competent income
    beneficiaries under subdivision (3)(A) of this subsection
    (a) and one or more legally competent remainder
    beneficiaries under subdivision (3)(B) of this subsection
    (a), determined as of the date of sending the notice;
        (5) no beneficiary objects to the conversion to a total
    return trust in a writing delivered to the trustee within
    60 days after the notice is sent; and
        (6) the trustee has signed acknowledgments of receipt
    confirming that notice was received by each beneficiary
    required to be sent notice under subdivision (3) of this
    subsection (a).
    (b) Conversion by agreement. Conversion to a total return
trust may be made by agreement between a trustee and all the
primary beneficiaries of the trust under the virtual
representation provisions of Section 16.1 of this Act if those
provisions otherwise apply. 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%; and
        (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. The distribution amount may not be less
than the net income of the trust, determined without regard to
the provisions of this Section, for either a trust for which an
estate tax or a gift tax marital deduction was or may be
claimed in whole or in part (but only during the lifetime of
the spouse for whom the trust was created), or a trust that was
exempt in whole or in part from generation-skipping transfer
tax on the effective date of this amendatory Act of the 92nd
General Assembly by reason of any effective date or transition
rule. 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), 170(f)(2)(B), 664(d), 1361(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. 92-838, eff. 8-22-02.)
 
    (760 ILCS 5/5.5 new)
    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.
 
    Section 10. The Uniform TOD Security Registration Act is
amended by changing Section 1 as follows:
 
    (815 ILCS 10/1)
    Sec. 1. Definitions. In this Act, unless the context
otherwise requires:
    (1) "Beneficiary form" means a registration of a security
which indicates the present owner of the security and the
intention of the owner regarding the person who will become the
owner of the security upon the death of the owner.
    (2) "Devisee" means any person designated in a will to
receive a disposition of real or personal property.
    (3) "Heirs" means those persons, including the surviving
spouse, who are entitled under the statutes of intestate
succession to the property of a decedent.
    (4) "Person" means an individual, a corporation, an
organization, or other legal entity.
    (5) "Personal representative" includes executor,
administrator, successor personal representative, special
administrator, and persons who perform substantially the same
function under the law governing their status.
    (6) "Property" includes both real and personal property or
any interest therein and means anything that may be the subject
of ownership.
    (7) "Register", including its derivatives, means to issue a
certificate showing the ownership of a certificated security
or, in the case of an uncertificated security, to initiate or
transfer an account showing ownership of securities.
    (8) "Registering entity" means a person who originates or
transfers a security title by registration, and includes a
broker maintaining security accounts for customers and a
transfer agent or other person acting for or as an issuer of
securities.
    (9) "Security" means a share, participation, or other
interest in property, in a business, or in an obligation of an
enterprise or other issuer, and includes a certificated
security, an uncertificated security, and a security account.
    (10) "Security account" means (i) a reinvestment account
associated with a security, a securities account with a broker,
a cash balance in a brokerage account, cash, interest,
earnings, or dividends earned or declared on a security in an
account, a reinvestment account, or a brokerage account,
whether or not credited to the account before the owner's
death, or (ii) an investment management or custody account with
a trust company or trust division of a bank with trust powers,
including the securities in the account, a cash balance in the
account, and cash, equivalents, interest, earnings, or
dividends earned or declared on a security in the account,
whether or not credited to the account before the owner's
death, or (iii) a cash balance or other property held for or
due to the owner of a security as a replacement for or product
of an account security, whether or not credited to the account
before the owner's death.
    (11) "State" includes any state of the United States, the
District of Columbia, the Commonwealth of Puerto Rico, and any
territory or possession subject to the legislative authority of
the United States.
(Source: P.A. 88-577, eff. 1-1-95.)
 
    Section 99. Effective date. This Act takes effect upon
becoming law.

Effective Date: 8/23/2004