760 ILCS 3/ Illinois Trust Code.

(760 ILCS 3/Art. 11 heading) Article 11. Total Return Trusts. (Source: P.A. 101-48, eff. 1-1-20.)

(760 ILCS 3/1101)

Sec. 1101. Total return trust defined; trustee duty to inform.

(a) In this Article, "total return trust" means a trust converted in accordance with this Article that the trustee shall manage and invest seeking a total return without regard to whether the return is from income or appreciation of principal.

(b) Notwithstanding any other provision of this Article, a trustee has no duty to inform beneficiaries about the availability of this Article and has no duty to review the trust to determine whether any action should be taken under this Article unless requested to do so in writing by a qualified beneficiary.

(Source: P.A. 101-48, eff. 1-1-20.)

(760 ILCS 3/1102)

Sec. 1102. Conversion by trustee. A trustee may convert a trust to a total return trust as described in this Article 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) 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 Article, to all of the qualified beneficiaries; and

(3) no qualified 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.

(Source: P.A. 101-48, eff. 1-1-20.)

(760 ILCS 3/1103)

Sec. 1103. Conversion by agreement. Conversion to a total return trust may be made by agreement between a trustee and all qualified beneficiaries. The agreement may include any actions a court could properly order under Section 1104; however, any distribution percentage determined by the agreement may not be less than 3% nor greater than 5%.

(Source: P.A. 101-48, eff. 1-1-20; 102-279, eff. 1-1-22.)

(760 ILCS 3/1104)

Sec. 1104. Conversion or reconversion by court.

(a) 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 Section 1102 is unavailable because a beneficiary timely objects to the conversion to a total return trust.

(b) 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.

(c) 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.

(d) In a judicial proceeding under this Section, the trustee may, but need not, present the trustee's opinions and reasons (1) 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 (2) 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 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.

(e) 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.

(f) The court may order any of the following actions in a proceeding brought by a trustee or a beneficiary under this Section:

(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.

(g) Nothing in this Section limits the equitable powers of the court to grant other relief.

(Source: P.A. 101-48, eff. 1-1-20.)

(760 ILCS 3/1105)

Sec. 1105. Post conversion. While a trust is a total return trust, all of the following apply to the trust:

(1) the trustee shall make income distributions in accordance with the trust instrument subject to this Article;

(2) the term "income" in the trust 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:

(A) the 3 preceding years; or

(B) 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 Section 1102 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 Article 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.

(Source: P.A. 101-48, eff. 1-1-20.)

(760 ILCS 3/1106)

Sec. 1106. Administration.

(a) As used in this Section, "excluded asset" means an asset for which there is no readily available market value and that the trustee determines in accordance with subsection (d) shall be excluded from the net fair market value of the trust's assets for purposes of determining the distribution amount under paragraph (2) of Section 1105.

(b) 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; and

(B) whether and how often to engage a professional appraiser to value such an asset;

(8) which trust assets are excluded assets; and

(9) any other administrative matters as the trustee determines necessary or helpful for the proper functioning of the total return trust.

(c) The trustee shall distribute any net income received from excluded assets as provided in the trust instrument.

(d) 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. 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. 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.

(e) 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 trust instrument regardless of whether the trustee treats the property as an excluded asset.

(Source: P.A. 101-48, eff. 1-1-20.)

(760 ILCS 3/1107)

Sec. 1107. Allocations.

(a) 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.

(b) Unless otherwise provided by the trust instrument, the trustee shall fund the distribution amount each year from the following sources for that year in the order listed:

(1) first from net income (as the term would be determined if the trust were not a total return trust);

(2) then from other ordinary income as determined for federal income tax purposes;

(3) then from net realized short-term capital gains as determined for federal income tax purposes;

(4) then from net realized long-term capital gains as determined for federal income tax purposes;

(5) then from trust principal comprised of assets for which there is a readily available market value; and

(6) then from other trust principal.

(Source: P.A. 101-48, eff. 1-1-20.)

(760 ILCS 3/1108)

Sec. 1108. Restrictions. Conversion to a total return trust does not affect any provision in the trust 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 trust instrument unless both income and principal are so set aside.

(Source: P.A. 101-48, eff. 1-1-20.)

(760 ILCS 3/1109)

Sec. 1109. Tax limitations.

(a) 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 the particular trustee may not participate as a trustee in the exercise of the conversion power except that the particular trustee may petition the court under subsection (a) of Section 1104 to order conversion in accordance with this Article.

(b) If the particular trustee has one or more co-trustees to whom subsection (a) does not apply, the co-trustee or co-trustees may convert the trust to a total return trust in accordance with this Article.

(Source: P.A. 101-48, eff. 1-1-20.)

(760 ILCS 3/1110)

Sec. 1110. Releases. A trustee may irrevocably release the power granted by this Article 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.

(Source: P.A. 101-48, eff. 1-1-20.)

(760 ILCS 3/1111)

Sec. 1111. Remedies. A trustee who reasonably and in good faith takes any action under this Article is not liable to any interested person. If a trustee reasonably and in good faith takes any action under this Article and an interested person opposes the action, 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 action by a trustee under this Article is presumed taken or omitted reasonably and in good faith unless it is determined by the court to have been an abuse of discretion.

(Source: P.A. 101-48, eff. 1-1-20.)

(760 ILCS 3/1112)

Sec. 1112. Application. This Article is available to trusts in existence on or after August 22, 2002. This Article shall be construed as pertaining to the administration of a trust and shall be available to any trust that is administered in Illinois or that is governed by Illinois law with respect to the meaning and effect of its terms unless one of the following apply:

(1) The trust is a trust described in Section 642(c)(5), 664(d), 2702(a)(3), or 2702(b) of the Internal Revenue Code.

(2) The trust instrument expressly prohibits use of this Article by specific reference to this Article or a prior corresponding law. A provision in the trust instrument in the form: "Neither the provisions of Article 11 of the Illinois Trust Code 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 Article.

(Source: P.A. 101-48, eff. 1-1-20.)

(760 ILCS 3/1113)

Sec. 1113. Application to express trusts.

(a) In this Section:

(1) "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 Article or whether the trust is established by express terms of the trust.

(2) "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.

(b) 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.

(c) Subsection (b) of Section 1107 applies to a unitrust except to the extent its trust instrument expressly provides otherwise.

(d) This Section does not apply to a charitable remainder unitrust as defined by Section 664(d) of the Internal Revenue Code.

(Source: P.A. 101-48, eff. 1-1-20.)