Public Act 096-0479
 		





SB0188 Enrolled
LRB096 04547 AJO 14602 b






    AN ACT concerning civil law.

 
    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 Sections 5.3 and 16.1 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 (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 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%;


        (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. 92-838, eff. 8-22-02; 93-991, eff. 8-23-04.)

 



    (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. 
    (a) If all primary beneficiaries of a trust are adults and 
not
incapacitated, except as provided in subsection (c), any 
written agreement;
including, without limitation, an
agreement 
construing any provision of the trust or an agreement regarding 
any
duty, power, responsibility, or action of the trustee, 
between a trustee and
all of the primary beneficiaries of a 
trust 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, if
all other persons who have a contingent, 
future, or other interest in the trust
would become primary 
beneficiaries only by reason of surviving a primary

beneficiary.

    (b) For purposes of this Section, "primary beneficiary" 
means a beneficiary
who is either:  (1) currently entitled or

eligible to receive any portion of the trust income or 
principal, or (2)
assuming nonexercise of all powers of 
appointment, will receive, or be entitled
to withdraw, all or a 
portion of the principal of the trust, if the beneficiary

survives to the final date of distribution with respect to the 
beneficiary's
share.

    (c) This Section shall not apply to an agreement that 
accelerates the
termination of a trust, in whole or in part.

    (d) In the trustee's sole
discretion, the trustee may 
obtain opinion of counsel that any agreement
proposed to be 
made under this Section is not clearly contrary to the express

terms of the trust instrument.  The trustee may, but is not 
required
to, enter into an agreement under this Section.
On and 
after its effective date, this Section applies to all existing

and future trusts, but only as to agreements entered into on or 
after the
effective date.

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