State of Illinois
92nd General Assembly
Legislation

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92_HB0774eng

 
HB0774 Engrossed                               LRB9205859WHcs

 1        AN ACT in relation to trusts.

 2        Be  it  enacted  by  the People of the State of Illinois,
 3    represented in the General Assembly:

 4        Section 5.  The Trusts and Trustees  Act  is  amended  by
 5    adding Section 5.3 as follows:

 6        (760 ILCS 5/5.3 new)
 7        Sec.  5.3.  Investing  for total return. With the consent
 8    of the beneficiaries then entitled to receive or eligible  to
 9    have  the  benefit  of  the  income,  and  in  the absence of
10    specific direction to the contrary  by  the  settlor  in  the
11    trust document, a trustee may, but is not required to, invest
12    for total return. A trustee invests for total return when the
13    trustee, exercising reasonable business judgment, invests the
14    trust's  portfolio  with  the  object of increasing the total
15    return from the trust's investments expected over the life of
16    the trust without regard to whether the return takes the form
17    of current income or capital gain.
18        If a trustee invests for total return, the income of  the
19    trust   shall  be  credited  with  income  from  the  trust's
20    investments in accordance with the Principal and Income  Act,
21    and shall also be credited, first from realized capital gain,
22    and then from unrealized capital gain, but only to the extent
23    either  gain  exists,  with  the additional income amount. As
24    used in this Section, "additional income  amount"  means  the
25    amount  of  additional  trust accounting income, if any, that
26    would have been earned by the trust had the trustee  invested
27    without  regard  to  a  total return approach and the trust's
28    portfolio had been allocated among asset  classes  solely  in
29    accordance  with  the  duty  to  balance  the needs of income
30    beneficiaries for trust accounting income and  the  interests
31    of  remaindermen  in  growth of principal. In determining the
 
HB0774 Engrossed            -2-                LRB9205859WHcs
 1    amount of additional trust accounting income that would  have
 2    been  generated  from  the portfolio  allocation, the trustee
 3    may use the average current income return for market  indices
 4    that  are  customarily used by trustees in the measurement of
 5    investment performance for each such asset class.
 6        The trustee shall credit the income of the trust with the
 7    additional income amount within a reasonable time  after  the
 8    close  of  the trust's tax year, and shall calculate realized
 9    and unrealized capital gains as of the close of  the  trust's
10    tax  year  on  average over the 3 preceding tax years (or, if
11    the trust has existed for less than 3 years, over the  lesser
12    number of years).
13        A trustee's judgment concerning any portfolio allocation,
14    any  additional  income amount, or investing for total return
15    under this Section may be challenged if it  was an  abuse  of
16    discretion.  A  court may determine that a trustee abused its
17    discretion only if the trustee's  judgment  was  inconsistent
18    with  the  prudent  investor rule, but not merely because the
19    court would have made a different  judgment.   A  beneficiary
20    who  challenges  a  trustee's  judgment  has  the  burden  of
21    establishing that it was an abuse of discretion.
22        A  trustee  shall  notify  the  primary beneficiaries, as
23    defined in Section 16.1 of  this  Act,  of  its  election  to
24    invest  for  total  return  and  the election shall remain in
25    effect until revoked by a notice from the trustee to the then
26    primary beneficiaries.

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