|
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. |