| ![](/https/www.ilga.gov/images/1ptrans.gif) |
Public Act 096-0479
Public Act 0479 96TH GENERAL ASSEMBLY
|
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.)
|
Effective Date: 1/1/2010
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