Section 701.1104. Trustee's power to adjust.

 

(1)  A trustee may adjust between principal and income to the extent the trustee considers necessary if the trustee invests and manages trust assets as a prudent investor, the terms of the trust describe the amount that may or must be distributed to a beneficiary by referring to the trust's income, and the trustee determines, after applying the rules in s. 701.1103 (1) , that the trustee is unable to comply with s. 701.1103 (2) .

(2)  In deciding whether and to what extent to exercise the power conferred by sub. (1) , a trustee shall consider all factors relevant to the trust and its beneficiaries, including the following factors to the extent they are relevant:

(a) The nature, purpose, and expected duration of the trust.

(b) The intent of the settlor.

(c) The identity and circumstances of the beneficiaries.

(d) The needs for liquidity, regularity of income, and preservation and appreciation of capital.

(e) The assets held in the trust; the extent to which they consist of financial assets, interests in closely held enterprises, tangible and intangible personal property, or real property; the extent to which an asset is used by a beneficiary; and whether an asset was purchased by the trustee or received from the settlor.

(f) The net amount allocated to income under the other subsections of this section and the increase or decrease in the value of the principal assets, which the trustee may estimate in the case of assets for which market values are not readily available.

(g) Whether and to what extent the terms of the trust give the trustee the power to invade principal or accumulate income or prohibit the trustee from invading principal or accumulating income, and the extent to which the trustee has exercised a power from time to time to invade principal or accumulate income.

(h) The actual and anticipated effect of economic conditions on principal and income and effects of inflation and deflation.

(i) The anticipated tax consequences of an adjustment.

(3)  A trustee may not make an adjustment:

(a) If possessing or exercising the power to make an adjustment would disqualify an estate tax or gift tax marital or charitable deduction in whole or in part.

(b) That reduces the actuarial value of the income interest in a trust to which a person transfers property with the intent to qualify for a gift tax exclusion.

(c) That changes the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets.

(d) From any amount that is permanently set aside for charitable purposes under a will or the terms of a trust and for which an estate tax or gift tax charitable deduction has been taken unless both income and principal are so set aside.

(e) If possessing or exercising the power to make an adjustment causes an individual to be treated as the owner of all or part of the trust for income tax purposes, and the individual would not be treated as the owner if the trustee did not possess the power to make an adjustment.

(f) If possessing or exercising the power to make an adjustment causes all or part of the trust assets to be included for estate tax purposes in the estate of an individual and the assets would not be included in the estate of the individual if the trustee did not possess the power to make an adjustment.

(g) If the trustee is a beneficiary of the trust.

(h) If the trust has been converted under s. 701.1106 to a unitrust.

(i) If the trust is an express unitrust, as defined in s. 701.1107 (1) .

(4)  If sub. (3) (e) , (f) , or (g) applies to a trustee and there is more than one trustee, a cotrustee to whom the provision does not apply may make the adjustment unless the terms of the trust do not permit the exercise of the power by that cotrustee.

(5)  A trustee may release the entire power conferred by sub. (1) or may release only the power to adjust from income to principal or the power to adjust from principal to income if the trustee is uncertain about whether possessing or exercising the power will cause a result described in sub. (3) (a) to (f) or if the trustee determines that possessing or exercising the power will or may deprive the trust of a tax benefit or impose a tax burden not described in sub. (3) . The release may be permanent or for a specified period, including a period measured by the life of an individual.

(6)  Terms of a trust that limit the power of a trustee to make an adjustment between principal and income do not affect the application of this subsection unless it is clear from the terms of the trust that the terms are intended to deny the trustee the power of adjustment conferred by sub. (1) .

2013 a. 92 s. 218 .