Wisconsin Statutes 701.1106 – Conversion to unitrust
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Terms Used In Wisconsin Statutes 701.1106
- Annuity: A periodic (usually annual) payment of a fixed sum of money for either the life of the recipient or for a fixed number of years. A series of payments under a contract from an insurance company, a trust company, or an individual. Annuity payments are made at regular intervals over a period of more than one full year.
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Beneficiary: A person who is entitled to receive the benefits or proceeds of a will, trust, insurance policy, retirement plan, annuity, or other contract. Source: OCC
- Fair market value: The price at which an asset would change hands in a transaction between a willing, informed buyer and a willing, informed seller.
- Following: when used by way of reference to any statute section, means the section next following that in which the reference is made. See Wisconsin Statutes 990.01
- Gift: A voluntary transfer or conveyance of property without consideration, or for less than full and adequate consideration based on fair market value.
- Marital deduction: The deduction(s) that can be taken in the determination of gift and estate tax liabilities because of the existence of a marriage or marital relationship.
- Preceding: when used by way of reference to any statute section, means the section next preceding that in which the reference is made. See Wisconsin Statutes 990.01
- Property: includes real and personal property. See Wisconsin Statutes 990.01
- Qualified: when applied to any person elected or appointed to office, means that such person has done those things which the person was by law required to do before entering upon the duties of the person's office. See Wisconsin Statutes 990.01
- State: when applied to states of the United States, includes the District of Columbia, the commonwealth of Puerto Rico and the several territories organized by Congress. See Wisconsin Statutes 990.01
- Trustee: A person or institution holding and administering property in trust.
- Year: means a calendar year, unless otherwise expressed; "year" alone means "year of our Lord". See Wisconsin Statutes 990.01
(1) Subject to sub. (4), a trust may be converted to a unitrust in any of the following ways:
(a) By the trustee, at his or her own discretion or at the request of a qualified beneficiary, if all of the following apply:
1. The trustee determines that the conversion will enable the trustee to better carry out the purposes of the trust.
2. The trustee provides notice in the same manner as provided in s. 701.1105 (1) of the trustee’s intention to convert the trust to a unitrust, and the notice advises how the unitrust will operate, including the fixed percentage under sub. (3) (a) and any other initial determinations under sub. (3) (d) that the trustee intends to follow.
3. Every qualified beneficiary consents to the conversion to a unitrust in a writing delivered to the trustee.
4. The terms of the trust describe the amount that may or must be distributed by referring to the trust income.
(b) By a court on the petition of the trustee or a qualified beneficiary, if all of the following apply:
1. The trustee or qualified beneficiary has provided notice under s. 701.1105 of the intention to request the court to convert the trust to a unitrust, and the notice advises how the unitrust will operate, including the fixed percentage under sub. (3) (a) and any other initial determinations under sub. (3) (d) that will be requested.
2. The court determines that the conversion to a unitrust will enable the trustee to better carry out the purposes of the trust.
(2) In deciding whether to convert the trust to a unitrust under sub. (1) (a) and in determining the fixed percentage under sub. (3) (b) 1., the trustee shall consider all relevant factors under s. 701.1104 (2) (a) to (i).
(3)
(a) If a trust is converted to a unitrust under this section by the trustee or a court, notwithstanding s. 701.1103 (1) (a) and (d) and s. 701.1136 (4) the trustee shall make distributions in accordance with the trust instrument, except that any reference in the trust instrument to “income” means a fixed percentage of the net fair market value of the unitrust’s assets, whether such assets otherwise would be considered income or principal under this subchapter, averaged over a preceding period determined by the trustee, which is at least 3 years but not more than 5 years, or the period since the original trust was created, whichever is less.
(b)
1. Subject to subd. 2., if the trust is converted to a unitrust under sub. (1) (a), the trustee shall determine the fixed percentage to be applied under par. (a), and the notice under sub. (1) (a) 2. must state the fixed percentage. If the trust is converted to a unitrust under sub. (1) (b), the court shall determine the fixed percentage to be applied under par. (a).
2. Any fixed percentage under par. (a) that is determined by a trustee may not be less than 3 percent nor more than 5 percent.
(c) After a trust is converted to a unitrust, the trustee may, subject to the notice requirement under s. 701.1105 and with the consent of every qualified beneficiary, do any of the following:
1. Convert the unitrust back to the original trust under the trust instrument.
(d) After a trust is converted to a unitrust, a trustee may determine or change any of the following:
1. The frequency of distributions during the year.
2. Standards for prorating a distribution for a short year in which a beneficiary’s right to payments commences or ceases.
3. The effect on the valuation of the unitrust’s assets of other payments from, or contributions to, the unitrust.
4. How, and how frequently, to value the unitrust’s assets.
5. The valuation dates to use.
6. Whether to omit from the calculation of the value of the unitrust’s assets unitrust property occupied by or in the possession of a beneficiary.
7. The averaging under par. (a) to a different preceding period, which is at least 3 years but not more than 5 years.
8. Any other matters necessary for the proper functioning of the unitrust.
(e) The trustee may not deduct from a unitrust distribution expenses that would be deducted from income if the trust were not a unitrust.
(f) Unless otherwise provided by the trust instrument, the unitrust distribution is considered to have been paid from the following sources in the order of priority:
1. Net income, determined as if the trust were not a unitrust.
2. Ordinary income for federal income tax purposes that is not net income under subd. 1.
3. Net realized short-term capital gains for federal income tax purposes.
4. Net realized long-term capital gain for federal income tax purposes.
5. Principal.
(g) A court may, on the petition of the trustee or a qualified beneficiary, do any of the following:
1. Change the fixed percentage that was determined under par. (b) by the trustee or by a prior court order.
2. If necessary to preserve a tax benefit, provide for a distribution of net income, determined as if the trust were not a unitrust, that exceeds the unitrust distribution.
3. Average the valuation of the unitrust’s assets over a period other than that specified in par. (a).
4. Require the unitrust to be converted back to the original trust under the creating instrument.
(h) Conversion to a unitrust under this section does not affect a provision in the trust instrument that directs or authorizes the trustee to distribute principal or that authorizes a beneficiary to withdraw a portion or all of the principal.
(4)
(a) A trust may not be converted under this section to a unitrust if any of the following applies:
1. The trust instrument specifically prohibits the conversion.
2. Payment of the unitrust distribution will change the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets.
3. The unitrust distribution will be made from any amount that is permanently set aside for charitable purposes under the creating instrument and for which an estate or gift tax charitable deduction has been taken, unless both income and principal are so set aside.
4. Converting to a unitrust will cause 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 trust were not converted.
5. Converting to a unitrust will cause all or a part of the trust assets to be subject to estate or gift tax with respect to an individual and the trust assets would not be subject to estate or gift tax with respect to the individual if the trust were not converted.
6. Converting to a unitrust will result in the disallowance of an estate or gift tax marital deduction that would be allowed if the trust were not converted.
7. A trustee is a beneficiary of the trust.
(b) Notwithstanding par. (a), if a trust may not be converted to a unitrust solely because par. (a) 7. applies to a trustee, a cotrustee, if any, to whom par. (a) 7. does not apply may convert the trust to a unitrust under sub. (1) (a), unless prohibited by the creating instrument, or a court may convert the trust to a unitrust under sub. (1) (b) on the petition of a trustee or qualified beneficiary.
(5) A trustee may release the power conferred by sub. (1) (a) if the trustee is uncertain about whether possessing or exercising the power will cause a result described in sub. (4) (a) 2. to 6. 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. (4) (a). The release may be permanent or for a specified period, including a period measured by the life of an individual.
(6) Sections 701.0410 to 701.0418 do not apply to a conversion of a trust to a unitrust under this section.