Public Act 093-0991
 		





HB1080 Enrolled
LRB093 05447 LRD 05538 b






    AN ACT in relation to financial regulation. 

 
    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 Section 5.3 and adding Section  5.5 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 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.