Probate & Trust Law Section Conference Manual ... - Minnesota CLE

Electronic reproduction of 2011−12 Wis. Stats. database, updated to May 1, 2013.
701.20 TRUSTS
include a payment subject to sub. (18), resources subject to sub.
(20), timber subject to sub. (21), an activity subject to sub. (23),
an asset subject to sub. (24), or any asset for which the trustee
establishes a reserve for depreciation under sub. (27).
(b) A trustee shall allocate to income 10 percent of the receipts
from a liquidating asset and the balance to principal.
(20) MINERALS, WATER, AND OTHER NATURAL RESOURCES. (a)
To the extent that a trustee accounts for receipts from an interest
in minerals or other natural resources in accordance with this subsection,
the trustee shall allocate them as follows:
1. If received as nominal delay rental or nominal annual rent
on a lease, a receipt must be allocated to income.
2. If received from a production payment, a receipt must be
allocated to income if and to the extent that the agreement creating
the production payment provides a factor for interest or its equivalent.
The balance must be allocated to principal.
3. If an amount received as a royalty, shut−in−well payment,
take−or−pay payment, bonus, or delay rental is more than nominal,
90 percent must be allocated to principal and the balance to
income.
4. If an amount is received from a working interest or any
other interest not provided for in subd. 1., 2., or 3., 90 percent of
the net amount received must be allocated to principal and the balance
to income.
(b) An amount received on account of an interest in water that
is renewable must be allocated to income. If the water is not
renewable, 90 percent of the amount must be allocated to principal
and the balance to income.
(c) This subsection applies whether or not a decedent or donor
was extracting minerals, water, or other natural resources before
the interest became subject to the trust.
(d) If a trust owns an interest in minerals, water, or other natural
resources on May 17, 2005, the trustee may allocate receipts from
the interest as provided in this subsection or in the manner used by
the trustee before May 17, 2005. If the trust acquires an interest
in minerals, water, or other natural resources after May 17, 2005,
the trustee shall allocate receipts from the interest as provided in
this subsection.
(21) TIMBER. (a) To the extent that a trustee accounts for
receipts from the sale of timber and related products in accordance
with this subsection, the trustee shall allocate the net receipts:
1. To income to the extent that the amount of timber removed
from the land does not exceed the rate of growth of the timber during
the accounting periods in which a beneficiary has a mandatory
income interest.
2. To principal to the extent that the amount of timber
removed from the land exceeds the rate of growth of the timber or
the net receipts are from the sale of standing timber.
3. To income or principal or between income and principal if
the net receipts are from the lease of timberland or from a contract
to cut timber from land owned by a trust, by determining the
amount of timber removed from the land under the lease or contract
and applying the rules in subds. 1. and 2.
4. To principal to the extent that advance payments, bonuses,
and other payments are not allocated under subd. 1., 2., or 3.
(b) In determining net receipts to be allocated under par. (a),
a trustee shall deduct and transfer to principal a reasonable amount
for depletion.
(c) This subsection applies whether or not a decedent or transferor
was harvesting timber from the property before it became
subject to the trust.
(d) If a trust owns an interest in timberland on May 17, 2005,
the trustee may allocate net receipts from the sale of timber and
related products as provided in this subsection or in the manner
used by the trustee before May 17, 2005. If the trust acquires an
interest in timberland after May 17, 2005, the trustee shall allocate
Updated 11−12 Wis. Stats. Database 16
net receipts from the sale of timber and related products as provided
in this subsection.
(22) PROPERTY NOT PRODUCTIVE OF INCOME. (a) If a marital
deduction is allowed for all or part of a trust whose assets consist
substantially of property that does not provide the surviving
spouse with sufficient income from or use of the trust assets, and
if the amounts that the trustee transfers from principal to income
under sub. (4) and distributes to the spouse from principal in
accordance with the terms of the trust are insufficient to provide
the spouse with the beneficial enjoyment required to obtain the
marital deduction, the spouse may require the trustee to make
property productive of income, convert property within a reasonable
time, or exercise the power conferred by sub. (4) (a). The
trustee may decide which action or combination of actions to take.
(b) In cases not governed by par. (a), proceeds from the sale
or other disposition of an asset are principal without regard to the
amount of income the asset produces during any accounting
period.
(23) DERIVATIVES AND OPTIONS. (a) In this subsection, “derivative”
means a contract or financial instrument or a combination
of contracts and financial instruments that gives a trust the right
or obligation to participate in some or all changes in the price of
a tangible or intangible asset or group of assets, or changes in a
rate, an index of prices or rates, or another market indicator for an
asset or a group of assets.
(b) To the extent that a trustee does not account under sub. (12)
for transactions in derivatives, the trustee shall allocate to principal
receipts from and disbursements made in connection with
those transactions.
(c) If a trustee grants an option to buy property from the trust,
whether or not the trust owns the property when the option is
granted, grants an option that permits another person to sell property
to the trust, or acquires an option to buy property for the trust
or an option to sell an asset owned by the trust, and the trustee or
other owner of the asset is required to deliver the asset if the option
is exercised, an amount received for granting the option must be
allocated to principal. An amount paid to acquire the option must
be paid from principal. A gain or loss realized upon the exercise
of an option, including an option granted to a settlor of the trust for
services rendered, must be allocated to principal.
(24) ASSET−BACKED SECURITIES. (a) In this subsection,
“asset−backed security” means an asset whose value is based
upon the right it gives the owner to receive distributions from the
proceeds of financial assets that provide collateral for the security.
The term includes an asset that gives the owner the right to receive
from the collateral financial assets only the interest or other current
return or only the proceeds other than interest or current
return. The term does not include an asset to which sub. (10) or
(18) applies.
(b) If a trust receives a payment from interest or other current
return and from other proceeds of the collateral financial assets,
the trustee shall allocate to income the portion of the payment that
the payer identifies as being from interest or other current return
and shall allocate the balance of the payment to principal.
(c) If a trust receives one or more payments in exchange for the
trust’s entire interest in an asset−backed security in one accounting
period, the trustee shall allocate the payments to principal. If
a payment is one of a series of payments that will result in the liquidation
of the trust’s interest in the security over more than one
accounting period, the trustee shall allocate 10 percent of the payment
to income and the balance to principal.
(25) DISBURSEMENTS FROM INCOME. A trustee shall make the
following disbursements from income to the extent that they are
not disbursements specified in sub. (5) (b) 2. or 3.:
(a) One−half of the regular compensation of the trustee and of
any person providing investment advisory or custodial services to
the trustee.
2011−12 Wis. Stats. database updated though 2013 Wis. Act 10 and all Supreme Court Orders enacted before May 1, 2013. Statutory
changes effective on or prior to May 1, 2013 are published as currently in effect. Changes effective after May 1, 2013 are
designated by NOTES. See Are the Statutes on this Website Official? (5−1−13)