HB 0897

1	A bill to be entitled
2	An act relating to trusts and other agency relationships;
3	amending s. 711.501, F.S.; including additional investment
4	instruments within the definition of the term "security
5	account"; amending s. 737.402, F.S.; revising the powers
6	conferred upon a trustee; amending s. 737.403, F.S.;
7	specifying circumstances in which court authorization is
8	not required for a trustee to exercise his or her power
9	when a conflict of interest exists; amending s. 738.104,
10	F.S.; removing a prohibition on a trustee's power to make
11	certain adjustments; specifying a circumstance under which
12	an adjustment shall not be deemed to benefit the trustee;
13	providing application of section to administration of
14	certain trusts; conforming cross references; amending s.
15	738.1041, F.S.; providing and revising definitions;
16	providing methods by which a trustee may make certain
17	changes to trusts; removing requirements regarding certain
18	minimum unitrust amounts; removing a spouse's right to
19	compel reconversion of certain trusts; providing remedies
20	for trustees or disinterested persons not acting in good
21	faith; expanding scope of section to trusts administered
22	either in this state or under Florida law; authorizing a
23	grantor to create an express total return unitrust;
24	requiring certain provisions to be included in an express
25	total return unitrust; amending s. 738.303, F.S.;
26	redefining the term "undistributed income"; amending s.
27	738.401, F.S., relating to character of receipts;
28	providing certain statements that a trustee may rely upon;
29	providing special rules to apply to receipts by private
30	trustees from certain entities; providing definitions;
31	providing an effective date.
32
33	Be It Enacted by the Legislature of the State of Florida:
34
35	Section 1.  Subsection (10) of section 711.501, Florida
36	Statutes, is amended to read:
37	711.501  Definitions.--In ss. 711.50-711.512, unless the
38	context otherwise requires, the term:
39	(10)  "Security account" means:
40	(a)  A reinvestment account associated with a security, a
41	securities account with a broker, a cash balance in a brokerage
42	account, cash, interest, earnings, or dividends earned or
43	declared on a security in an account, a reinvestment account, or
44	a brokerage account, whether or not credited to the account
45	before the owner's death; or
46	(b)  An investment management account, investment advisory
47	account, investment agency account, custody account, or any
48	other type of account with a bank or trust company, including
49	the securities in the account, the cash balance in the account,
50	and cash equivalents, and any interest, earnings, or dividends
51	earned or declared on a security in the account, whether or not
52	credited to the account before the owner's death; or
53	(c)(b)  A cash balance or other property held for or due to
54	the owner of a security as a replacement for or product of an
55	account security, whether or not credited to the account before
56	the owner's death.
57	Section 2.  Paragraphs (y) and (z) of subsection (2) of
58	section 737.402, Florida Statutes, are amended to read:
59	737.402  Powers of trustees conferred by this part.--
60	(2)  Unless otherwise provided in the trust instrument, a
61	trustee has the power:
62	(y)  To employ persons, including attorneys, auditors,
63	investment advisers, or agents, even if they are the trustee or
64	associated with the trustee, to advise or assist the trustee in
65	the performance of his or her administrative duties and to pay
66	compensation and costs incurred in connection with such
67	employment from the assets of the trust; to act without
68	independent investigation upon their recommendations; and,
69	instead of acting personally, to employ one or more agents to
70	perform any act of administration, whether or not discretionary.
71	(z)1.  To prosecute or defend actions, claims, or
72	proceedings, including appeals, for the protection of trust
73	assets and of the trustee in the performance of his or her
74	duties.
75	2.  To employ attorneys and other agents to advise and
76	assist the trustee in the exercise of any of the trustee's
77	powers and to pay compensation and costs incurred in connection
78	with such employment from the assets of the trust.
79	Section 3.  Subsection (2) of section 737.403, Florida
80	Statutes, is amended to read:
81	737.403  Power of court to permit deviation or to approve
82	transactions involving conflict of interest.--
83	(2)  If the duty of the trustee and the trustee's
84	individual interest or his or her interest as trustee of another
85	trust conflict in the exercise of a trust power, the power may
86	be exercised only by court authorization, except as provided in
87	s. 737.402(2)(a), (e), (g), (s) and (y). Under this section,
88	personal profit or advantage to an affiliated or subsidiary
89	company or association is personal profit to any corporate
90	trustee. Court authorization is not required for any of the
91	following:
92	(a)  The exercise of any power described in s.
93	737.402(2)(a), (e), (g), (s), or (y);
94	(b)  The exercise of any power for which the trust
95	instrument acknowledges the trustee's conflict of interest and
96	expressly authorizes the exercise of that power notwithstanding
97	the conflict;
98	(c)  The exercise of any power consented to in writing by a
99	settlor of the trust while the settlor holds the right of
100	revocation of the trust;
101	(d)  The exercise of any power consented to in writing by
102	each of the beneficiaries to whom the trustee is required to
103	provide any annual or periodic accounting. Consent under this
104	paragraph may be given by a person who represents the interest
105	of the beneficiary under s. 731.303 or by the legal guardian of
106	the beneficiary or, if there is no legal guardian, by the
107	natural guardian of the beneficiary; or
108	(e)  Payment of costs or attorney's fees incurred in any
109	trust proceeding from the assets of the trust unless an action
110	has been filed or defense asserted against the trustee based
111	upon a breach of trust. Court authorization is not required if
112	the action or defense is later withdrawn or dismissed by the
113	party that is alleging a breach of trust or resolved without a
114	determination by the court that the trustee has committed a
115	breach of trust.
116	Section 4.  Subsections (3), (4), and (5) of section
117	738.104, Florida Statutes, are amended, and subsection (11) is
118	added to said section, to read:
119	738.104  Trustee's power to adjust.--
120	(3)  A trustee may not make an adjustment:
121	(a)  That diminishes the income interest in a trust that
122	requires all of the income to be paid at least annually to a
123	spouse and for which an estate tax or gift tax marital deduction
124	would be allowed, in whole or in part, if the trustee did not
125	have the power to adjust;
126	(a)(b)  That reduces the actuarial value of the income
127	interest in a trust to which a person transfers property with
128	the intent to qualify for a gift tax exclusion;
129	(b)(c)  That changes the amount payable to a beneficiary as
130	a fixed annuity or a fixed fraction of the value of the trust
131	assets;
132	(c)(d)  From any amount that is permanently set aside for
133	charitable purposes under a will or the terms of a trust unless
134	both income and principal are so set aside;
135	(d)(e)  If possessing or exercising the power to adjust
136	causes an individual to be treated as the owner of all or part
137	of the trust for income tax purposes and the individual would
138	not be treated as the owner if the trustee did not possess the
139	power to adjust;
140	(e)(f)  If possessing or exercising the power to adjust
141	causes all or part of the trust assets to be included for estate
142	tax purposes in the estate of an individual who has the power to
143	remove a trustee or appoint a trustee, or both, and the assets
144	would not be included in the estate of the individual if the
145	trustee did not possess the power to adjust;
146	(f)(g)  If the trustee is a beneficiary of the trust; or
147	(g)(h)  If the trustee is not a beneficiary of the trust
148	but the adjustment would benefit the trustee directly or
149	indirectly, except that in the case of a trustee whose
150	compensation for acting as trustee is based upon the value of
151	trust assets, an adjustment that affects the value of trust
152	assets shall not be deemed to benefit the trustee.
153	(4)  If paragraph (3)(d)(e), paragraph (3)(e)(f), paragraph
154	(3)(f)(g), or paragraph (3)(g)(h) applies to a trustee and there
155	is more than one trustee, a cotrustee to whom the provision does
156	not apply may make the adjustment unless the exercise of the
157	power by the remaining trustee is not permitted by the terms of
158	the trust.
159	(5)(a)  A trustee may release the entire power to adjust
160	conferred by subsection (1) if the trustee desires to convert an
161	income trust to a total return unitrust pursuant to s. 738.1041.
162	(b)  A trustee may release the entire power to adjust
163	conferred by subsection (1) or may release only the power to
164	adjust from income to principal or the power to adjust from
165	principal to income if the trustee is uncertain about whether
166	possessing or exercising the power will cause a result described
167	in paragraphs (3)(a)-(e)(f) or paragraph (3)(g)(h) or if the
168	trustee determines that possessing or exercising the power will
169	or may deprive the trust of a tax benefit or impose a tax burden
170	not described in subsection (3).
171	(c)  A release under this subsection may be permanent or
172	for a specified period, including a period measured by the life
173	of an individual. Notwithstanding anything contrary to this
174	subsection, a release of the power to adjust pursuant to
175	paragraph (a) shall remain effective only for as long as the
176	trust is administered as a unitrust pursuant to s. 738.1041.
177	(11)  This section shall be construed as pertaining to the
178	administration of a trust and is applicable to any trust that is
179	administered either in this state or under Florida law.
180	Section 5.  Section 738.1041, Florida Statutes, is amended
181	to read:
182	738.1041  Total return unitrust.--
183	(1)  For purposes of this section, the term:
184	(a)  "Disinterested person" means a person who is not a
185	"related or subordinate party" as defined in s. 672(c) of the
186	United States Internal Revenue Code, 26 U.S.C. ss. 1 et seq., or
187	any successor provision thereof, with respect to the person then
188	acting as trustee of the trust and excludes the grantor and any
189	interested trustee.
190	(b)  "Fair market value" means the fair market value of
191	assets held by the trust as otherwise determined under this
192	chapter, reduced by all known noncontingent liabilities.
193	(c)(b)  "Income trust" means a trust, created by either an
194	inter vivos or a testamentary instrument, which directs or
195	permits the trustee to distribute the net income of the trust to
196	one or more persons, either in fixed proportions or in amounts
197	or proportions determined by the trustee and regardless of
198	whether the trust directs or permits the trustee to distribute
199	the principal of the trust to one or more such persons.
200	Notwithstanding the foregoing, no trust that otherwise is an
201	"income trust" shall qualify hereunder, if it may be subject to
202	taxation under the Internal Revenue Code, 26 U.S.C. s. 2001 or
203	s. 2501, until the expiration of the period for filing the
204	return therefor, including extensions.
205	(d)(c)  "Interested distributee" means a person to whom
206	distributions of income or principal can currently be made who
207	has the power to remove the existing trustee and designate as
208	successor a person who may be a "related or subordinate party,"
209	as defined in the Internal Revenue Code, 26 U.S.C. s. 672(c),
210	with respect to such distributee.
211	(e)(d)  "Interested trustee" means an individual trustee to
212	whom the net income or principal of the trust can currently be
213	distributed or would be distributed if the trust were then to
214	terminate and be distributed, any trustee whom an interested
215	distributee has the power to remove and replace with a related
216	or subordinate party as defined in paragraph (d) (c), or an
217	individual trustee whose legal obligation to support a
218	beneficiary may be satisfied by distributions of income and
219	principal of the trust.
220	(f)  "Unitrust amount" means the amount determined by
221	multiplying the fair market value of the assets as defined in
222	paragraph (b) by the percentage calculated under paragraph
223	(2)(b).
224	(2)  A trustee may, without court approval, convert an
225	income trust to a total return unitrust, reconvert a total
226	return unitrust to an income trust, or change the percentage
227	used to calculate the unitrust amount or the method used to
228	determine the fair market value of the trust if:
229	(a)  The trustee adopts a written statement regarding trust
230	distributions that provides:
231	1.  In the case of a trust being administered as an income
232	trust, that future distributions from the trust will be unitrust
233	amounts rather than net income, and indicates the manner in
234	which the unitrust amount will be calculated and the method in
235	which the fair market value of the trust will be determined.
236	2.  In the case of a trust being administered as a total
237	return unitrust, that:
238	a.  Future distributions from the trust will be net income
239	rather than unitrust amounts; or
240	b.  The percentage used to calculate the unitrust amount or
241	the method used to determine the fair market value of the trust
242	will be changed, and indicates the manner in which the new
243	unitrust amount will be calculated and the method in which the
244	new fair market value of the trust will be determined;
245	(b)  The trustee determines the terms of the unitrust under
246	one of the following methods:
247	1.  A disinterested The trustee determines, or if there is
248	no trustee other than an interested trustee, the interested
249	trustee appoints a disinterested person who, in its sole
250	discretion but acting in a fiduciary capacity, determines for
251	the interested trustee:
252	a.  The percentage to be used to calculate the unitrust
253	amount, provided the percentage used is not greater than 5
254	percent nor less than 3 percent;
255	b.  The method to be used in determining the fair market
256	value of the trust; and
257	c.  Which assets, if any, are to be excluded in determining
258	the unitrust amount; or
259	2.  The interested trustee or disinterested trustee
260	administers the trust such that:
261	a.  The percentage used to calculate the unitrust amount is
262	50 percent of the applicable federal rate as defined in the
263	Internal Revenue Code, 26 U.S.C. s. 7520, in effect for the
264	month the conversion under this section becomes effective and
265	for each January thereafter; however, if the percentage
266	calculated exceeds 5 percent, the unitrust percentage shall be 5
267	percent and if the percentage calculated is less than 3 percent,
268	the unitrust percentage shall be 3 percent; and
269	b.  The fair market value of the trust shall be determined
270	at least annually on an asset-by-asset basis, reasonably and in
271	good faith, in accordance with the provisions of s. 738.202(5),
272	except the following property shall not be included in
273	determining the value of the trust:
274	(I)  Any residential property or any tangible personal
275	property that, as of the first business day of the current
276	valuation year, one or more current beneficiaries of the trust
277	have or have had the right to occupy, or have or have had the
278	right to possess or control (other than in his or her capacity
279	as trustee of the trust), and instead the right of occupancy or
280	the right to possession and control shall be deemed to be the
281	unitrust amount with respect to such property; however, the
282	unitrust amount shall be adjusted to take into account partial
283	distributions from or receipt into the trust of such property
284	during the valuation year.
285	(II)  Any asset specifically given to a beneficiary and the
286	return on investment on such property, which return on
287	investment shall be distributable to such beneficiary.
288	(III)  Any asset while held in a testator's estate;
289	(c)  The trustee sends written notice of its intention to
290	take such action, along with copies of such written statement
291	and this section, and, if applicable, the determinations of
292	either the trustee or the disinterested person to:
293	1.  The grantor of the trust, if living.
294	2.  All living persons who are currently receiving or
295	eligible to receive distributions of income of the trust.
296	3.  All living persons who would receive distributions of
297	principal of the trust if the trust were to terminate at the
298	time of the giving of such notice (without regard to the
299	exercise of any power of appointment) or, if the trust does not
300	provide for its termination, all living persons who would
301	receive or be eligible to receive distributions of income or
302	principal of the trust if the persons identified in subparagraph
303	2. were deceased.
304	4.  All persons acting as advisers or protectors of the
305	trust.
306
307	Notice under this paragraph shall be served informally, in the
308	manner provided in the Florida Rules of Civil Procedure relating
309	to service of pleadings subsequent to the initial pleading.
310	Notice may be served on a legal representative or natural
311	guardian of a person without the filing of any proceeding or
312	approval of any court;
313
314	(d)  At least one person receiving notice under each of
315	subparagraphs (c)2. and 3. is legally competent; and
316	(e)  No person receiving such notice objects, by written
317	instrument delivered to the trustee, to the proposed action of
318	the trustee or the determinations of the disinterested person
319	within 60 days after service receipt of such notice. An
320	objection under this section may be executed by a legal
321	representative or natural guardian of a person without the
322	filing of any proceeding or approval of any court.
323	(3)  If a trustee desires to convert an income trust to a
324	total return unitrust, reconvert a total return unitrust to an
325	income trust, or change the percentage used to calculate the
326	unitrust amount or the method used to determine a fair market
327	value of the trust but does not have the ability to or elects
328	not to do it under subsection (2), the trustee may petition the
329	circuit court for such order as the trustee deems appropriate.
330	In that event, the court, in its own discretion or on the
331	petition of such trustee or any person having an income or
332	remainder interest in the trust, may appoint a disinterested
333	person who, acting in a fiduciary capacity, shall present such
334	information to the court as shall be necessary for the court to
335	make a determination hereunder.
336	(4)  All determinations made pursuant to sub-subparagraph
337	(2)(b)2.b. shall be conclusive if reasonable and made in good
338	faith. Such determination shall be conclusively presumed to have
339	been made reasonably and in good faith unless proven otherwise
340	in a proceeding commenced by or on behalf of a person interested
341	in the trust within the time provided in s. 737.307. The burden
342	will be on the objecting interested party to prove that the
343	determinations were not made reasonably and in good faith.
344	(5)  The unitrust amount shall not be less than the net
345	income of the trust, determined without regard to the provisions
346	of subsection (6), for:
347	(a)  A trust for which a marital deduction has been taken
348	for federal tax purposes under the Internal Revenue Code, 26
349	U.S.C. s. 2056 or s. 2523, during the lifetime of the spouse for
350	whom the trust was created; or
351	(b)  A trust to which the generation-skipping transfer tax
352	due under the Internal Revenue Code, 26 U.S.C. s. 2601 does not
353	apply by reason of any effective date or transition rule.
354
355	Paragraph (a) will not apply to any trust to the extent that the
356	use of a total return unitrust is recognized for federal tax
357	purposes under the Internal Revenue Code, 26 U.S.C. s. 2056 or
358	s. 2523. Paragraph (b) will not apply to any trust to the extent
359	that the use of a total return unitrust is recognized for
360	federal tax purposes under the Internal Revenue Code, 26 U.S.C.
361	s. 2601.
362	(5)(6)  Following the conversion of an income trust to a
363	total return unitrust, the trustee:
364	(a)  Shall treat the unitrust amount as if it were net
365	income of the trust for purposes of determining the amount
366	available, from time to time, for distribution from the trust.
367	(b)  May allocate to trust income for each taxable year of
368	the trust, or portion thereof:
369	1.  Net short-term capital gain described in the Internal
370	Revenue Code, 26 U.S.C. s. 1222(5), for such year, or portion
371	thereof, but only to the extent that the amount so allocated
372	together with all other amounts allocated to trust income, as
373	determined under the provisions of this chapter without regard
374	to this section and s. 738.104, for such year, or portion
375	thereof, does not exceed the unitrust amount for such year, or
376	portion thereof.
377	2.  Net long-term capital gain described in the Internal
378	Revenue Code, 26 U.S.C. s. 1222(7), for such year, or portion
379	thereof, but only to the extent that the amount so allocated
380	together with all other amounts, including amounts described in
381	subparagraph 1., allocated to trust income for such year, or
382	portion thereof, does not exceed the unitrust amount for such
383	year, or portion thereof.
384	(6)(7)  In administering a total return unitrust, the
385	trustee may, in its sole discretion but subject to the
386	provisions of the governing instrument, determine:
387	(a)  The effective date of the conversion.
388	(b)  The timing of distributions, including provisions for
389	prorating a distribution for a short year in which a
390	beneficiary's right to payments commences or ceases.
391	(c)  Whether distributions are to be made in cash or in
392	kind or partly in cash and partly in kind.
393	(d)  If the trust is reconverted to an income trust, the
394	effective date of such reconversion.
395	(e)  Such other administrative issues as may be necessary
396	or appropriate to carry out the purposes of this section.
397	(7)(8)  Conversion to a total return unitrust under the
398	provisions of this section shall not affect any other provision
399	of the governing instrument, if any, regarding distributions of
400	principal.
401	(9)  In the case of a trust for which a marital deduction
402	has been taken for federal tax purposes under the Internal
403	Revenue Code, 26 U.S.C. s. 2056 or s. 2523, the spouse otherwise
404	entitled to receive the net income of the trust shall have the
405	right, by written instrument delivered to the trustee, to compel
406	the reconversion during his or her lifetime of the trust from a
407	total return unitrust to an income trust, notwithstanding
408	anything in this section to the contrary, unless the use of a
409	total return unitrust is recognized for federal tax purposes
410	under the Internal Revenue Code, 26 U.S.C. s. 2056 or s. 2523.
411	(8)(10)  Any trustee or disinterested person who in good
412	faith takes or fails to take any action under this section shall
413	not be liable to any person affected by such action or inaction,
414	regardless of whether such person received written notice as
415	provided in this section and regardless of whether such person
416	was under a legal disability at the time of the delivery of such
417	notice. Such person's exclusive remedy shall be to obtain, under
418	subsection (9) (11), an order of the court directing the trustee
419	to convert an income trust to a total return unitrust, to
420	reconvert from a total return unitrust to an income trust, or to
421	change the percentage used to calculate the unitrust amount. If
422	a court determines that the trustee or disinterested person has
423	not acted in good faith in taking or failing to take any action
424	under this section, the provisions of s. 738.105(3) apply.
425	(9)(11)  If a majority in interest of either the income or
426	remainder beneficiaries of an income trust has delivered to the
427	trustee a written objection to the amount of the income
428	distributions of the trust, and, if the trustee has failed to
429	resolve the objection to the satisfaction of the objecting
430	beneficiaries within 6 months from the receipt of such written
431	objection, then the objecting beneficiaries may petition the
432	court in accordance with subsection (3).
433	(10)(12)  This section shall be construed as pertaining to
434	the administration of a trust and is applicable shall be
435	available to any trust that is administered either in this state
436	or under Florida law unless:
437	(a)  The governing instrument reflects an intention that
438	the current beneficiary or beneficiaries are to receive an
439	amount other than a reasonable current return from the trust;
440	(b)  The trust is a trust described in the Internal Revenue
441	Code, 26 U.S.C. s. 170(f)(2)(B), s. 642(c)(5), s. 664(d), s.
442	1361(d), s. 2702(a)(3), or s. 2702(b);
443	(c)  One or more persons to whom the trustee could
444	distribute income have a power of withdrawal over the trust:
445	1.  That is not subject to an ascertainable standard under
446	the Internal Revenue Code, 26 U.S.C. s. 2041 or s. 2514, and
447	exceeds in any calendar year the amount set forth in the
448	Internal Revenue Code, 26 U.S.C. s. 2041(b)(2) or s. 2514(e); or
449	2.  A power of withdrawal over the trust that can be
450	exercised to discharge a duty of support he or she possesses;
451	(d)  The governing instrument expressly prohibits use of
452	this section by specific reference to the section. A provision
453	in the governing instrument that, "The provisions of section
454	738.1041, Florida Statutes, as amended, or any corresponding
455	provision of future law, shall not be used in the administration
456	of this trust," or similar words reflecting such intent shall be
457	sufficient to preclude the use of this section; or
458	(e)  The trust is a trust with respect to which a trustee
459	currently possesses the power to adjust under s. 738.104.
460	(11)  The grantor of a trust may create an express total
461	return unitrust which will become effective as provided in the
462	trust document without requiring a conversion under this
463	section. An express total return unitrust created by the grantor
464	of the trust shall be treated as a unitrust under this section
465	only if the terms of the trust document contain all of the
466	following provisions:
467	(a)  That distributions from the trust will be unitrust
468	amounts and the manner in which the unitrust amount will be
469	calculated and the method in which the fair market value of the
470	trust will be determined.
471	(b)  The percentage to be used to calculate the unitrust
472	amount, provided the percentage used is not greater than 5
473	percent nor less than 3 percent.
474	(c)  The method to be used in determining the fair market
475	value of the trust.
476	(d)  Which assets, if any, are to be excluded in
477	determining the unitrust amount.
478	Section 6.  Subsection (1) of section 738.303, Florida
479	Statutes, is amended to read:
480	738.303  Apportionment when income interest ends.--
481	(1)  For purposes of this section, "undistributed income"
482	means net income received on or before the date on which an
483	income interest ends. The term does not include an item of
484	income or expense that is due or accrued or net income that has
485	been added or is required to be added to principal under the
486	terms of the trust. In the case of a trust being administered as
487	a unitrust under s. 738.1041, the term "undistributed income"
488	means the prorated unitrust amount computed on a daily basis
489	through the date on which the income interest ends.
490	Section 7.  Subsection (3) of section 738.401, Florida
491	Statutes, is amended, subsection (7) is renumbered as subsection
492	(8) and amended, and a new subsection (7) is added to said
493	section, to read:
494	738.401  Character of receipts.--
495	(3)  Except as otherwise provided in this section, a
496	trustee shall allocate the following receipts from an entity to
497	principal:
498	(a)  Property other than money.
499	(b)  Money received in one distribution or a series of
500	related distributions in exchange for part or all of a trust's
501	interest in the entity.
502	(c)  Money received in total or partial liquidation of the
503	entity.
504	(d)  Money received from an entity that is a regulated
505	investment company or a real estate investment trust if the
506	money distributed represents short-term or long-term capital
507	gain realized within the entity.
508	(7)  The following special rules shall apply to moneys or
509	property received by a private trustee from entities described
510	in this subsection:
511	(a)  Moneys or property received from a targeted entity
512	that is not an investment entity which do not exceed the trust's
513	pro rata share of the undistributed cumulative net income of the
514	targeted entity during the time an ownership interest in the
515	targeted entity was held by the trust shall be allocated to
516	income. The balance of moneys or property received from a
517	targeted entity shall be allocated to principal.
518	(b)  If trust assets include any interest in an investment
519	entity, the designated amount of moneys or property received
520	from the investment entity shall be treated by the trustee in
521	the same manner as if the trustee had directly held the trust's
522	pro rata share of the assets of the investment entity
523	attributable to the distribution of such designated amount.
524	Thereafter, distributions shall be treated as principal.
525	(c)  For purposes of this subsection, the following
526	definitions shall apply:
527	1.  "Cumulative net income" means the targeted entity's net
528	income as determined using the method of accounting regularly
529	used by the targeted entity in preparing its financial
530	statements, or if no financial statements are prepared, the net
531	book income computed for federal income tax purposes, for every
532	year an ownership interest in the entity is held by the trust.
533	The trust's pro rata share shall be the cumulative net income
534	multiplied by the percentage ownership of the trust.
535	2.  "Designated amount" means moneys or property received
536	from an investment entity during any year that is equal to the
537	amount of the distribution that does not exceed the greater of:
538	a.  The amount of income of the investment entity for the
539	current year, as reported to the trustee by the investment
540	entity for federal income tax purposes; or
541	b.  The amount of income of the investment entity for the
542	current year and the prior 2 years, as reported to the trustee
543	by the investment entity for federal income tax purposes, less
544	any distributions of moneys or property made by the investment
545	entity to the trustee during the prior 2 years.
546	3.  "Investment entity" means a targeted entity that
547	normally derives 50 percent or more of its annual cumulative net
548	income from interest, dividends, annuities, royalties, rental
549	activity, or other passive investments, including income from
550	the sale or exchange of such passive investments.
551	4.  "Private trustee" means a trustee who is an individual,
552	but only if the trustee is unable to utilize the power to adjust
553	between income and principal with respect to receipts from
554	entities described in this subsection pursuant to s. 738.104. A
555	bank, trust company, or other commercial trustee shall not be
556	considered to be a private trustee.
557	5.  "Targeted entity" means any entity that is treated as a
558	partnership, subchapter S corporation, or disregarded entity
559	pursuant to the Internal Revenue Code of 1986, as amended, other
560	than an entity described in s. 738.403.
561	6.  "Undistributed cumulative net income" means the trust's
562	pro rata share of cumulative net income, less all prior
563	distributions from the targeted entity to the trust that have
564	been allocated to income.
565	(d)  This subsection shall not be construed to modify or
566	change any of the provisions of ss. 738.705 and 738.706 relating
567	to income taxes.
568	(8)(7)  A trustee may rely upon a statement made by an
569	entity about the source or character of a distribution, about
570	the amount of profits of a targeted entity, or about the nature
571	and value of assets of an investment entity if the statement is
572	made at or near the time of distribution by the entity's board
573	of directors or other person or group of persons authorized to
574	exercise powers to pay money or transfer property comparable to
575	those of a corporation's board of directors.
576	Section 8.  This act shall take effect July 1, 2005.

CODING: Words stricken are deletions; words underlined are additions.