HB 0897

CS

CHAMBER ACTION

1	The Civil Justice Committee recommends the following:
2
3	Council/Committee Substitute
4	Remove the entire bill and insert:
5	A bill to be entitled
6	An act relating to trusts and other agency relationships;
7	amending s. 711.501, F.S.; including additional investment
8	instruments within the definition of the term "security
9	account"; creating s. 737.309, F.S.; providing procedures
10	for the resignation of a trustee; providing that such
11	resignation does not discharge or affect any liability of
12	the resigning trustee; providing for notice of
13	resignation; amending s. 737.402, F.S.; revising the
14	powers conferred upon a trustee; amending s. 737.403,
15	F.S.; specifying circumstances in which court
16	authorization is not required for a trustee to exercise
17	his or her power when a conflict of interest exists;
18	amending s. 738.104, F.S.; removing a prohibition on a
19	trustee's power to make certain adjustments; specifying a
20	circumstance under which an adjustment shall not be deemed
21	to benefit the trustee; providing application of section
22	to administration of certain trusts; conforming cross
23	references; amending s. 738.1041, F.S.; providing and
24	revising definitions; providing methods by which a trustee
25	may make certain changes to trusts; removing requirements
26	regarding certain minimum unitrust amounts; removing a
27	spouse's right to compel reconversion of certain trusts;
28	providing remedies for trustees or disinterested persons
29	not acting in good faith; expanding scope of section to
30	trusts administered either in this state or under Florida
31	law; authorizing a grantor to create an express total
32	return unitrust; requiring certain provisions to be
33	included in an express total return unitrust; amending s.
34	738.303, F.S.; redefining the term "undistributed income";
35	amending s. 738.401, F.S., relating to character of
36	receipts; providing certain statements that a trustee may
37	rely upon; providing special rules to apply to receipts by
38	private trustees from certain entities; providing
39	definitions; providing an effective date.
40
41	Be It Enacted by the Legislature of the State of Florida:
42
43	Section 1.  Subsection (10) of section 711.501, Florida
44	Statutes, is amended to read:
45	711.501  Definitions.--In ss. 711.50-711.512, unless the
46	context otherwise requires, the term:
47	(10)  "Security account" means:
48	(a)  A reinvestment account associated with a security, a
49	securities account with a broker, a cash balance in a brokerage
50	account, cash, interest, earnings, or dividends earned or
51	declared on a security in an account, a reinvestment account, or
52	a brokerage account, whether or not credited to the account
53	before the owner's death; or
54	(b)  An investment management account, investment advisory
55	account, investment agency account, custody account, or any
56	other type of account with a bank or trust company, including
57	the securities in the account, the cash balance in the account,
58	and cash equivalents, and any interest, earnings, or dividends
59	earned or declared on a security in the account, whether or not
60	credited to the account before the owner's death; or
61	(c)(b)  A cash balance or other property held for or due to
62	the owner of a security as a replacement for or product of an
63	account security, whether or not credited to the account before
64	the owner's death.
65	Section 2.  Section 737.309, Florida Statutes, is created
66	to read:
67	737.309  Resignation of trustee.--
68	(1)  A trustee may resign:
69	(a)  Upon at least 30 days' written notice to the settlor,
70	if living, all cotrustees, and all persons entitled to a trust
71	accounting pursuant to s. 737.303, as qualified by s. 731.303;
72	or
73	(b)  With approval of the court. In approving a
74	resignation, the court may issue orders and impose conditions
75	reasonably necessary for the protection of the trust property.
76	(2)  Any liability of a resigning trustee or of any
77	sureties on the trustee's bond for acts or omissions of the
78	trustee is not discharged or affected by the trustee's
79	resignation.
80	(3)  If the resignation of a trustee would require the
81	vacancy to be filled by a successor trustee, a trustee that
82	resigns shall continue to serve until the successor assumes the
83	trusteeship. The resigning trustee shall deliver copies of all
84	notices and other records pertaining to the resignation to the
85	successor trustee or, if none, to a cotrustee.
86	(4)  Notice of resignation shall be served in the manner
87	provided in the Florida Rules of Civil Procedure relating to
88	service of pleadings subsequent to the initial pleading. The
89	notice may be served on a legal representative or natural
90	guardian of a beneficiary without the filing of any proceeding
91	or approval of any court.
92	Section 3.  Paragraphs (y) and (z) of subsection (2) of
93	section 737.402, Florida Statutes, are amended to read:
94	737.402  Powers of trustees conferred by this part.--
95	(2)  Unless otherwise provided in the trust instrument, a
96	trustee has the power:
97	(y)  To employ persons, including attorneys, auditors,
98	investment advisers, or agents, even if they are the trustee or
99	associated with the trustee, to advise or assist the trustee in
100	the performance of his or her administrative duties and to pay
101	compensation and costs incurred in connection with such
102	employment from the assets of the trust; to act without
103	independent investigation upon their recommendations; and,
104	instead of acting personally, to employ one or more agents to
105	perform any act of administration, whether or not discretionary.
106	(z)1.  To prosecute or defend actions, claims, or
107	proceedings, including appeals, for the protection of trust
108	assets and of the trustee in the performance of his or her
109	duties.
110	2.  To employ attorneys and other agents to advise and
111	assist the trustee in the exercise of any of the trustee's
112	powers and to pay compensation and costs incurred in connection
113	with such employment from the assets of the trust.
114	Section 4.  Subsection (2) of section 737.403, Florida
115	Statutes, is amended to read:
116	737.403  Power of court to permit deviation or to approve
117	transactions involving conflict of interest.--
118	(2)  If the duty of the trustee and the trustee's
119	individual interest or his or her interest as trustee of another
120	trust conflict in the exercise of a trust power, the power may
121	be exercised only by court authorization, except as provided in
122	s. 737.402(2)(a), (e), (g), (s) and (y). Under this section,
123	personal profit or advantage to an affiliated or subsidiary
124	company or association is personal profit to any corporate
125	trustee. Court authorization is not required for any of the
126	following:
127	(a)  The exercise of any power described in s.
128	737.402(2)(a), (e), (g), (s), or (y);
129	(b)  The exercise of any power for which the trust
130	instrument acknowledges the trustee's conflict of interest and
131	expressly authorizes the exercise of that power notwithstanding
132	the conflict;
133	(c)  The exercise of any power consented to in writing by a
134	settlor of the trust while the settlor holds the right of
135	revocation of the trust;
136	(d)  The exercise of any power consented to in writing by
137	each of the beneficiaries to whom the trustee is required to
138	provide any annual or periodic accounting. Consent under this
139	paragraph may be given by a person who represents the interest
140	of the beneficiary under s. 731.303 or by the legal guardian of
141	the beneficiary or, if there is no legal guardian, by the
142	natural guardian of the beneficiary; or
143	(e)  Payment of costs or attorney's fees incurred in any
144	trust proceeding from the assets of the trust unless an action
145	has been filed or defense asserted against the trustee based
146	upon a breach of trust. Court authorization is not required if
147	the action or defense is later withdrawn or dismissed by the
148	party that is alleging a breach of trust or resolved without a
149	determination by the court that the trustee has committed a
150	breach of trust.
151	Section 5.  Subsections (3), (4), and (5) of section
152	738.104, Florida Statutes, are amended, and subsection (11) is
153	added to said section, to read:
154	738.104  Trustee's power to adjust.--
155	(3)  A trustee may not make an adjustment:
156	(a)  That diminishes the income interest in a trust that
157	requires all of the income to be paid at least annually to a
158	spouse and for which an estate tax or gift tax marital deduction
159	would be allowed, in whole or in part, if the trustee did not
160	have the power to adjust;
161	(a)(b)  That reduces the actuarial value of the income
162	interest in a trust to which a person transfers property with
163	the intent to qualify for a gift tax exclusion;
164	(b)(c)  That changes the amount payable to a beneficiary as
165	a fixed annuity or a fixed fraction of the value of the trust
166	assets;
167	(c)(d)  From any amount that is permanently set aside for
168	charitable purposes under a will or the terms of a trust unless
169	both income and principal are so set aside;
170	(d)(e)  If possessing or exercising the power to adjust
171	causes an individual to be treated as the owner of all or part
172	of the trust for income tax purposes and the individual would
173	not be treated as the owner if the trustee did not possess the
174	power to adjust;
175	(e)(f)  If possessing or exercising the power to adjust
176	causes all or part of the trust assets to be included for estate
177	tax purposes in the estate of an individual who has the power to
178	remove a trustee or appoint a trustee, or both, and the assets
179	would not be included in the estate of the individual if the
180	trustee did not possess the power to adjust;
181	(f)(g)  If the trustee is a beneficiary of the trust; or
182	(g)(h)  If the trustee is not a beneficiary of the trust
183	but the adjustment would benefit the trustee directly or
184	indirectly, except that in the case of a trustee whose
185	compensation for acting as trustee is based upon the value of
186	trust assets, an adjustment that affects the value of trust
187	assets shall not be deemed to benefit the trustee.
188	(4)  If paragraph (3)(d)(e), paragraph (3)(e)(f), paragraph
189	(3)(f)(g), or paragraph (3)(g)(h) applies to a trustee and there
190	is more than one trustee, a cotrustee to whom the provision does
191	not apply may make the adjustment unless the exercise of the
192	power by the remaining trustee is not permitted by the terms of
193	the trust.
194	(5)(a)  A trustee may release the entire power to adjust
195	conferred by subsection (1) if the trustee desires to convert an
196	income trust to a total return unitrust pursuant to s. 738.1041.
197	(b)  A trustee may release the entire power to adjust
198	conferred by subsection (1) or may release only the power to
199	adjust from income to principal or the power to adjust from
200	principal to income if the trustee is uncertain about whether
201	possessing or exercising the power will cause a result described
202	in paragraphs (3)(a)-(e)(f) or paragraph (3)(g)(h) or if the
203	trustee determines that possessing or exercising the power will
204	or may deprive the trust of a tax benefit or impose a tax burden
205	not described in subsection (3).
206	(c)  A release under this subsection may be permanent or
207	for a specified period, including a period measured by the life
208	of an individual. Notwithstanding anything contrary to this
209	subsection, a release of the power to adjust pursuant to
210	paragraph (a) shall remain effective only for as long as the
211	trust is administered as a unitrust pursuant to s. 738.1041.
212	(11)  This section shall be construed as pertaining to the
213	administration of a trust and is applicable to any trust that is
214	administered either in this state or under Florida law.
215	Section 6.  Section 738.1041, Florida Statutes, is amended
216	to read:
217	738.1041  Total return unitrust.--
218	(1)  For purposes of this section, the term:
219	(a)  "Disinterested person" means a person who is not a
220	"related or subordinate party" as defined in s. 672(c) of the
221	United States Internal Revenue Code, 26 U.S.C. ss. 1 et seq., or
222	any successor provision thereof, with respect to the person then
223	acting as trustee of the trust and excludes the grantor and any
224	interested trustee.
225	(b)  "Fair market value" means the fair market value of
226	assets held by the trust as otherwise determined under this
227	chapter, reduced by all known noncontingent liabilities.
228	(c)(b)  "Income trust" means a trust, created by either an
229	inter vivos or a testamentary instrument, which directs or
230	permits the trustee to distribute the net income of the trust to
231	one or more persons, either in fixed proportions or in amounts
232	or proportions determined by the trustee and regardless of
233	whether the trust directs or permits the trustee to distribute
234	the principal of the trust to one or more such persons.
235	Notwithstanding the foregoing, no trust that otherwise is an
236	"income trust" shall qualify hereunder, if it may be subject to
237	taxation under the Internal Revenue Code, 26 U.S.C. s. 2001 or
238	s. 2501, until the expiration of the period for filing the
239	return therefor, including extensions.
240	(d)(c)  "Interested distributee" means a person to whom
241	distributions of income or principal can currently be made who
242	has the power to remove the existing trustee and designate as
243	successor a person who may be a "related or subordinate party,"
244	as defined in the Internal Revenue Code, 26 U.S.C. s. 672(c),
245	with respect to such distributee.
246	(e)(d)  "Interested trustee" means an individual trustee to
247	whom the net income or principal of the trust can currently be
248	distributed or would be distributed if the trust were then to
249	terminate and be distributed, any trustee whom an interested
250	distributee has the power to remove and replace with a related
251	or subordinate party as defined in paragraph (d) (c), or an
252	individual trustee whose legal obligation to support a
253	beneficiary may be satisfied by distributions of income and
254	principal of the trust.
255	(f)  "Unitrust amount" means the amount determined by
256	multiplying the fair market value of the assets as defined in
257	paragraph (b) by the percentage calculated under paragraph
258	(2)(b).
259	(2)  A trustee may, without court approval, convert an
260	income trust to a total return unitrust, reconvert a total
261	return unitrust to an income trust, or change the percentage
262	used to calculate the unitrust amount or the method used to
263	determine the fair market value of the trust if:
264	(a)  The trustee adopts a written statement regarding trust
265	distributions that provides:
266	1.  In the case of a trust being administered as an income
267	trust, that future distributions from the trust will be unitrust
268	amounts rather than net income, and indicates the manner in
269	which the unitrust amount will be calculated and the method in
270	which the fair market value of the trust will be determined.
271	2.  In the case of a trust being administered as a total
272	return unitrust, that:
273	a.  Future distributions from the trust will be net income
274	rather than unitrust amounts; or
275	b.  The percentage used to calculate the unitrust amount or
276	the method used to determine the fair market value of the trust
277	will be changed, and indicates the manner in which the new
278	unitrust amount will be calculated and the method in which the
279	new fair market value of the trust will be determined;
280	(b)  The trustee determines the terms of the unitrust under
281	one of the following methods:
282	1.  A disinterested The trustee determines, or if there is
283	no trustee other than an interested trustee, the interested
284	trustee appoints a disinterested person who, in its sole
285	discretion but acting in a fiduciary capacity, determines for
286	the interested trustee:
287	a.  The percentage to be used to calculate the unitrust
288	amount, provided the percentage used is not greater than 5
289	percent nor less than 3 percent;
290	b.  The method to be used in determining the fair market
291	value of the trust; and
292	c.  Which assets, if any, are to be excluded in determining
293	the unitrust amount; or
294	2.  The interested trustee or disinterested trustee
295	administers the trust such that:
296	a.  The percentage used to calculate the unitrust amount is
297	50 percent of the applicable federal rate as defined in the
298	Internal Revenue Code, 26 U.S.C. s. 7520, in effect for the
299	month the conversion under this section becomes effective and
300	for each January thereafter; however, if the percentage
301	calculated exceeds 5 percent, the unitrust percentage shall be 5
302	percent and if the percentage calculated is less than 3 percent,
303	the unitrust percentage shall be 3 percent; and
304	b.  The fair market value of the trust shall be determined
305	at least annually on an asset-by-asset basis, reasonably and in
306	good faith, in accordance with the provisions of s. 738.202(5),
307	except the following property shall not be included in
308	determining the value of the trust:
309	(I)  Any residential property or any tangible personal
310	property that, as of the first business day of the current
311	valuation year, one or more current beneficiaries of the trust
312	have or have had the right to occupy, or have or have had the
313	right to possess or control (other than in his or her capacity
314	as trustee of the trust), and instead the right of occupancy or
315	the right to possession and control shall be deemed to be the
316	unitrust amount with respect to such property; however, the
317	unitrust amount shall be adjusted to take into account partial
318	distributions from or receipt into the trust of such property
319	during the valuation year.
320	(II)  Any asset specifically given to a beneficiary and the
321	return on investment on such property, which return on
322	investment shall be distributable to such beneficiary.
323	(III)  Any asset while held in a testator's estate;
324	(c)  The trustee sends written notice of its intention to
325	take such action, along with copies of such written statement
326	and this section, and, if applicable, the determinations of
327	either the trustee or the disinterested person to:
328	1.  The grantor of the trust, if living.
329	2.  All living persons who are currently receiving or
330	eligible to receive distributions of income of the trust.
331	3.  All living persons who would receive distributions of
332	principal of the trust if the trust were to terminate at the
333	time of the giving of such notice (without regard to the
334	exercise of any power of appointment) or, if the trust does not
335	provide for its termination, all living persons who would
336	receive or be eligible to receive distributions of income or
337	principal of the trust if the persons identified in subparagraph
338	2. were deceased.
339	4.  All persons acting as advisers or protectors of the
340	trust.
341
342	Notice under this paragraph shall be served informally, in the
343	manner provided in the Florida Rules of Civil Procedure relating
344	to service of pleadings subsequent to the initial pleading.
345	Notice may be served on a legal representative or natural
346	guardian of a person without the filing of any proceeding or
347	approval of any court;
348
349	(d)  At least one person receiving notice under each of
350	subparagraphs (c)2. and 3. is legally competent; and
351	(e)  No person receiving such notice objects, by written
352	instrument delivered to the trustee, to the proposed action of
353	the trustee or the determinations of the disinterested person
354	within 60 days after service receipt of such notice. An
355	objection under this section may be executed by a legal
356	representative or natural guardian of a person without the
357	filing of any proceeding or approval of any court.
358	(3)  If a trustee desires to convert an income trust to a
359	total return unitrust, reconvert a total return unitrust to an
360	income trust, or change the percentage used to calculate the
361	unitrust amount or the method used to determine a fair market
362	value of the trust but does not have the ability to or elects
363	not to do it under subsection (2), the trustee may petition the
364	circuit court for such order as the trustee deems appropriate.
365	In that event, the court, in its own discretion or on the
366	petition of such trustee or any person having an income or
367	remainder interest in the trust, may appoint a disinterested
368	person who, acting in a fiduciary capacity, shall present such
369	information to the court as shall be necessary for the court to
370	make a determination hereunder.
371	(4)  All determinations made pursuant to sub-subparagraph
372	(2)(b)2.b. shall be conclusive if reasonable and made in good
373	faith. Such determination shall be conclusively presumed to have
374	been made reasonably and in good faith unless proven otherwise
375	in a proceeding commenced by or on behalf of a person interested
376	in the trust within the time provided in s. 737.307. The burden
377	will be on the objecting interested party to prove that the
378	determinations were not made reasonably and in good faith.
379	(5)  The unitrust amount shall not be less than the net
380	income of the trust, determined without regard to the provisions
381	of subsection (6), for:
382	(a)  A trust for which a marital deduction has been taken
383	for federal tax purposes under the Internal Revenue Code, 26
384	U.S.C. s. 2056 or s. 2523, during the lifetime of the spouse for
385	whom the trust was created; or
386	(b)  A trust to which the generation-skipping transfer tax
387	due under the Internal Revenue Code, 26 U.S.C. s. 2601 does not
388	apply by reason of any effective date or transition rule.
389
390	Paragraph (a) will not apply to any trust to the extent that the
391	use of a total return unitrust is recognized for federal tax
392	purposes under the Internal Revenue Code, 26 U.S.C. s. 2056 or
393	s. 2523. Paragraph (b) will not apply to any trust to the extent
394	that the use of a total return unitrust is recognized for
395	federal tax purposes under the Internal Revenue Code, 26 U.S.C.
396	s. 2601.
397	(5)(6)  Following the conversion of an income trust to a
398	total return unitrust, the trustee:
399	(a)  Shall treat the unitrust amount as if it were net
400	income of the trust for purposes of determining the amount
401	available, from time to time, for distribution from the trust.
402	(b)  May allocate to trust income for each taxable year of
403	the trust, or portion thereof:
404	1.  Net short-term capital gain described in the Internal
405	Revenue Code, 26 U.S.C. s. 1222(5), for such year, or portion
406	thereof, but only to the extent that the amount so allocated
407	together with all other amounts allocated to trust income, as
408	determined under the provisions of this chapter without regard
409	to this section and s. 738.104, for such year, or portion
410	thereof, does not exceed the unitrust amount for such year, or
411	portion thereof.
412	2.  Net long-term capital gain described in the Internal
413	Revenue Code, 26 U.S.C. s. 1222(7), for such year, or portion
414	thereof, but only to the extent that the amount so allocated
415	together with all other amounts, including amounts described in
416	subparagraph 1., allocated to trust income for such year, or
417	portion thereof, does not exceed the unitrust amount for such
418	year, or portion thereof.
419	(6)(7)  In administering a total return unitrust, the
420	trustee may, in its sole discretion but subject to the
421	provisions of the governing instrument, determine:
422	(a)  The effective date of the conversion.
423	(b)  The timing of distributions, including provisions for
424	prorating a distribution for a short year in which a
425	beneficiary's right to payments commences or ceases.
426	(c)  Whether distributions are to be made in cash or in
427	kind or partly in cash and partly in kind.
428	(d)  If the trust is reconverted to an income trust, the
429	effective date of such reconversion.
430	(e)  Such other administrative issues as may be necessary
431	or appropriate to carry out the purposes of this section.
432	(7)(8)  Conversion to a total return unitrust under the
433	provisions of this section shall not affect any other provision
434	of the governing instrument, if any, regarding distributions of
435	principal.
436	(9)  In the case of a trust for which a marital deduction
437	has been taken for federal tax purposes under the Internal
438	Revenue Code, 26 U.S.C. s. 2056 or s. 2523, the spouse otherwise
439	entitled to receive the net income of the trust shall have the
440	right, by written instrument delivered to the trustee, to compel
441	the reconversion during his or her lifetime of the trust from a
442	total return unitrust to an income trust, notwithstanding
443	anything in this section to the contrary, unless the use of a
444	total return unitrust is recognized for federal tax purposes
445	under the Internal Revenue Code, 26 U.S.C. s. 2056 or s. 2523.
446	(8)(10)  Any trustee or disinterested person who in good
447	faith takes or fails to take any action under this section shall
448	not be liable to any person affected by such action or inaction,
449	regardless of whether such person received written notice as
450	provided in this section and regardless of whether such person
451	was under a legal disability at the time of the delivery of such
452	notice. Such person's exclusive remedy shall be to obtain, under
453	subsection (9) (11), an order of the court directing the trustee
454	to convert an income trust to a total return unitrust, to
455	reconvert from a total return unitrust to an income trust, or to
456	change the percentage used to calculate the unitrust amount. If
457	a court determines that the trustee or disinterested person has
458	not acted in good faith in taking or failing to take any action
459	under this section, the provisions of s. 738.105(3) apply.
460	(9)(11)  If a majority in interest of either the income or
461	remainder beneficiaries of an income trust has delivered to the
462	trustee a written objection to the amount of the income
463	distributions of the trust, and, if the trustee has failed to
464	resolve the objection to the satisfaction of the objecting
465	beneficiaries within 6 months from the receipt of such written
466	objection, then the objecting beneficiaries may petition the
467	court in accordance with subsection (3).
468	(10)(12)  This section shall be construed as pertaining to
469	the administration of a trust and is applicable shall be
470	available to any trust that is administered either in this state
471	or under Florida law unless:
472	(a)  The governing instrument reflects an intention that
473	the current beneficiary or beneficiaries are to receive an
474	amount other than a reasonable current return from the trust;
475	(b)  The trust is a trust described in the Internal Revenue
476	Code, 26 U.S.C. s. 170(f)(2)(B), s. 642(c)(5), s. 664(d), s.
477	1361(d), s. 2702(a)(3), or s. 2702(b);
478	(c)  One or more persons to whom the trustee could
479	distribute income have a power of withdrawal over the trust:
480	1.  That is not subject to an ascertainable standard under
481	the Internal Revenue Code, 26 U.S.C. s. 2041 or s. 2514, and
482	exceeds in any calendar year the amount set forth in the
483	Internal Revenue Code, 26 U.S.C. s. 2041(b)(2) or s. 2514(e); or
484	2.  A power of withdrawal over the trust that can be
485	exercised to discharge a duty of support he or she possesses;
486	(d)  The governing instrument expressly prohibits use of
487	this section by specific reference to the section. A provision
488	in the governing instrument that, "The provisions of section
489	738.1041, Florida Statutes, as amended, or any corresponding
490	provision of future law, shall not be used in the administration
491	of this trust," or similar words reflecting such intent shall be
492	sufficient to preclude the use of this section; or
493	(e)  The trust is a trust with respect to which a trustee
494	currently possesses the power to adjust under s. 738.104.
495	(11)  The grantor of a trust may create an express total
496	return unitrust which will become effective as provided in the
497	trust document without requiring a conversion under this
498	section. An express total return unitrust created by the grantor
499	of the trust shall be treated as a unitrust under this section
500	only if the terms of the trust document contain all of the
501	following provisions:
502	(a)  That distributions from the trust will be unitrust
503	amounts and the manner in which the unitrust amount will be
504	calculated and the method in which the fair market value of the
505	trust will be determined.
506	(b)  The percentage to be used to calculate the unitrust
507	amount, provided the percentage used is not greater than 5
508	percent nor less than 3 percent.
509	(c)  The method to be used in determining the fair market
510	value of the trust.
511	(d)  Which assets, if any, are to be excluded in
512	determining the unitrust amount.
513	Section 7.  Subsection (1) of section 738.303, Florida
514	Statutes, is amended to read:
515	738.303  Apportionment when income interest ends.--
516	(1)  For purposes of this section, "undistributed income"
517	means net income received on or before the date on which an
518	income interest ends. The term does not include an item of
519	income or expense that is due or accrued or net income that has
520	been added or is required to be added to principal under the
521	terms of the trust. In the case of a trust being administered as
522	a unitrust under s. 738.1041, the term "undistributed income"
523	means the prorated unitrust amount computed on a daily basis
524	through the date on which the income interest ends.
525	Section 8.  Subsection (3) of section 738.401, Florida
526	Statutes, is amended, subsection (7) is renumbered as subsection
527	(8) and amended, and a new subsection (7) is added to said
528	section, to read:
529	738.401  Character of receipts.--
530	(3)  Except as otherwise provided in this section, a
531	trustee shall allocate the following receipts from an entity to
532	principal:
533	(a)  Property other than money.
534	(b)  Money received in one distribution or a series of
535	related distributions in exchange for part or all of a trust's
536	interest in the entity.
537	(c)  Money received in total or partial liquidation of the
538	entity.
539	(d)  Money received from an entity that is a regulated
540	investment company or a real estate investment trust if the
541	money distributed represents short-term or long-term capital
542	gain realized within the entity.
543	(7)  The following special rules shall apply to moneys or
544	property received by a private trustee from entities described
545	in this subsection:
546	(a)  Moneys or property received from a targeted entity
547	that is not an investment entity which do not exceed the trust's
548	pro rata share of the undistributed cumulative net income of the
549	targeted entity during the time an ownership interest in the
550	targeted entity was held by the trust shall be allocated to
551	income. The balance of moneys or property received from a
552	targeted entity shall be allocated to principal.
553	(b)  If trust assets include any interest in an investment
554	entity, the designated amount of moneys or property received
555	from the investment entity shall be treated by the trustee in
556	the same manner as if the trustee had directly held the trust's
557	pro rata share of the assets of the investment entity
558	attributable to the distribution of such designated amount.
559	Thereafter, distributions shall be treated as principal.
560	(c)  For purposes of this subsection, the following
561	definitions shall apply:
562	1.  "Cumulative net income" means the targeted entity's net
563	income as determined using the method of accounting regularly
564	used by the targeted entity in preparing its financial
565	statements, or if no financial statements are prepared, the net
566	book income computed for federal income tax purposes, for every
567	year an ownership interest in the entity is held by the trust.
568	The trust's pro rata share shall be the cumulative net income
569	multiplied by the percentage ownership of the trust.
570	2.  "Designated amount" means moneys or property received
571	from an investment entity during any year that is equal to the
572	amount of the distribution that does not exceed the greater of:
573	a.  The amount of income of the investment entity for the
574	current year, as reported to the trustee by the investment
575	entity for federal income tax purposes; or
576	b.  The amount of income of the investment entity for the
577	current year and the prior 2 years, as reported to the trustee
578	by the investment entity for federal income tax purposes, less
579	any distributions of moneys or property made by the investment
580	entity to the trustee during the prior 2 years.
581	3.  "Investment entity" means a targeted entity that
582	normally derives 50 percent or more of its annual cumulative net
583	income from interest, dividends, annuities, royalties, rental
584	activity, or other passive investments, including income from
585	the sale or exchange of such passive investments.
586	4.  "Private trustee" means a trustee who is an individual,
587	but only if the trustee is unable to utilize the power to adjust
588	between income and principal with respect to receipts from
589	entities described in this subsection pursuant to s. 738.104. A
590	bank, trust company, or other commercial trustee shall not be
591	considered to be a private trustee.
592	5.  "Targeted entity" means any entity that is treated as a
593	partnership, subchapter S corporation, or disregarded entity
594	pursuant to the Internal Revenue Code of 1986, as amended, other
595	than an entity described in s. 738.403.
596	6.  "Undistributed cumulative net income" means the trust's
597	pro rata share of cumulative net income, less all prior
598	distributions from the targeted entity to the trust that have
599	been allocated to income.
600	(d)  This subsection shall not be construed to modify or
601	change any of the provisions of ss. 738.705 and 738.706 relating
602	to income taxes.
603	(8)(7)  A trustee may rely upon a statement made by an
604	entity about the source or character of a distribution, about
605	the amount of profits of a targeted entity, or about the nature
606	and value of assets of an investment entity if the statement is
607	made at or near the time of distribution by the entity's board
608	of directors or other person or group of persons authorized to
609	exercise powers to pay money or transfer property comparable to
610	those of a corporation's board of directors.
611	Section 9.  This act shall take effect July 1, 2005.

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