HB 897

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

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