Florida Senate - 2012                                     SB 978
       
       
       
       By Senator Fasano
       
       
       
       
       11-00677-12                                            2012978__
    1                        A bill to be entitled                      
    2         An act relating to the Florida Uniform Principal and
    3         Income Act; amending s. 738.102, F.S.; defining the
    4         term “carrying value”; repealing s. 738.104(11), F.S.,
    5         relating to the administration of a trust and its
    6         applicability, which is being transferred to another
    7         section; amending s. 738.1041, F.S.; defining the term
    8         “average fair market value” and revising the term
    9         “unitrust amount”; deleting a duplicative provision
   10         relating to conclusive determinations of the terms of
   11         a unitrust; revising provisions relating to an express
   12         total return unitrust; amending s. 738.105, F.S.;
   13         substituting the term “trustee” for “fiduciary” with
   14         respect to judicial control of discretionary powers;
   15         amending s. 738.201, F.S.; revising provisions
   16         relating to the determination and distribution of net
   17         income; amending s. 738.202, F.S.; revising provisions
   18         relating to distributions to residuary and remainder
   19         beneficiaries; amending ss. 738.301, 738.302, and
   20         738.303, F.S.; substituting the term “fiduciary” for
   21         “trustee” to clarify that provisions apply to all
   22         fiduciaries; amending s. 738.401, F.S.; substituting
   23         the term “fiduciary” for “trustee” to clarify that
   24         provisions apply to all fiduciaries; revising how
   25         distributions from entities are allocated between
   26         income and principal; amending ss. 738.402, 738.403,
   27         738.501, 738.502, 738.503, 738.504, and 738.601, F.S.;
   28         substituting the term “fiduciary” for “trustee” to
   29         clarify that provisions apply to all fiduciaries;
   30         amending s. 738.602, F.S.; substituting the term
   31         “fiduciary” for “trustee” to clarify that provisions
   32         apply to all fiduciaries; revising provisions relating
   33         to allocations to trusts; amending s. 738.603, F.S.;
   34         substituting the term “fiduciary” for “trustee” to
   35         clarify that provisions apply to all fiduciaries;
   36         revising provisions relating to the allocation between
   37         income and principal when liquidating assets; amending
   38         ss. 738.604, 738.605, 738.606, 738.607, 738.608,
   39         738.701, 738.702, 738.703, and 738.704, F.S.;
   40         substituting the term “fiduciary” for “trustee” to
   41         clarify that provisions apply to all fiduciaries;
   42         amending s. 738.705, F.S.; substituting the term
   43         “fiduciary” for “trustee” to clarify that provisions
   44         apply to all fiduciaries; revising the method for
   45         allocating income taxes between income and principal;
   46         amending s. 738.801, F.S.; clarifying the
   47         apportionment of expenses between tenants and
   48         remaindermen; amending s. 738.804, F.S.; transferring
   49         a provision relating to applicability; providing an
   50         effective date.
   51  
   52  Be It Enacted by the Legislature of the State of Florida:
   53  
   54         Section 1. Present subsections (3) through (13) of section
   55  738.102, Florida Statutes, are renumbered as subsections (4)
   56  through (14), respectively, and a new subsection (3) is added to
   57  that section, to read:
   58         738.102 Definitions.—As used in this chapter, the term:
   59         (3) “Carrying value” means the fair market value at the
   60  time the assets are received by the fiduciary. For the estates
   61  of decedents and trusts described in s. 733.707(3), after the
   62  grantor’s death, the assets are considered received as of the
   63  date of death. If there is a change in fiduciaries, a majority
   64  of the continuing fiduciaries may elect to adjust the carrying
   65  values to reflect the fair market value of the assets at the
   66  beginning of their administration. If such election is made, it
   67  must be reflected on the first accounting filed after the
   68  election. For assets acquired during the administration of the
   69  estate or trust, the carrying value is equal to the acquisition
   70  costs of the asset.
   71         Section 2. Subsection (11) of section 738.104, Florida
   72  Statutes, is repealed.
   73         Section 3. Section 738.1041, Florida Statutes, is amended
   74  to read:
   75         738.1041 Total return unitrust.—
   76         (1) For purposes of this section, the term:
   77         (a) “Average fair market value” means the average of the
   78  fair market values of assets held by the trust at the beginning
   79  of the current and each of the 2 preceding years, or for the
   80  entire term of the trust if there are less than 2 preceding
   81  years, and adjusted as follows:
   82         1. If assets have been added to the trust during the years
   83  used to determine the average, the amount of each addition is
   84  added to all years in which such addition was not included.
   85         2. If assets have been distributed from the trust during
   86  the years used to determine the average, other than in
   87  satisfaction of the unitrust amount, the amount of each
   88  distribution is subtracted from all years in which such
   89  distribution was not included.
   90         (b)(a) “Disinterested person” means a person who is not a
   91  related or subordinate party” as defined in s. 672(c) of the
   92  United States Internal Revenue Code, 26 U.S.C. ss. 1 et seq., or
   93  any successor provision thereof, with respect to the person then
   94  acting as trustee of the trust and excludes the grantor and any
   95  interested trustee.
   96         (c)(b) “Fair market value” means the fair market value of
   97  the assets held by the trust as otherwise determined under this
   98  chapter, reduced by all known noncontingent liabilities.
   99         (d)(c) “Income trust” means a trust, created by either an
  100  inter vivos or a testamentary instrument, which directs or
  101  permits the trustee to distribute the net income of the trust to
  102  one or more persons, either in fixed proportions or in amounts
  103  or proportions determined by the trustee and regardless of
  104  whether the trust directs or permits the trustee to distribute
  105  the principal of the trust to one or more such persons.
  106         (e)(d) “Interested distributee” means a person to whom
  107  distributions of income or principal can currently be made and
  108  who has the power to remove the existing trustee and designate
  109  as successor a person who may be a related or subordinate
  110  party,” as defined in the Internal Revenue Code, 26 U.S.C. s.
  111  672(c), with respect to such distributee.
  112         (f)(e) “Interested trustee” means an individual trustee to
  113  whom the net income or principal of the trust can currently be
  114  distributed or would be distributed if the trust were then to
  115  terminate and be distributed, any trustee whom an interested
  116  distributee has the power to remove and replace with a related
  117  or subordinate party as defined in paragraph (d), or an
  118  individual trustee whose legal obligation to support a
  119  beneficiary may be satisfied by distributions of income and
  120  principal of the trust.
  121         (g) “Related or subordinate party” has the same meaning as
  122  provided in 26 U.S.C. s. 672(c) of the Internal Revenue Code, or
  123  any successor provision thereof.
  124         (h)(f) “Unitrust amount” means the amount determined by
  125  multiplying the average fair market value of the assets as
  126  calculated in subparagraph (a)1. defined in paragraph (b) by the
  127  percentage calculated under paragraph (2)(b).
  128         (2) A trustee may, without court approval, convert an
  129  income trust to a total return unitrust, reconvert a total
  130  return unitrust to an income trust, or change the percentage
  131  used to calculate the unitrust amount or the method used to
  132  determine the fair market value of the trust if:
  133         (a) The trustee adopts a written statement regarding trust
  134  distributions which that provides:
  135         1. In the case of a trust being administered as an income
  136  trust, that future distributions from the trust will be unitrust
  137  amounts rather than net income, and indicates the manner in
  138  which the unitrust amount will be calculated and the method in
  139  which the fair market value of the trust will be determined.
  140         2. In the case of a trust being administered as a total
  141  return unitrust, that:
  142         a. Future distributions from the trust will be net income
  143  rather than unitrust amounts; or
  144         b. The percentage used to calculate the unitrust amount or
  145  the method used to determine the fair market value of the trust
  146  will be changed, and indicates the manner in which the new
  147  unitrust amount will be calculated and the method in which the
  148  new fair market value of the trust will be determined;
  149         (b) The trustee determines the terms of the unitrust under
  150  one of the following methods:
  151         1. A disinterested trustee determines, or if there is no
  152  trustee other than an interested trustee, the interested trustee
  153  appoints a disinterested person who, in its sole discretion but
  154  acting in a fiduciary capacity, determines for the interested
  155  trustee:
  156         a. The percentage to be used to calculate the unitrust
  157  amount if, provided the percentage used is not greater than 5
  158  percent or nor less than 3 percent;
  159         b. The method to be used in determining the fair market
  160  value of the trust; and
  161         c. Which assets, if any, are to be excluded in determining
  162  the unitrust amount; or
  163         2. The interested trustee or disinterested trustee
  164  administers the trust such that:
  165         a. The percentage used to calculate the unitrust amount is
  166  50 percent of the applicable federal rate as defined in the
  167  Internal Revenue Code, 26 U.S.C. s. 7520, in effect for the
  168  month the conversion under this section becomes effective and
  169  for each January thereafter; however, if the percentage
  170  calculated exceeds 5 percent, the unitrust percentage is shall
  171  be 5 percent and if the percentage calculated is less than 3
  172  percent, the unitrust percentage is shall be 3 percent; and
  173         b. The fair market value of the trust shall be determined
  174  at least annually on an asset-by-asset basis, reasonably and in
  175  good faith, in accordance with the provisions of s. 738.202(5),
  176  except the following property may shall not be included in
  177  determining the value of the trust:
  178         (I) Any residential property or any tangible personal
  179  property that, as of the first business day of the current
  180  valuation year, one or more current beneficiaries of the trust
  181  have or have had the right to occupy, or have or have had the
  182  right to possess or control, (other than in his or her capacity
  183  as trustee of the trust), and instead the right of occupancy or
  184  the right to possession and control is shall be deemed to be the
  185  unitrust amount with respect to such property; however, the
  186  unitrust amount must shall be adjusted to take into account
  187  partial distributions from or receipt into the trust of such
  188  property during the valuation year;.
  189         (II) Any asset specifically given to a beneficiary and the
  190  return on investment on such property, which return on
  191  investment shall be distributable to the such beneficiary; or.
  192         (III) Any asset while held in a decedent’s testator’s
  193  estate;
  194         (c) The trustee sends written notice of its intention to
  195  take such action, along with copies of the such written
  196  statement regarding trust distributions and this section, and,
  197  if applicable, the determinations of either the trustee or the
  198  disinterested person to:
  199         1. The grantor of the trust, if living.
  200         2. All living persons who are currently receiving or
  201  eligible to receive distributions of income from of the trust.
  202         3. All living persons who would receive distributions of
  203  principal of the trust if the trust were to terminate at the
  204  time of the giving of such notice (without regard to the
  205  exercise of any power of appointment,) or, if the trust does not
  206  provide for its termination, all living persons who would
  207  receive or be eligible to receive distributions of income or
  208  principal of the trust if the persons identified in subparagraph
  209  2. were deceased.
  210         4. All persons acting as advisers or protectors of the
  211  trust.
  212  
  213  Notice under this paragraph shall be served informally, in the
  214  manner provided in the Florida Rules of Civil Procedure relating
  215  to service of pleadings subsequent to the initial pleading.
  216  Notice may be served on a legal representative or natural
  217  guardian of a person without the filing of any proceeding or
  218  approval of any court;
  219         (d) At least one person receiving notice under each of
  220  subparagraphs (c)2. and 3. is legally competent; and
  221         (e) Persons No person receiving such notice under each of
  222  subparagraphs (c)2. and 3. do not object objects, by written
  223  instrument delivered to the trustee, to the proposed action of
  224  the trustee or the determinations of the disinterested person
  225  within 60 days after service of such notice. An objection under
  226  this section may be executed by a legal representative or
  227  natural guardian of a person without the filing of any
  228  proceeding or approval of any court.
  229         (3) If a trustee desires to convert an income trust to a
  230  total return unitrust, reconvert a total return unitrust to an
  231  income trust, or change the percentage used to calculate the
  232  unitrust amount or the method used to determine a fair market
  233  value of the trust but does not have the ability to or elects
  234  not to do it under subsection (2), the trustee may petition the
  235  circuit court for such order as the trustee deems appropriate.
  236  In that event, the court, in its own discretion or on the
  237  petition of such trustee or any person having an income or
  238  remainder interest in the trust, may appoint a disinterested
  239  person who, acting in a fiduciary capacity, shall present such
  240  information to the court as is shall be necessary for the court
  241  to make a determination hereunder.
  242         (4) All determinations made pursuant to sub-subparagraph
  243  (2)(b)2.b. shall be conclusive if reasonable and made in good
  244  faith. Such determination shall be conclusively presumed to have
  245  been made reasonably and in good faith unless proven otherwise
  246  in a proceeding commenced by or on behalf of a person interested
  247  in the trust within the time provided in s. 736.1008. The burden
  248  will be on the objecting interested party to prove that the
  249  determinations were not made reasonably and in good faith.
  250         (4)(5) Following the conversion of an income trust to a
  251  total return unitrust, the trustee:
  252         (a) Shall treat the unitrust amount as if it were net
  253  income of the trust for purposes of determining the amount
  254  available, from time to time, for distribution from the trust.
  255         (b) May allocate to trust income for each taxable year of
  256  the trust, or portion thereof:
  257         1. Net short-term capital gain described in the Internal
  258  Revenue Code, 26 U.S.C. s. 1222(5), for such year, or portion
  259  thereof, but only to the extent that the amount so allocated
  260  together with all other amounts allocated to trust income, as
  261  determined under the provisions of this chapter without regard
  262  to this section and s. 738.104, for such year, or portion
  263  thereof, does not exceed the unitrust amount for such year, or
  264  portion thereof.
  265         2. Net long-term capital gain described in the Internal
  266  Revenue Code, 26 U.S.C. s. 1222(7), for such year, or portion
  267  thereof, but only to the extent that the amount so allocated
  268  together with all other amounts, including amounts described in
  269  subparagraph 1., allocated to trust income for such year, or
  270  portion thereof, does not exceed the unitrust amount for such
  271  year, or portion thereof.
  272         (5)(6) In administering a total return unitrust, the
  273  trustee may, in its sole discretion but subject to the
  274  provisions of the governing instrument, determine:
  275         (a) The effective date of the conversion.
  276         (b) The timing of distributions, including provisions for
  277  prorating a distribution for a short year in which a
  278  beneficiary’s right to payments commences or ceases.
  279         (c) Whether distributions are to be made in cash or in kind
  280  or partly in cash and partly in kind.
  281         (d) If the trust is reconverted to an income trust, the
  282  effective date of such reconversion.
  283         (e) Such other administrative issues as may be necessary or
  284  appropriate to carry out the purposes of this section.
  285         (6)(7) Conversion to a total return unitrust under the
  286  provisions of this section does shall not affect any other
  287  provision of the governing instrument, if any, regarding
  288  distributions of principal.
  289         (7)(8) Any trustee or disinterested person who in good
  290  faith takes or fails to take any action under this section is
  291  shall not be liable to any person affected by such action or
  292  inaction, regardless of whether such person received written
  293  notice as provided in this section or and regardless of whether
  294  such person was under a legal disability at the time of the
  295  delivery of such notice. Such person’s exclusive remedy is shall
  296  be to obtain, under subsection (8) (9), an order of the court
  297  directing the trustee to convert an income trust to a total
  298  return unitrust, to reconvert from a total return unitrust to an
  299  income trust, or to change the percentage used to calculate the
  300  unitrust amount. If a court determines that the trustee or
  301  disinterested person has not acted in good faith in taking or
  302  failing to take any action under this section, the provisions of
  303  s. 738.105(3) applies apply.
  304         (8)(9) If a majority in interest of either the income or
  305  remainder beneficiaries of an income trust has delivered to the
  306  trustee a written objection to the amount of the income
  307  distributions of the trust, and, if the trustee has failed to
  308  resolve the objection to the satisfaction of the objecting
  309  beneficiaries within 6 months after from the receipt of such
  310  written objection, then the objecting beneficiaries may petition
  311  the court in accordance with subsection (3).
  312         (9)(10) This section pertains shall be construed as
  313  pertaining to the administration of a trust and is applicable to
  314  any trust that is administered either in this state or under
  315  Florida law unless:
  316         (a) The governing instrument reflects an intention that the
  317  current beneficiary or beneficiaries are to receive an amount
  318  other than a reasonable current return from the trust;
  319         (b) The trust is a trust described in the Internal Revenue
  320  Code, 26 U.S.C. s. 170(f)(2)(B), s. 642(c)(5), s. 664(d), s.
  321  2702(a)(3), or s. 2702(b);
  322         (c) One or more persons to whom the trustee could
  323  distribute income have a power of withdrawal over the trust:
  324         1. That is not subject to an ascertainable standard under
  325  the Internal Revenue Code, 26 U.S.C. s. 2041 or s. 2514, and
  326  exceeds in any calendar year the amount set forth in the
  327  Internal Revenue Code, 26 U.S.C. s. 2041(b)(2) or s. 2514(e); or
  328         2. A power of withdrawal over the trust that can be
  329  exercised to discharge a duty of support he or she possesses; or
  330         (d) The governing instrument expressly prohibits use of
  331  this section by specific reference to the section. A provision
  332  in the governing instrument that, “The provisions of section
  333  738.1041, Florida Statutes, as amended, or any corresponding
  334  provision of future law, may shall not be used in the
  335  administration of this trust,” or similar words reflecting such
  336  intent are shall be sufficient to preclude the use of this
  337  section; or
  338         (e) The trust is a trust with respect to which a trustee
  339  currently possesses the power to adjust under s. 738.104.
  340         (10)(11) The grantor of a trust may create an express total
  341  return unitrust that becomes which will become effective as
  342  provided in the trust instrument document without requiring a
  343  conversion under this section.
  344         (a) An express total return unitrust created by the grantor
  345  of the trust is shall be treated as a unitrust under this
  346  section only if the terms of the trust instrument document
  347  contain all of the following provisions:
  348         1.(a) That distributions from the trust will be unitrust
  349  amounts and the manner in which the unitrust amount will be
  350  calculated; and the method in which the fair market value of the
  351  trust will be determined.
  352         2.(b) The percentage to be used to calculate the unitrust
  353  amount if, provided the percentage used is not greater than 5
  354  percent nor less than 3 percent.
  355         (b) The trust instrument may also contain provisions
  356  specifying:
  357         1.(c) The method to be used in determining the fair market
  358  value of the trust, including whether to use an average fair
  359  market value or the fair market value of the assets held by the
  360  trust at the beginning of the current year; or.
  361         2.(d) Which assets, if any, are to be excluded in
  362  determining the unitrust amount.
  363         (c) The remaining provisions of this section establish the
  364  method of determining the fair market value of the trust if the
  365  trust instrument is silent as to subparagraph (b)1., and to
  366  specify those assets, if any, which are to be excluded in
  367  determining the unitrust amount if the trust instrument is
  368  silent as to subparagraph (b)2.
  369         Section 4. Subsections (1), (3), and (4) of section
  370  738.105, Florida Statutes, are amended to read:
  371         738.105 Judicial control of discretionary powers.—
  372         (1) A court may shall not change a trustee’s fiduciary’s
  373  decision to exercise or not to exercise a discretionary power
  374  conferred by this chapter unless the court determines that the
  375  decision was an abuse of the trustee’s fiduciary’s discretion. A
  376  court may shall not determine that a trustee fiduciary abused
  377  its discretion merely because the court would have exercised the
  378  discretion in a different manner or would not have exercised the
  379  discretion.
  380         (3) If a court determines that a trustee fiduciary has
  381  abused its discretion, the remedy is shall be to restore the
  382  income and remainder beneficiaries to the positions they would
  383  have occupied if the fiduciary had not abused its discretion, in
  384  accordance with according to the following rules:
  385         (a) To the extent the abuse of discretion has resulted in
  386  no distribution to a beneficiary or a distribution that is too
  387  small, the court shall require the trustee fiduciary to
  388  distribute from the trust to the beneficiary an amount the court
  389  determines will restore the beneficiary, in whole or in part, to
  390  his or her appropriate position.
  391         (b) To the extent the abuse of discretion has resulted in a
  392  distribution to a beneficiary that is too large, the court shall
  393  restore the beneficiaries, the trust, or both, in whole or in
  394  part, to their appropriate positions by requiring the trustee
  395  fiduciary to withhold an amount from one or more future
  396  distributions to the beneficiary who received the distribution
  397  that was too large or requiring that beneficiary to return some
  398  or all of the distribution to the trust.
  399         (c) To the extent the court is unable, after applying
  400  paragraphs (a) and (b), to restore the beneficiaries or, the
  401  trust, or both, to the positions they would have occupied if the
  402  trustee fiduciary had not abused its discretion, the court may
  403  require the trustee fiduciary to pay an appropriate amount from
  404  its own funds to one or more of the beneficiaries or the trust
  405  or both.
  406         (4) Upon the filing of a petition by the trustee fiduciary,
  407  the court having jurisdiction over the trust or estate shall
  408  determine whether a proposed exercise or nonexercise by the
  409  trustee fiduciary of a discretionary power conferred by this
  410  chapter will result in an abuse of the trustee’s fiduciary’s
  411  discretion. If the petition describes the proposed exercise or
  412  nonexercise of the power and contains sufficient information to
  413  inform the beneficiaries of the reasons for the proposal, the
  414  facts upon which the trustee fiduciary relies, and an
  415  explanation of how the income and remainder beneficiaries will
  416  be affected by the proposed exercise or nonexercise of the
  417  power, a beneficiary who challenges the proposed exercise or
  418  nonexercise has the burden of establishing that such exercise or
  419  nonexercise will result in an abuse of discretion.
  420         Section 5. Subsections (1) through (4) of section 738.201,
  421  Florida Statutes, are amended to read:
  422         738.201 Determination and distribution of net income.—After
  423  a decedent dies, in the case of an estate, or after an income
  424  interest in a trust ends, the following rules apply:
  425         (1) A fiduciary of an estate or of a terminating income
  426  interest shall determine the amount of net income and net
  427  principal receipts received from property specifically given to
  428  a beneficiary under the rules in ss. 738.301-738.706 which apply
  429  to trustees and the rules in subsection (5). The fiduciary shall
  430  distribute the net income and net principal receipts to the
  431  beneficiary who is to receive the specific property.
  432         (2) A fiduciary shall determine the remaining net income of
  433  a decedent’s estate or a terminating income interest under the
  434  rules in ss. 738.301-738.706 which apply to trustees and by:
  435         (a) Including in net income all income from property used
  436  to discharge liabilities.
  437         (b) Paying from income or principal, in the fiduciary’s
  438  discretion, fees of attorneys, accountants, and fiduciaries and;
  439  court costs and other expenses of administration. However; and
  440  interest on death taxes, but the fiduciary may pay interest on
  441  death taxes those expenses from income of property passing to a
  442  trust for which the fiduciary claims an estate tax marital or
  443  charitable deduction under the Internal Revenue Code or
  444  comparable law of any state only to the extent the payment of
  445  those expenses from income will not cause the reduction or loss
  446  of the deduction.
  447         (c) Paying from principal all other disbursements made or
  448  incurred in connection with the settlement of a decedent’s
  449  estate or the winding up of a terminating income interest,
  450  including debts, funeral expenses, disposition of remains,
  451  family allowances, and death taxes and related penalties that
  452  are apportioned to the estate or terminating income interest by
  453  the will, the terms of the trust, or applicable law.
  454         (3) If A fiduciary shall distribute to a beneficiary who
  455  receives a pecuniary amount outright is also entitled to receive
  456  the interest on the amount or any other amount provided by the
  457  will or, the terms of the trust, a fiduciary shall distribute
  458  the interest or applicable law from net income determined under
  459  subsection (2) or from principal to the extent net income is
  460  insufficient. If a beneficiary is to receive a pecuniary amount
  461  outright from a trust after an income interest ends and no
  462  interest or other amount is provided for by the terms of the
  463  trust or applicable law, the fiduciary shall distribute the
  464  interest or other amount to which the beneficiary would be
  465  entitled under applicable law if the pecuniary amount were
  466  required to be paid under a will.
  467         (4) A fiduciary shall distribute the net income remaining
  468  after distributions required under subsections (1)-(3) by
  469  subsection (3) in the manner described in s. 738.202 to all
  470  other beneficiaries, including a beneficiary who receives a
  471  pecuniary amount in trust, even if the beneficiary holds an
  472  unqualified power to withdraw assets from the trust or other
  473  presently exercisable general power of appointment over the
  474  trust.
  475         Section 6. Section 738.202, Florida Statutes, is amended to
  476  read:
  477         738.202 Distribution to residuary and remainder
  478  beneficiaries.—
  479         (1) Each beneficiary described in s. 738.201(4) is entitled
  480  to receive a portion of the net income remaining after the
  481  application of s. 738.201(1)-(3), which is equal to the
  482  beneficiary’s fractional interest in undistributed principal
  483  assets, using carrying values as of the distribution date. If a
  484  fiduciary makes more than one distribution of assets to
  485  beneficiaries to whom this section applies, each beneficiary,
  486  including one who does not receive part of the distribution, is
  487  entitled, as of each distribution date, to the net income the
  488  fiduciary has received after the date of death or terminating
  489  event or earlier distribution date but has not distributed as of
  490  the current distribution date.
  491         (2) In determining a beneficiary’s share of net income, the
  492  following applies rules apply:
  493         (a) The beneficiary is entitled to receive a portion of the
  494  net income equal to the beneficiary’s fractional interest in the
  495  carrying value of the undistributed principal assets immediately
  496  before the distribution date, excluding the amount of unpaid
  497  liabilities including assets that later may be sold to meet
  498  principal obligations.
  499         (b) The beneficiary’s fractional interest in the
  500  undistributed principal assets shall be calculated: without
  501  regard to
  502         1. At the time the interest began and adjusted for any
  503  disproportionate distributions since the interest began;
  504         2. By excluding any liabilities of the estate or trust from
  505  the calculation;
  506         3. By also excluding property specifically given to a
  507  beneficiary and property required to pay pecuniary amounts not
  508  in trust; and.
  509         4.(c)The beneficiary’s fractional interest in the
  510  undistributed principal assets shall be calculated On the basis
  511  of the aggregate carrying value of those assets determined under
  512  subsection (1) as of the distribution date without reducing the
  513  value by any unpaid principal obligation.
  514         (c) If a disproportionate distribution of principal is made
  515  to a beneficiary, the respective fractional interests of all
  516  beneficiaries in the remaining underlying assets shall be
  517  recomputed by:
  518         1. Adjusting the carrying value of the principal assets to
  519  their fair market value before the distribution;
  520         2. Reducing the fractional interest of the recipient of the
  521  disproportionate distribution in the remaining principal assets
  522  by the fair market value of the principal distribution; and
  523         3. Recomputing the fractional interests of all
  524  beneficiaries in the remaining principal assets based upon the
  525  now restated carrying values.
  526         (d) The distribution date for purposes of this section may
  527  be the date as of which the fiduciary calculates the value of
  528  the assets if that date is reasonably near the date on which
  529  assets are actually distributed.
  530         (3) If a fiduciary does not distribute all of the collected
  531  but undistributed net income to each person as of a distribution
  532  date, the fiduciary shall maintain appropriate records showing
  533  the interest of each beneficiary in that net income.
  534         (4) A fiduciary may apply the provisions of rules in this
  535  section, to the extent the fiduciary considers appropriate, to
  536  net gain or loss realized after the date of death or terminating
  537  event or earlier distribution date from the disposition of a
  538  principal asset if this section applies to the income from the
  539  asset.
  540         (5) The carrying value or fair market value of trust assets
  541  shall be determined on an asset-by-asset basis and are shall be
  542  conclusive if reasonable and determined in good faith.
  543  Determinations of fair market value based on appraisals
  544  performed within 2 years before or after the valuation date are
  545  shall be presumed reasonable. The values value of trust assets
  546  are shall be conclusively presumed to be reasonable and
  547  determined in good faith unless proven otherwise in a proceeding
  548  commenced by or on behalf of a person interested in the trust
  549  within the time provided in s. 736.1008.
  550         (6) All distributions to a beneficiary shall be valued
  551  based on their fair market value on the date of distribution.
  552         Section 7. Subsection (4) of section 738.301, Florida
  553  Statutes, is amended to read:
  554         738.301 When right to income begins and ends.—An income
  555  beneficiary is entitled to net income from the date on which the
  556  income interest begins.
  557         (4) An income interest ends on the day before an income
  558  beneficiary dies or another terminating event occurs, or on the
  559  last day of a period during which there is no beneficiary to
  560  whom a fiduciary trustee may distribute income.
  561         Section 8. Subsections (1) and (2) of section 738.302,
  562  Florida Statutes, are amended to read:
  563         738.302 Apportionment of receipts and disbursements when
  564  decedent dies or income interest begins.—
  565         (1) A fiduciary trustee shall allocate an income receipt or
  566  disbursement other than one to which s. 738.201(1) applies to
  567  principal if the due date of the receipt or disbursement occurs
  568  before a decedent dies in the case of an estate or before an
  569  income interest begins in the case of a trust or successive
  570  income interest.
  571         (2) A fiduciary trustee shall allocate an income receipt or
  572  disbursement to income if the due date of the receipt or
  573  disbursement occurs on or after the date on which a decedent
  574  dies or an income interest begins and the due date is a periodic
  575  due date. An income receipt or disbursement shall be treated as
  576  accruing from day to day if the due date of the receipt or
  577  disbursement is not periodic or the receipt or disbursement has
  578  no due date. The portion of the receipt or disbursement accruing
  579  before the date on which a decedent dies or an income interest
  580  begins shall be allocated to principal and the balance shall be
  581  allocated to income.
  582         Section 9. Subsections (2) and (3) of section 738.303,
  583  Florida Statutes, are amended to read:
  584         738.303 Apportionment when income interest ends.—
  585         (2) When a mandatory income interest ends, the fiduciary
  586  trustee shall pay to a mandatory income beneficiary who survives
  587  that date, or the estate of a deceased mandatory income
  588  beneficiary whose death causes the interest to end, the
  589  beneficiary’s share of the undistributed income that is not
  590  disposed of under the terms of the trust unless the beneficiary
  591  has an unqualified power to revoke more than 5 percent of the
  592  trust immediately before the income interest ends. In the latter
  593  case, the undistributed income from the portion of the trust
  594  that may be revoked shall be added to principal.
  595         (3) When a fiduciary’s trustee’s obligation to pay a fixed
  596  annuity or a fixed fraction of the value of the trust’s assets
  597  ends, the fiduciary trustee shall prorate the final payment if
  598  and to the extent required by applicable law to accomplish a
  599  purpose of the trust or its grantor relating to income, gift,
  600  estate, or other tax requirements.
  601         Section 10. Section 738.401, Florida Statutes, is amended
  602  to read:
  603         738.401 Character of receipts.—
  604         (1) For purposes of this section, the term “entity” means a
  605  corporation, partnership, limited liability company, regulated
  606  investment company, real estate investment trust, common trust
  607  fund, or any other organization in which a fiduciary trustee has
  608  an interest other than a trust or estate to which s. 738.402
  609  applies, a business or activity to which s. 738.403 applies, or
  610  an asset-backed security to which s. 738.608 applies.
  611         (2) Except as otherwise provided in this section, a
  612  fiduciary trustee shall allocate to income money received from
  613  an entity.
  614         (3) Except as otherwise provided in this section, a
  615  fiduciary trustee shall allocate the following receipts from an
  616  entity to principal:
  617         (a) Property other than money.
  618         (b) Money received in one distribution or a series of
  619  related distributions in exchange for part or all of a trust’s
  620  or estate’s interest in the entity.
  621         (c) Money received in total or partial liquidation of the
  622  entity.
  623         (d) Money received from an entity that is a regulated
  624  investment company or a real estate investment trust if the
  625  money distributed represents short-term or long-term capital
  626  gain realized within the entity.
  627         (e) Money received from an entity listed on a public stock
  628  exchange during any year of the trust or estate which exceeds 10
  629  percent of the fair market value of the trust’s or estate’s
  630  interest in the entity on the first day of that year. The amount
  631  to be allocated to principal must be reduced to the extent that
  632  the cumulative distributions from the entity to the trust or
  633  estate allocated to income does not exceed a cumulative annual
  634  return of 3 percent of the fair market value of the interest in
  635  the entity at the beginning of each year or portion of a year
  636  for the number of years or portion of years in the period that
  637  the interest in the entity was held by the trust or estate. If a
  638  trustee has exercised a power to adjust under s. 738.104 during
  639  any period the interest in the entity was held by the trust, the
  640  trustee, in determining the total income distributions from that
  641  entity, must take into account the extent to which the exercise
  642  of that power resulted in income to the trust from that entity
  643  for that period. If the income of the trust for any period was
  644  computed under s. 738.1041, the trustee, in determining the
  645  total income distributions from that entity for that period,
  646  must take into account the portion of the unitrust amount paid
  647  as a result of the ownership of the trust’s interest in the
  648  entity for that period.
  649         (4) If a fiduciary trustee elects, or continues an election
  650  made by its predecessor, to reinvest dividends in shares of
  651  stock of a distributing corporation or fund, whether evidenced
  652  by new certificates or entries on the books of the distributing
  653  entity, the new shares shall retain their character as income.
  654         (5) Money is received in partial liquidation:
  655         (a) To the extent the entity, at or near the time of a
  656  distribution, indicates that such money is a distribution in
  657  partial liquidation; or
  658         (b) If the total amount of money and property received in a
  659  distribution or series of related distributions from an entity
  660  that is not listed on a public stock exchange is greater than 20
  661  percent of the trust or estate’s pro rata share of the entity’s
  662  gross assets, as shown by the entity’s year-end financial
  663  statements immediately preceding the initial receipt.
  664  
  665  This subsection does not apply to an entity to which subsection
  666  (7) applies.
  667         (6) Money may not is not received in partial liquidation,
  668  nor may money be taken into account in determining any excess
  669  under paragraph (5)(b), to the extent that the cumulative
  670  distributions from the entity to the trust or the estate
  671  allocated to income do not exceed the greater of: such money
  672  does not exceed the amount of income tax a trustee or
  673  beneficiary must pay on taxable income of the entity that
  674  distributes the money.
  675         (a) A cumulative annual return of 3 percent of the entity’s
  676  carrying value computed at the beginning of each period for the
  677  number of years or portion of years that the entity was held by
  678  the fiduciary. If a trustee has exercised a power to adjust
  679  under s. 738.104 during any period the interest in the entity
  680  was held by the trust, the trustee, in determining the total
  681  income distributions from that entity, must take into account
  682  the extent to which exercise of the power resulted in income to
  683  the trust from that entity for that period. If the income of a
  684  trust for any period was computed pursuant to s. 738.1041, the
  685  trustee, in determining the total income distributions from the
  686  entity for that period, must take into account the portion of
  687  the unitrust amount paid as a result of the ownership of the
  688  trust’s interest in the entity for that period; or
  689         (b) If the entity is treated as a partnership, subchapter S
  690  corporation, or a disregarded entity pursuant to the Internal
  691  Revenue Code of 1986, as amended, the amount of income tax
  692  attributable to the trust’s or estate’s ownership share of the
  693  entity, based on its pro rata share of the taxable income of the
  694  entity that distributes the money, for the number of years or
  695  portion of years that the interest in the entity was held by the
  696  fiduciary, calculated as if all of that tax was incurred by the
  697  fiduciary.
  698         (7) The following applies special rules shall apply to
  699  moneys or property received by a private trustee as a
  700  distribution from an entity entities described in this
  701  subsection:
  702         (a) If treated as a partnership, subchapter S corporation,
  703  or disregarded entity pursuant to the Internal Revenue Code of
  704  1986, as amended, the trustee shall first treat as income of the
  705  trust all of the money or property received from the investment
  706  entity in the current year which would be considered income
  707  under this chapter if the trustee had directly held the trust’s
  708  pro rata share of the assets of the investment entity. For this
  709  purpose, all distributions received in the current year must be
  710  aggregated.
  711         (b) The trustee shall next treat as income of the trust any
  712  additional money or property received in the current year which
  713  would have been considered income in the prior 2 years under
  714  paragraph (a) if additional money or property had been received
  715  from the investment entity in any of those prior 2 years. The
  716  amount to be treated as income shall be reduced by any
  717  distributions of money or property made by the investment entity
  718  to the trust during the current and prior 2 years which were
  719  treated as income under this paragraph.
  720         (c) The remainder of the distribution, if any, is treated
  721  as principal.
  722         (d) As used in this subsection, the term:
  723         1.“Investment entity” means an entity, other than a
  724  business activity conducted by the trustee described in s.
  725  738.403 or an entity that is listed on a public stock exchange,
  726  which is treated as a partnership, subchapter S corporation, or
  727  disregarded entity pursuant to the Internal Revenue Code of
  728  1986, as amended, and which normally derives 50 percent or more
  729  of its annual cumulative net income from interest, dividends,
  730  annuities, royalties, rental activity, or other passive
  731  investments, including income from the sale or exchange of such
  732  passive investments.
  733         2.“Private trustee” means a trustee who is a natural
  734  person, but only if the trustee is unable to use the power to
  735  adjust between income and principal with respect to receipts
  736  from entities described in this subsection pursuant to s.
  737  738.104. A bank, trust company, or other commercial trustee is
  738  not considered a private trustee.
  739         (8) This section shall be applied before ss. 738.705 and
  740  738.706 and does not modify or change any of the provisions of
  741  those sections.
  742         (a) Moneys or property received from a targeted entity that
  743  is not an investment entity which do not exceed the trust’s pro
  744  rata share of the undistributed cumulative net income of the
  745  targeted entity during the time an ownership interest in the
  746  targeted entity was held by the trust shall be allocated to
  747  income. The balance of moneys or property received from a
  748  targeted entity shall be allocated to principal.
  749         (b) If trust assets include any interest in an investment
  750  entity, the designated amount of moneys or property received
  751  from the investment entity shall be treated by the trustee in
  752  the same manner as if the trustee had directly held the trust’s
  753  pro rata share of the assets of the investment entity
  754  attributable to the distribution of such designated amount.
  755  Thereafter, distributions shall be treated as principal.
  756         (c) For purposes of this subsection, the following
  757  definitions shall apply:
  758         1. “Cumulative net income” means the targeted entity’s net
  759  income as determined using the method of accounting regularly
  760  used by the targeted entity in preparing its financial
  761  statements, or if no financial statements are prepared, the net
  762  book income computed for federal income tax purposes, for every
  763  year an ownership interest in the entity is held by the trust.
  764  The trust’s pro rata share shall be the cumulative net income
  765  multiplied by the percentage ownership of the trust.
  766         2. “Designated amount” means moneys or property received
  767  from an investment entity during any year that is equal to the
  768  amount of the distribution that does not exceed the greater of:
  769         a. The amount of income of the investment entity for the
  770  current year, as reported to the trustee by the investment
  771  entity for federal income tax purposes; or
  772         b. The amount of income of the investment entity for the
  773  current year and the prior 2 years, as reported to the trustee
  774  by the investment entity for federal income tax purposes, less
  775  any distributions of moneys or property made by the investment
  776  entity to the trustee during the prior 2 years.
  777         3. “Investment entity” means a targeted entity that
  778  normally derives 50 percent or more of its annual cumulative net
  779  income from interest, dividends, annuities, royalties, rental
  780  activity, or other passive investments, including income from
  781  the sale or exchange of such passive investments.
  782         4. “Private trustee” means a trustee who is an individual,
  783  but only if the trustee is unable to utilize the power to adjust
  784  between income and principal with respect to receipts from
  785  entities described in this subsection pursuant to s. 738.104. A
  786  bank, trust company, or other commercial trustee shall not be
  787  considered to be a private trustee.
  788         5. “Targeted entity” means any entity that is treated as a
  789  partnership, subchapter S corporation, or disregarded entity
  790  pursuant to the Internal Revenue Code of 1986, as amended, other
  791  than an entity described in s. 738.403.
  792         6. “Undistributed cumulative net income” means the trust’s
  793  pro rata share of cumulative net income, less all prior
  794  distributions from the targeted entity to the trust that have
  795  been allocated to income.
  796         (d) This subsection shall not be construed to modify or
  797  change any of the provisions of ss. 738.705 and 738.706 relating
  798  to income taxes.
  799         (8) A trustee may rely upon a statement made by an entity
  800  about the source or character of a distribution, about the
  801  amount of profits of a targeted entity, or about the nature and
  802  value of assets of an investment entity if the statement is made
  803  at or near the time of distribution by the entity’s board of
  804  directors or other person or group of persons authorized to
  805  exercise powers to pay money or transfer property comparable to
  806  those of a corporation’s board of directors.
  807         Section 11. Section 738.402, Florida Statutes, is amended
  808  to read:
  809         738.402 Distribution from trust or estate.—A fiduciary
  810  trustee shall allocate to income an amount received as a
  811  distribution of income from a trust or an estate in which the
  812  trust has an interest other than a purchased interest and shall
  813  allocate to principal an amount received as a distribution of
  814  principal from such a trust or estate. If a fiduciary trustee
  815  purchases an interest in a trust that is an investment entity,
  816  or a decedent or donor transfers an interest in such a trust to
  817  a fiduciary trustee, s. 738.401 or s. 738.608 applies to a
  818  receipt from the trust.
  819         Section 12. Section 738.403, Florida Statutes, is amended
  820  to read:
  821         738.403 Business and other activities conducted by
  822  fiduciary trustee.—
  823         (1) If a fiduciary trustee who conducts a business or other
  824  activity determines that it is in the best interest of all the
  825  beneficiaries to account separately for the business or activity
  826  instead of accounting for the business or activity as part of
  827  the trust’s general accounting records, the fiduciary trustee
  828  may maintain separate accounting records for the transactions of
  829  the such business or other activity, whether or not the assets
  830  of such business or activity are segregated from other trust
  831  assets.
  832         (2) A fiduciary trustee who accounts separately for a
  833  business or other activity may determine the extent to which the
  834  net cash receipts of the such business or activity must be
  835  retained for working capital, the acquisition or replacement of
  836  fixed assets, and other reasonably foreseeable needs of the
  837  business or activity, and the extent to which the remaining net
  838  cash receipts are accounted for as principal or income in the
  839  trust’s general accounting records. If a fiduciary trustee sells
  840  assets of the business or other activity, other than in the
  841  ordinary course of the business or activity, the fiduciary must
  842  trustee shall account for the net amount received as principal
  843  in the trust’s general accounting records to the extent the
  844  fiduciary trustee determines that the amount received is no
  845  longer required in the conduct of the business.
  846         (3) Activities for which a fiduciary trustee may maintain
  847  separate accounting records include:
  848         (a) Retail, manufacturing, service, and other traditional
  849  business activities.
  850         (b) Farming.
  851         (c) Raising and selling livestock and other animals.
  852         (d) Management of rental properties.
  853         (e) Extraction of minerals and other natural resources.
  854         (f) Timber operations.
  855         (g) Activities to which s. 738.607 738.608 applies.
  856         Section 13. Section 738.501, Florida Statutes, is amended
  857  to read:
  858         738.501 Principal receipts.—A fiduciary trustee shall
  859  allocate to principal:
  860         (1) To the extent not allocated to income under this
  861  chapter, assets received from a transferor during the
  862  transferor’s lifetime, a decedent’s estate, a trust with a
  863  terminating income interest, or a payor under a contract naming
  864  the trust or its fiduciary trustee as beneficiary.
  865         (2) Money or other property received from the sale,
  866  exchange, liquidation, or change in form of a principal asset,
  867  including realized profit, subject to this section.
  868         (3) Amounts recovered from third parties to reimburse the
  869  trust because of disbursements described in s. 738.702(1)(g) or
  870  for other reasons to the extent not based on the loss of income.
  871         (4) Proceeds of property taken by eminent domain; however
  872  but a separate award made for the loss of income with respect to
  873  an accounting period during which a current income beneficiary
  874  had a mandatory income interest is income.
  875         (5) Net income received in an accounting period during
  876  which there is no beneficiary to whom a fiduciary trustee may or
  877  shall distribute income.
  878         (6) Other receipts as provided in ss. 738.601-738.608.
  879         Section 14. Section 738.502, Florida Statutes, is amended
  880  to read:
  881         738.502 Rental property.—If To the extent a fiduciary
  882  trustee accounts for receipts from rental property pursuant to
  883  this section, the fiduciary trustee shall allocate to income an
  884  amount received as rent of real or personal property, including
  885  an amount received for cancellation or renewal of a lease. An
  886  amount received as a refundable deposit, including a security
  887  deposit or a deposit that is to be applied as rent for future
  888  periods, must shall be added to principal and held subject to
  889  the terms of the lease and is not available for distribution to
  890  a beneficiary until the trustee’s contractual obligations have
  891  been satisfied with respect to that amount.
  892         Section 15. Subsections (1), (2), and (3) of section
  893  738.503, Florida Statutes, are amended to read:
  894         738.503 Obligation to pay money.—
  895         (1) An amount received as interest, whether determined at a
  896  fixed, variable, or floating rate, on an obligation to pay money
  897  to the fiduciary trustee, including an amount received as
  898  consideration for prepaying principal, shall be allocated to
  899  income without any provision for amortization of premium.
  900         (2) Except as otherwise provided herein, a fiduciary
  901  trustee shall allocate to principal an amount received from the
  902  sale, redemption, or other disposition of an obligation to pay
  903  money to the fiduciary trustee.
  904         (3) The increment in value of a bond or other obligation
  905  for the payment of money bearing no stated interest but payable
  906  at a future time in excess of the price at which it was issued
  907  or purchased, if purchased after issuance, is distributable as
  908  income. If the increment in value accrues and becomes payable
  909  pursuant to a fixed schedule of appreciation, it may be
  910  distributed to the beneficiary who was the income beneficiary at
  911  the this time of increment from the first principal cash
  912  available or, if none is available, when the increment is
  913  realized by sale, redemption, or other disposition. If When
  914  unrealized increment is distributed as income but out of
  915  principal, the principal must shall be reimbursed for the
  916  increment when realized. If, in the reasonable judgment of the
  917  fiduciary trustee, exercised in good faith, the ultimate payment
  918  of the bond principal is in doubt, the fiduciary trustee may
  919  withhold the payment of incremental interest to the income
  920  beneficiary.
  921         Section 16. Subsections (1) and (2) of section 738.504,
  922  Florida Statutes, are amended to read:
  923         738.504 Insurance policies and similar contracts.—
  924         (1) Except as otherwise provided in subsection (2), a
  925  fiduciary trustee shall allocate to principal the proceeds of a
  926  life insurance policy or other contract in which the trust or
  927  its fiduciary trustee is named as beneficiary, including a
  928  contract that insures the trust or its fiduciary trustee against
  929  loss for damage to, destruction of, or loss of title to a trust
  930  asset. The fiduciary trustee shall allocate dividends on an
  931  insurance policy to income if the premiums on the policy are
  932  paid from income and to principal if the premiums are paid from
  933  principal.
  934         (2) A fiduciary trustee shall allocate to income the
  935  proceeds of a contract that insures the fiduciary trustee
  936  against loss of occupancy or other use by an income beneficiary,
  937  loss of income, or, subject to s. 738.403, loss of profits from
  938  a business.
  939         Section 17. Section 738.601, Florida Statutes, is amended
  940  to read:
  941         738.601 Insubstantial allocations not required.—If a
  942  fiduciary trustee determines that an allocation between
  943  principal and income required by s. 738.602, s. 738.603, s.
  944  738.604, s. 738.605, or s. 738.608 is insubstantial, the
  945  fiduciary trustee may allocate the entire amount to principal
  946  unless one of the circumstances described in s. 738.104(3)
  947  applies to the allocation. This power may be exercised by a
  948  cofiduciary under cotrustee in the circumstances described in s.
  949  738.104(4) and may be released for the reasons and in the manner
  950  described in s. 738.104(5). An allocation is presumed to be
  951  insubstantial if:
  952         (1) The amount of the allocation would increase or decrease
  953  net income in an accounting period, as determined before the
  954  allocation, by less than 10 percent; or
  955         (2) The value of the asset producing the receipt for which
  956  the allocation would be made is less than 10 percent of the
  957  total value of the trust’s assets at the beginning of the
  958  accounting period.
  959         Section 18. Section 738.602, Florida Statutes, is amended
  960  to read:
  961         738.602 Payments from deferred compensation plans,
  962  annuities, and retirement plans or accounts.—
  963         (1) As used in For purposes of this section, the term:
  964         (a) “Fund” means a private or commercial annuity, an
  965  individual retirement account, an individual retirement annuity,
  966  a deferred compensation plan, a pension plan, a profit-sharing
  967  plan, a stock-bonus plan, an employee stock-ownership plan, or
  968  another similar arrangement in which federal income tax is
  969  deferred.
  970         (b) “Income of the fund” means income that is determined
  971  according to subsection (2) or subsection (3).
  972         (c) “Nonseparate account” means a fund for which the value
  973  of the participant’s or account owner’s right to receive
  974  benefits can be determined only by the occurrence of a date or
  975  event as defined in the instrument governing the fund.
  976         (d) “Payment” means a distribution from a fund that a
  977  fiduciary trustee may receive over a fixed number of years or
  978  during the life of one or more individuals because of services
  979  rendered or property transferred to the payor in exchange for
  980  future payments. The term includes a distribution made in money
  981  or property from the payor’s general assets or from a fund
  982  created by the payor or payee.
  983         (e) “Separate account” means a fund holding assets
  984  exclusively for the benefit of a participant or account owner
  985  and:
  986         1. The value of such assets or the value of the separate
  987  account is ascertainable at any time; or
  988         2. The administrator of the fund maintains records that
  989  show receipts and disbursements associated with such assets.
  990         (2)(a) For a fund that is a separate account, income of the
  991  fund shall be determined:
  992         1. As if the fund were a trust subject to the provisions of
  993  ss. 738.401-738.706; or
  994         2. As a unitrust amount calculated by multiplying the fair
  995  market value of the fund as of the first day of the first
  996  accounting period and, thereafter, as of the last day of the
  997  accounting period that immediately precedes the accounting
  998  period during which a payment is received by the percentage
  999  determined in accordance with s. 738.1041(2)(b)2.a. The
 1000  fiduciary trustee shall determine such percentage as of the
 1001  first month that the fiduciary’s trustee’s election to treat the
 1002  income of the fund as a unitrust amount becomes effective. For
 1003  purposes of this subparagraph, “fair market value” means the
 1004  fair market value of the assets held in the fund as of the
 1005  applicable valuation date determined as provided in this
 1006  subparagraph. The fiduciary trustee is not liable for good faith
 1007  reliance upon any valuation supplied by the person or persons in
 1008  possession of the fund. If the fiduciary trustee makes or
 1009  terminates an election under this subparagraph, the fiduciary
 1010  trustee shall make such disclosure in a trust disclosure
 1011  document that satisfies the requirements of s. 736.1008(4)(a).
 1012         (b) The fiduciary may trustee shall have discretion to
 1013  elect the method of determining the income of the fund pursuant
 1014  to this subsection and may change the method of determining
 1015  income of the fund for any future accounting period.
 1016         (3) For a fund that is a nonseparate account, income of the
 1017  fund is a unitrust amount determined by calculating the present
 1018  value of the right to receive the remaining payments under 26
 1019  U.S.C. s. 7520 of the Internal Revenue Code as of the first day
 1020  of the accounting period and multiplying it by the percentage
 1021  determined in accordance with s. 738.1041(2)(b)2.a. The
 1022  fiduciary trustee shall determine the unitrust amount as of the
 1023  first month that the fiduciary’s trustee’s election to treat the
 1024  income of the fund as a unitrust amount becomes effective.
 1025         (4) Except for those trusts described in subsection (5),
 1026  the fiduciary trustee shall allocate to income the lesser of the
 1027  payment received from a fund or the income determined under
 1028  subsection (2) or subsection (3). Any remaining amount shall be
 1029  allocated to principal a payment from a fund as follows:
 1030         (a) That portion of the payment the payor characterizes as
 1031  income shall be allocated to income, and any remaining portion
 1032  of the payment shall be allocated to principal.
 1033         (b) To the extent that the payor does not characterize any
 1034  portion of a payment as income or principal and the trustee can
 1035  ascertain the income of the fund by the fund’s account
 1036  statements or any other reasonable source, the trustee shall
 1037  allocate to income the lesser of the income of the fund or the
 1038  entire payment and shall allocate to principal any remaining
 1039  portion of the payment.
 1040         (c) If the trustee, acting reasonably and in good faith,
 1041  determines that neither paragraph (a) nor paragraph (b) applies
 1042  and all or part of the payment is required to be made, the
 1043  trustee shall allocate to income 10 percent of the portion of
 1044  the payment that is required to be made during the accounting
 1045  period and shall allocate the balance to principal. If no part
 1046  of a payment is required to be made or the payment received is
 1047  the entire amount to which the trustee is entitled, the trustee
 1048  shall allocate the entire payment to principal. For purposes of
 1049  this paragraph, a payment is not “required to be made” to the
 1050  extent the payment is made because the trustee exercises a right
 1051  of withdrawal.
 1052         (5) For a trust that which, in order to qualify for the
 1053  estate or gift tax marital deduction under the Internal Revenue
 1054  Code or comparable law of any state, entitles the spouse to all
 1055  of the income of the trust, and the terms of the trust are
 1056  silent as to the time and frequency for distribution of the
 1057  income of the fund, then:
 1058         (a) For a fund that is a separate account, unless the
 1059  spouse directs the fiduciary trustee to leave the income of the
 1060  fund in the fund, the fiduciary trustee shall withdraw and pay
 1061  to the spouse, at least no less frequently than annually:
 1062         1. All of the income of the fund determined in accordance
 1063  with subparagraph (2)(a)1.; or
 1064         2. The income of the fund as a unitrust amount determined
 1065  in accordance with subparagraph (2)(a)2.
 1066         (b) For a fund that is a nonseparate account, the fiduciary
 1067  trustee shall withdraw and pay to the spouse, at least no less
 1068  frequently than annually, the income of the fund as a unitrust
 1069  amount determined in accordance with subsection (3).
 1070         (6) This section does not apply to payments to which s.
 1071  738.603 applies.
 1072         Section 19. Section 738.603, Florida Statutes, is amended
 1073  to read:
 1074         738.603 Liquidating asset.—
 1075         (1) For purposes of this section, the term “liquidating
 1076  asset” means an asset the value of which will diminish or
 1077  terminate because the asset is expected to produce receipts for
 1078  a period of limited duration. The term includes a leasehold,
 1079  patent, copyright, royalty right, and right to receive payments
 1080  for during a period of more than 1 year under an arrangement
 1081  that does not provide for the payment of interest on the unpaid
 1082  balance. The term does not include a payment subject to s.
 1083  738.602, resources subject to s. 738.604, timber subject to s.
 1084  738.605, an activity subject to s. 738.607, an asset subject to
 1085  s. 738.608, or any asset for which the fiduciary trustee
 1086  establishes a reserve for depreciation under s. 738.703.
 1087         (2) A fiduciary trustee shall allocate to income 5 10
 1088  percent of the receipts from the carrying value of a liquidating
 1089  asset and the balance to principal. Amounts allocated to
 1090  principal may not reduce the carrying value of the liquidating
 1091  asset below zero. Amounts received in excess of the remaining
 1092  carrying value must be allocated to principal.
 1093         Section 20. Subsections (1) and (4) of section 738.604,
 1094  Florida Statutes, are amended to read:
 1095         738.604 Minerals, water, and other natural resources.—
 1096         (1) If To the extent a fiduciary trustee accounts for
 1097  receipts from an interest in minerals or other natural resources
 1098  pursuant to this section, the fiduciary trustee shall allocate
 1099  such receipts as follows:
 1100         (a) If received as nominal delay rental or nominal annual
 1101  rent on a lease, a receipt shall be allocated to income.
 1102         (b) If received from a production payment, a receipt shall
 1103  be allocated to income if and to the extent the agreement
 1104  creating the production payment provides a factor for interest
 1105  or its equivalent. The balance shall be allocated to principal.
 1106         (c) If an amount received as a royalty, shut-in-well
 1107  payment, take-or-pay payment, bonus, or delay rental is more
 1108  than nominal, 90 percent shall be allocated to principal and the
 1109  balance to income.
 1110         (d) If an amount is received from a working interest or any
 1111  other interest not provided for in paragraph (a), paragraph (b),
 1112  or paragraph (c), 90 percent of the net amount received shall be
 1113  allocated to principal and the balance to income.
 1114         (4) If a trust owns an interest in minerals, water, or
 1115  other natural resources on January 1, 2003, the fiduciary
 1116  trustee may allocate receipts from the interest as provided in
 1117  this chapter or in the manner used by the fiduciary trustee
 1118  before January 1, 2003. If the trust acquires an interest in
 1119  minerals, water, or other natural resources after January 1,
 1120  2003, the trustee shall allocate receipts from the interest as
 1121  provided in this chapter.
 1122         Section 21. Subsections (1), (2), and (4) of section
 1123  738.605, Florida Statutes, are amended to read:
 1124         738.605 Timber.—
 1125         (1) If To the extent a fiduciary trustee accounts for
 1126  receipts from the sale of timber and related products pursuant
 1127  to this section, the fiduciary trustee shall allocate such the
 1128  net receipts as follows:
 1129         (a) To income to the extent the amount of timber removed
 1130  from the land does not exceed the rate of growth of the timber
 1131  during the accounting periods in which a beneficiary has a
 1132  mandatory income interest;
 1133         (b) To principal to the extent the amount of timber removed
 1134  from the land exceeds the rate of growth of the timber or the
 1135  net receipts are from the sale of standing timber;
 1136         (c) To or between income and principal if the net receipts
 1137  are from the lease of timberland or from a contract to cut
 1138  timber from land owned by a trust by determining the amount of
 1139  timber removed from the land under the lease or contract and
 1140  applying the rules in paragraphs (a) and (b); or
 1141         (d) To principal to the extent advance payments, bonuses,
 1142  and other payments are not allocated pursuant to paragraph (a),
 1143  paragraph (b), or paragraph (c).
 1144         (2) In determining net receipts to be allocated pursuant to
 1145  subsection (1), a fiduciary trustee shall deduct and transfer to
 1146  principal a reasonable amount for depletion.
 1147         (4) If a trust owns an interest in timberland on January 1,
 1148  2003, the fiduciary trustee may allocate net receipts from the
 1149  sale of timber and related products as provided in this chapter
 1150  or in the manner used by the fiduciary trustee before January 1,
 1151  2003. If the trust acquires an interest in timberland after
 1152  January 1, 2003, the fiduciary trustee shall allocate net
 1153  receipts from the sale of timber and related products as
 1154  provided in this chapter.
 1155         Section 22. Subsection (1) of section 738.606, Florida
 1156  Statutes, is amended to read:
 1157         738.606 Property not productive of income.—
 1158         (1) If a marital deduction under the Internal Revenue Code
 1159  or comparable law of any state is allowed for all or part of a
 1160  trust the income of which must is required to be distributed to
 1161  the grantor’s spouse and the assets of which consist
 1162  substantially of property that does not provide the spouse with
 1163  sufficient income from or use of the trust assets, and if the
 1164  amounts the fiduciary trustee transfers from principal to income
 1165  under s. 738.104 and distributes to the spouse from principal
 1166  pursuant to the terms of the trust are insufficient to provide
 1167  the spouse with the beneficial enjoyment required to obtain the
 1168  marital deduction, the spouse may require the fiduciary trustee
 1169  to make property productive of income, convert property within a
 1170  reasonable time, or exercise the power conferred by ss. 738.104
 1171  and 738.1041. The fiduciary trustee may decide which action or
 1172  combination of actions to take.
 1173         Section 23. Subsections (2) and (3) of section 738.607,
 1174  Florida Statutes, are amended to read:
 1175         738.607 Derivatives and options.—
 1176         (2) To the extent a fiduciary trustee does not account
 1177  under s. 738.403 for transactions in derivatives, the fiduciary
 1178  trustee shall allocate to principal receipts from and
 1179  disbursements made in connection with those transactions.
 1180         (3) If a fiduciary trustee grants an option to buy property
 1181  from the trust whether or not the trust owns the property when
 1182  the option is granted, grants an option that permits another
 1183  person to sell property to the trust, or acquires an option to
 1184  buy property for the trust or an option to sell an asset owned
 1185  by the trust, and the fiduciary trustee or other owner of the
 1186  asset is required to deliver the asset if the option is
 1187  exercised, an amount received for granting the option shall be
 1188  allocated to principal. An amount paid to acquire the option
 1189  shall be paid from principal. A gain or loss realized upon the
 1190  exercise of an option, including an option granted to a grantor
 1191  of the trust for services rendered, shall be allocated to
 1192  principal.
 1193         Section 24. Subsections (2) and (3) of section 738.608,
 1194  Florida Statutes, are amended to read:
 1195         738.608 Asset-backed securities.—
 1196         (2) If a trust receives a payment from interest or other
 1197  current return and from other proceeds of the collateral
 1198  financial assets, the fiduciary trustee shall allocate to income
 1199  the portion of the payment which the payor identifies as being
 1200  from interest or other current return and shall allocate the
 1201  balance of the payment to principal.
 1202         (3) If a trust receives one or more payments in exchange
 1203  for the trust’s entire interest in an asset-backed security
 1204  during a single accounting period, the fiduciary trustee shall
 1205  allocate the payments to principal. If a payment is one of a
 1206  series of payments that will result in the liquidation of the
 1207  trust’s interest in the security over more than a single
 1208  accounting period, the fiduciary trustee shall allocate 10
 1209  percent of the payment to income and the balance to principal.
 1210         Section 25. Section 738.701, Florida Statutes, is amended
 1211  to read:
 1212         738.701 Disbursements from income.—A fiduciary trustee
 1213  shall make the following disbursements from income to the extent
 1214  they are not disbursements to which s. 738.201(2)(a) or (c)
 1215  applies:
 1216         (1) One-half of the regular compensation of the fiduciary
 1217  trustee and of any person providing investment advisory or
 1218  custodial services to the fiduciary trustee.
 1219         (2) One-half of all expenses for accountings, judicial
 1220  proceedings, or other matters that involve both the income and
 1221  remainder interests.
 1222         (3) All of the other ordinary expenses incurred in
 1223  connection with the administration, management, or preservation
 1224  of trust property and the distribution of income, including
 1225  interest, ordinary repairs, regularly recurring taxes assessed
 1226  against principal, and expenses of a proceeding or other matter
 1227  that concerns primarily the income interest.
 1228         (4) Recurring premiums on insurance covering the loss of a
 1229  principal asset or the loss of income from or use of the asset.
 1230         Section 26. Subsection (1) of section 738.702, Florida
 1231  Statutes, is amended to read:
 1232         738.702 Disbursements from principal.—
 1233         (1) A fiduciary trustee shall make the following
 1234  disbursements from principal:
 1235         (a) The remaining one-half of the disbursements described
 1236  in s. 738.701(1) and (2).
 1237         (b) All of the fiduciary’s trustee’s compensation
 1238  calculated on principal as a fee for acceptance, distribution,
 1239  or termination and disbursements made to prepare property for
 1240  sale.
 1241         (c) Payments on the principal of a trust debt.
 1242         (d) Expenses of a proceeding that concerns primarily
 1243  principal, including a proceeding to construe the trust or will,
 1244  or to protect the trust, estate, or its property.
 1245         (e) Premiums paid on a policy of insurance not described in
 1246  s. 738.701(4) of which the trust or estate is the owner and
 1247  beneficiary.
 1248         (f) Estate, inheritance, and other transfer taxes,
 1249  including penalties, apportioned to the trust.
 1250         (g) Disbursements related to environmental matters,
 1251  including reclamation, assessing environmental conditions,
 1252  remedying and removing environmental contamination, monitoring
 1253  remedial activities and the release of substances, preventing
 1254  future releases of substances, collecting amounts from persons
 1255  liable or potentially liable for the costs of such activities,
 1256  penalties imposed under environmental laws or regulations and
 1257  other payments made to comply with those laws or regulations,
 1258  statutory or common law claims by third parties, and defending
 1259  claims based on environmental matters.
 1260         (h) Payments representing extraordinary repairs or expenses
 1261  incurred in making a capital improvement to principal, including
 1262  special assessments; however, a fiduciary trustee may establish
 1263  an allowance for depreciation out of income to the extent
 1264  permitted by s. 738.703.
 1265         Section 27. Subsection (2) of section 738.703, Florida
 1266  Statutes, is amended to read:
 1267         738.703 Transfers from income to principal for
 1268  depreciation.—
 1269         (2) A fiduciary trustee may transfer to principal a
 1270  reasonable amount of the net cash receipts from a principal
 1271  asset that is subject to depreciation but may not transfer any
 1272  amount for depreciation:
 1273         (a) Of that portion of real property used or available for
 1274  use by a beneficiary as a residence or of tangible personal
 1275  property held or made available for the personal use or
 1276  enjoyment of a beneficiary;
 1277         (b) During the administration of a decedent’s estate; or
 1278         (c) Under this section if the fiduciary trustee is
 1279  accounting under s. 738.403 for the business or activity in
 1280  which the asset is used.
 1281         Section 28. Subsections (1), (2), and (3) of section
 1282  738.704, Florida Statutes, are amended to read:
 1283         738.704 Transfers from income to reimburse principal.—
 1284         (1) If a fiduciary trustee makes or expects to make a
 1285  principal disbursement described in this section, the fiduciary
 1286  trustee may transfer an appropriate amount from income to
 1287  principal in one or more accounting periods to reimburse
 1288  principal or to provide a reserve for future principal
 1289  disbursements.
 1290         (2) Principal disbursements to which subsection (1) applies
 1291  include the following, but only to the extent the fiduciary
 1292  trustee has not been and does not expect to be reimbursed by a
 1293  third party:
 1294         (a) An amount chargeable to income but paid from principal
 1295  because the amount is unusually large.
 1296         (b) Disbursements made to prepare property for rental,
 1297  including tenant allowances, leasehold improvements, and
 1298  broker’s commissions.
 1299         (c) Disbursements described in s. 738.702(1)(g).
 1300         (3) If the asset the ownership of which gives rise to the
 1301  disbursements becomes subject to a successive income interest
 1302  after an income interest ends, a fiduciary trustee may continue
 1303  to transfer amounts from income to principal as provided in
 1304  subsection (1).
 1305         Section 29. Section 738.705, Florida Statutes, is amended
 1306  to read:
 1307         738.705 Income taxes.—
 1308         (1) A tax required to be paid by a fiduciary trustee based
 1309  on receipts allocated to income shall be paid from income.
 1310         (2) A tax required to be paid by a fiduciary trustee based
 1311  on receipts allocated to principal shall be paid from principal,
 1312  even if the tax is called an income tax by the taxing authority.
 1313         (3) A tax required to be paid by a fiduciary trustee on the
 1314  trust’s or estate’s share of an entity’s taxable income shall be
 1315  paid proportionately:
 1316         (a) From income to the extent receipts from the entity are
 1317  allocated to income; and
 1318         (b) From principal to the extent:
 1319         1. receipts from the entity are allocated to principal; and
 1320         2. The trust’s share of the entity’s taxable income exceeds
 1321  the total receipts described in paragraph (a) and subparagraph
 1322  1.
 1323         (c) From principal to the extent that the income taxes
 1324  payable by the trust or estate exceed the total distributions
 1325  from the entity.
 1326         (4) After applying subsections (1)-(3), the fiduciary shall
 1327  adjust income or principal receipts to the extent that the
 1328  trust’s or estate’s income taxes are reduced, but not
 1329  eliminated, because the trust or estate receives a deduction for
 1330  payments made to a beneficiary. The amount distributable to that
 1331  beneficiary as income as a result of this adjustment shall be
 1332  equal to the cash received by the trust or estate, reduced, but
 1333  not below zero, by the entity’s taxable income allocable to the
 1334  trust or estate multiplied by the trust’s or estate’s income tax
 1335  rate. The reduced amount shall be divided by the difference
 1336  between 1 and the trust’s or estate’s income tax rate in order
 1337  to determine the amount distributable to that beneficiary as
 1338  income before giving effect to other receipts or disbursements
 1339  allocable to that beneficiary’s interest. For purposes of this
 1340  section, receipts allocated to principal or income shall be
 1341  reduced by the amount distributed to a beneficiary from
 1342  principal or income for which the trust receives a deduction in
 1343  calculating the tax.
 1344         Section 30. Section 738.801, Florida Statutes, is amended
 1345  to read:
 1346         (Substantial rewording of section. See
 1347         s. 738.801, F.S., for present text.)
 1348         738.801 Apportionment of expenses; improvements.—
 1349         (1) For purposes of this section, the term:
 1350         (a)“Remainderman” means the holder of the remainder
 1351  interests after the expiration of a tenant’s estate in property.
 1352         (b)“Tenant” means the holder of an estate for life or term
 1353  of years in real property or personal property, or both.
 1354         (2) If a trust has not been created, expenses shall be
 1355  apportioned between the tenant and remainderman as follows:
 1356         (a)The following expenses are allocated to and shall be
 1357  paid by the tenant:
 1358         1.All ordinary expenses incurred in connection with the
 1359  administration, management, or preservation of the property,
 1360  including interest, ordinary repairs, regularly recurring taxes
 1361  assessed against the property, and expenses of a proceeding or
 1362  other matter that concerns primarily the tenant’s estate or use
 1363  of the property.
 1364         2.Recurring premiums on insurance covering the loss of the
 1365  property or the loss of income from or use of the property.
 1366         3.Any of the expenses described in subparagraph (b)3.
 1367  which are attributable to the use of the property by the tenant.
 1368         (b)The following expenses are allocated to and shall be
 1369  paid by the remainderman:
 1370         1.Payments on the principal of a debt secured by the
 1371  property, except to the extent the debt is for expenses
 1372  allocated to the tenant.
 1373         2.Expenses of a proceeding or other matter that concerns
 1374  primarily the title to the property, other than title to the
 1375  tenant’s estate.
 1376         3. Except as provided in subparagraph (a)3., expenses
 1377  related to environmental matters, including reclamation,
 1378  assessing environmental conditions, remedying and removing
 1379  environmental contamination, monitoring remedial activities and
 1380  the release of substances, preventing future releases of
 1381  substances, collecting amounts from persons liable or
 1382  potentially liable for the costs of such activities, penalties
 1383  imposed under environmental laws or regulations and other
 1384  payments made to comply with those laws or regulations,
 1385  statutory or common law claims by third parties, and defending
 1386  claims based on environmental matters.
 1387         4.Extraordinary repairs.
 1388         (c) If the tenant or remainderman incurred an expense for
 1389  the benefit of his or her own estate without consent or
 1390  agreement of the other, he or she must pay such expense in full.
 1391         (d)Except as provided in paragraph (c), the cost of, or
 1392  special taxes or assessments for, an improvement representing an
 1393  addition of value to property forming part of the principal
 1394  shall be paid by the tenant if the improvement is not reasonably
 1395  expected to outlast the estate of the tenant. In all other
 1396  cases, only a part shall be paid by the tenant while the
 1397  remainder shall be paid by the remainderman. The part payable by
 1398  the tenant is ascertainable by taking that percentage of the
 1399  total that is found by dividing the present value of the
 1400  tenant’s estate by the present value of an estate of the same
 1401  form as that of the tenant, except that it is limited for a
 1402  period corresponding to the reasonably expected duration of the
 1403  improvement. The computation of present values of the estates
 1404  shall be made by using the rate defined in 26 U.S.C. s. 7520,
 1405  then in effect and, in the case of an estate for life, the
 1406  official mortality tables then in effect under 26 U.S.C. s.
 1407  7520. Other evidence of duration or expectancy may not be
 1408  considered.
 1409         (3) This section does not apply to the extent it is
 1410  inconsistent with the instrument creating the estates, the
 1411  agreement of the parties, or the specific direction of the
 1412  taxing or other statutes.
 1413         (4) The common law applicable to tenants and remaindermen
 1414  supplements this section, except as modified by this section or
 1415  other laws.
 1416         Section 31. Section 738.804, Florida Statutes, is amended
 1417  to read:
 1418         738.804 Application.—
 1419         (1) Except as provided in s. 738.1041(9), this chapter
 1420  pertains to the administration of a trust and is applicable to
 1421  any trust that is administered in this state or under its law.
 1422  This chapter also applies to any estate that is administered in
 1423  this state unless the provision is limited in application to a
 1424  trustee, rather than a fiduciary.
 1425         (2) Except as provided in the trust instrument, the will,
 1426  or this chapter, this chapter applies shall apply to any receipt
 1427  or expense received or incurred and any disbursement made after
 1428  January 1, 2003, by any trust or decedent’s estate, whether
 1429  established before or after January 1, 2003, and whether the
 1430  asset involved was acquired by the trustee or personal
 1431  representative before or after January 1, 2003. Receipts or
 1432  expenses received or incurred and disbursements made before
 1433  January 1, 2003, are shall be governed by the law of this state
 1434  in effect at the time of the event, except as otherwise
 1435  expressly provided in the will or terms of the trust or under in
 1436  this chapter.
 1437         Section 32. This act shall take effect January 1, 2013.