Florida Senate - 2012                              CS for SB 978
       
       
       
       By the Committee on Judiciary; and Senator Fasano
       
       
       
       
       590-02332-12                                           2012978c1
    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”; amending s. 738.103, F.S.;
    5         providing for application; amending s. 738.104, F.S.;
    6         deleting a provision authorizing a trustee to release
    7         the power to adjust between principal and income if
    8         the trustee desires to convert the form of certain
    9         trusts; limiting the power to adjust a trust; deleting
   10         a provision that provides construction and application
   11         relating to the administration of trusts in this state
   12         or under this state’s law; amending s. 738.1041, F.S.;
   13         defining the term “average fair market value” and
   14         redefining the term “unitrust amount”; deleting a
   15         duplicative provision relating to conclusive
   16         determinations of the terms of a unitrust; revising
   17         provisions relating to an express total return
   18         unitrust; amending s. 738.105, F.S.; substituting the
   19         term “trustee” for “fiduciary” with respect to
   20         judicial control of discretionary powers; amending s.
   21         738.201, F.S.; revising provisions relating to the
   22         determination and distribution of net income; amending
   23         s. 738.202, F.S.; revising provisions relating to
   24         distributions to residuary and remainder
   25         beneficiaries; amending ss. 738.301, 738.302, and
   26         738.303, F.S.; substituting the term “fiduciary” for
   27         “trustee” to clarify that provisions apply to all
   28         fiduciaries; amending s. 738.401, F.S.; substituting
   29         the term “fiduciary” for “trustee” to clarify that
   30         provisions apply to all fiduciaries; revising how
   31         distributions from entities are allocated between
   32         income and principal; amending ss. 738.402, 738.403,
   33         738.501, 738.502, 738.503, 738.504, and 738.601, F.S.;
   34         substituting the term “fiduciary” for “trustee” to
   35         clarify that provisions apply to all fiduciaries;
   36         amending s. 738.602, F.S.; substituting the term
   37         “fiduciary” for “trustee” to clarify that provisions
   38         apply to all fiduciaries; revising provisions relating
   39         to allocations to trusts; amending s. 738.603, F.S.;
   40         substituting the term “fiduciary” for “trustee” to
   41         clarify that provisions apply to all fiduciaries;
   42         revising provisions relating to the allocation between
   43         income and principal when liquidating assets; amending
   44         ss. 738.604, 738.605, 738.606, 738.607, 738.608,
   45         738.701, 738.702, 738.703, and 738.704, F.S.;
   46         substituting the term “fiduciary” for “trustee” to
   47         clarify that provisions apply to all fiduciaries;
   48         amending s. 738.705, F.S.; substituting the term
   49         “fiduciary” for “trustee” to clarify that provisions
   50         apply to all fiduciaries; revising the method for
   51         allocating income taxes between income and principal;
   52         amending s. 738.801, F.S.; clarifying the
   53         apportionment of expenses between tenants and
   54         remaindermen; providing an effective date.
   55  
   56  Be It Enacted by the Legislature of the State of Florida:
   57  
   58         Section 1. Present subsections (3) through (13) of section
   59  738.102, Florida Statutes, are renumbered as subsections (4)
   60  through (14), respectively, and a new subsection (3) is added to
   61  that section, to read:
   62         738.102 Definitions.—As used in this chapter, the term:
   63         (3) “Carrying value” means the fair market value at the
   64  time the assets are received by the fiduciary. For the estates
   65  of decedents and trusts described in s. 733.707(3), after the
   66  grantor’s death, the assets are considered received as of the
   67  date of death. If there is a change in fiduciaries, a majority
   68  of the continuing fiduciaries may elect to adjust the carrying
   69  values to reflect the fair market value of the assets at the
   70  beginning of their administration. If such election is made, it
   71  must be reflected on the first accounting filed after the
   72  election. For assets acquired during the administration of the
   73  estate or trust, the carrying value is equal to the acquisition
   74  costs of the asset.
   75         Section 2. Subsection (3) is added to section 738.103,
   76  Florida Statutes, to read:
   77         738.103 Fiduciary duties; general principles.—
   78         (3) Except as provided in s. 738.1041(9), this chapter
   79  pertains to the administration of a trust and is applicable to
   80  any trust that is administered in this state or under its law.
   81  This chapter also applies to any estate that is administered in
   82  this state unless the provision is limited in application to a
   83  trustee, rather than a fiduciary.
   84         Section 3. Subsections (5) and (11) of section 738.104,
   85  Florida Statutes, are amended to read:
   86         738.104 Trustee’s power to adjust.—
   87         (5)(a) A trustee may release the entire power to adjust
   88  conferred by subsection (1) if the trustee desires to convert an
   89  income trust to a total return unitrust pursuant to s. 738.1041.
   90         (b) A trustee may release the entire power to adjust
   91  conferred by subsection (1) or may release only the power to
   92  adjust from income to principal or the power to adjust from
   93  principal to income if the trustee is uncertain about whether
   94  possessing or exercising the power will cause a result described
   95  in paragraphs (3)(a)-(e) or paragraph (3)(g) or if the trustee
   96  determines that possessing or exercising the power will or may
   97  deprive the trust of a tax benefit or impose a tax burden not
   98  described in subsection (3).
   99         (c) A release under this subsection may be permanent or for
  100  a specified period, including a period measured by the life of
  101  an individual. Notwithstanding anything contrary to this
  102  subsection, a release of the power to adjust pursuant to
  103  paragraph (a) shall remain effective only for as long as the
  104  trust is administered as a unitrust pursuant to s. 738.1041.
  105         (11) This section shall be construed as pertaining to the
  106  administration of a trust and is applicable to any trust that is
  107  administered either in this state or under Florida law.
  108         Section 4. Section 738.1041, Florida Statutes, is amended
  109  to read:
  110         738.1041 Total return unitrust.—
  111         (1) For purposes of this section, the term:
  112         (a) “Average fair market value” means the average of the
  113  fair market values of assets held by the trust at the beginning
  114  of the current and each of the 2 preceding years, or for the
  115  entire term of the trust if there are less than 2 preceding
  116  years, and adjusted as follows:
  117         1. If assets have been added to the trust during the years
  118  used to determine the average, the amount of each addition is
  119  added to all years in which such addition was not included.
  120         2. If assets have been distributed from the trust during
  121  the years used to determine the average, other than in
  122  satisfaction of the unitrust amount, the amount of each
  123  distribution is subtracted from all years in which such
  124  distribution was not included.
  125         (b)(a) “Disinterested person” means a person who is not a
  126  related or subordinate party” as defined in s. 672(c) of the
  127  United States Internal Revenue Code, 26 U.S.C. ss. 1 et seq., or
  128  any successor provision thereof, with respect to the person then
  129  acting as trustee of the trust and excludes the grantor and any
  130  interested trustee.
  131         (c)(b) “Fair market value” means the fair market value of
  132  the assets held by the trust as otherwise determined under this
  133  chapter, reduced by all known noncontingent liabilities.
  134         (d)(c) “Income trust” means a trust, created by either an
  135  inter vivos or a testamentary instrument, which directs or
  136  permits the trustee to distribute the net income of the trust to
  137  one or more persons, either in fixed proportions or in amounts
  138  or proportions determined by the trustee and regardless of
  139  whether the trust directs or permits the trustee to distribute
  140  the principal of the trust to one or more such persons.
  141         (e)(d) “Interested distributee” means a person to whom
  142  distributions of income or principal can currently be made and
  143  who has the power to remove the existing trustee and designate
  144  as successor a person who may be a related or subordinate
  145  party,” as defined in the Internal Revenue Code, 26 U.S.C. s.
  146  672(c), with respect to such distributee.
  147         (f)(e) “Interested trustee” means an individual trustee to
  148  whom the net income or principal of the trust can currently be
  149  distributed or would be distributed if the trust were then to
  150  terminate and be distributed, any trustee whom an interested
  151  distributee has the power to remove and replace with a related
  152  or subordinate party as defined in paragraph (d), or an
  153  individual trustee whose legal obligation to support a
  154  beneficiary may be satisfied by distributions of income and
  155  principal of the trust.
  156         (g) “Related or subordinate party” has the same meaning as
  157  provided in 26 U.S.C. s. 672(c) of the Internal Revenue Code, or
  158  any successor provision thereof.
  159         (h)(f) “Unitrust amount” means the amount determined by
  160  multiplying the average fair market value of the assets as
  161  calculated defined in paragraph (a) (b) by the percentage
  162  calculated under paragraph (2)(b).
  163         (2) A trustee may, without court approval, convert an
  164  income trust to a total return unitrust, reconvert a total
  165  return unitrust to an income trust, or change the percentage
  166  used to calculate the unitrust amount or the method used to
  167  determine the fair market value of the trust if:
  168         (a) The trustee adopts a written statement regarding trust
  169  distributions which that provides:
  170         1. In the case of a trust being administered as an income
  171  trust, that future distributions from the trust will be unitrust
  172  amounts rather than net income, and indicates the manner in
  173  which the unitrust amount will be calculated and the method in
  174  which the fair market value of the trust will be determined.
  175         2. In the case of a trust being administered as a total
  176  return unitrust, that:
  177         a. Future distributions from the trust will be net income
  178  rather than unitrust amounts; or
  179         b. The percentage used to calculate the unitrust amount or
  180  the method used to determine the fair market value of the trust
  181  will be changed, and indicates the manner in which the new
  182  unitrust amount will be calculated and the method in which the
  183  new fair market value of the trust will be determined;
  184         (b) The trustee determines the terms of the unitrust under
  185  one of the following methods:
  186         1. A disinterested trustee determines, or if there is no
  187  trustee other than an interested trustee, the interested trustee
  188  appoints a disinterested person who, in its sole discretion but
  189  acting in a fiduciary capacity, determines for the interested
  190  trustee:
  191         a. The percentage to be used to calculate the unitrust
  192  amount, provided the percentage used is not greater than 5
  193  percent nor less than 3 percent;
  194         b. The method to be used in determining the fair market
  195  value of the trust; and
  196         c. Which assets, if any, are to be excluded in determining
  197  the unitrust amount; or
  198         2. The interested trustee or disinterested trustee
  199  administers the trust such that:
  200         a. The percentage used to calculate the unitrust amount is
  201  50 percent of the applicable federal rate as defined in the
  202  Internal Revenue Code, 26 U.S.C. s. 7520, in effect for the
  203  month the conversion under this section becomes effective and
  204  for each January thereafter; however, if the percentage
  205  calculated exceeds 5 percent, the unitrust percentage is shall
  206  be 5 percent and if the percentage calculated is less than 3
  207  percent, the unitrust percentage is shall be 3 percent; and
  208         b. The fair market value of the trust shall be determined
  209  at least annually on an asset-by-asset basis, reasonably and in
  210  good faith, in accordance with the provisions of s. 738.202(5),
  211  except the following property shall not be included in
  212  determining the value of the trust:
  213         (I) Any residential property or any tangible personal
  214  property that, as of the first business day of the current
  215  valuation year, one or more current beneficiaries of the trust
  216  have or have had the right to occupy, or have or have had the
  217  right to possess or control, (other than in his or her capacity
  218  as trustee of the trust), and instead the right of occupancy or
  219  the right to possession and control is shall be deemed to be the
  220  unitrust amount with respect to such property; however, the
  221  unitrust amount must shall be adjusted to take into account
  222  partial distributions from or receipt into the trust of such
  223  property during the valuation year;.
  224         (II) Any asset specifically given to a beneficiary and the
  225  return on investment on such property, which return on
  226  investment shall be distributable to the such beneficiary; or.
  227         (III) Any asset while held in a decedent’s testator’s
  228  estate;
  229         (c) The trustee sends written notice of its intention to
  230  take such action, along with copies of the such written
  231  statement regarding trust distributions and this section, and,
  232  if applicable, the determinations of either the trustee or the
  233  disinterested person to:
  234         1. The grantor of the trust, if living.
  235         2. All living persons who are currently receiving or
  236  eligible to receive distributions of income from of the trust.
  237         3. All living persons who would receive distributions of
  238  principal of the trust if the trust were to terminate at the
  239  time of the giving of such notice (without regard to the
  240  exercise of any power of appointment,) or, if the trust does not
  241  provide for its termination, all living persons who would
  242  receive or be eligible to receive distributions of income or
  243  principal of the trust if the persons identified in subparagraph
  244  2. were deceased.
  245         4. All persons acting as advisers or protectors of the
  246  trust.
  247  
  248  Notice under this paragraph shall be served informally, in the
  249  manner provided in the Florida Rules of Civil Procedure relating
  250  to service of pleadings subsequent to the initial pleading.
  251  Notice may be served on a legal representative or natural
  252  guardian of a person without the filing of any proceeding or
  253  approval of any court;
  254         (d) At least one person receiving notice under each of
  255  subparagraphs (c)2. and 3. is legally competent; and
  256         (e) No person receiving such notice objects, by written
  257  instrument delivered to the trustee, to the proposed action of
  258  the trustee or the determinations of the disinterested person
  259  within 60 days after service of such notice. An objection under
  260  this section may be executed by a legal representative or
  261  natural guardian of a person without the filing of any
  262  proceeding or approval of any court.
  263         (3) If a trustee desires to convert an income trust to a
  264  total return unitrust, reconvert a total return unitrust to an
  265  income trust, or change the percentage used to calculate the
  266  unitrust amount or the method used to determine a fair market
  267  value of the trust but does not have the ability to or elects
  268  not to do it under subsection (2), the trustee may petition the
  269  circuit court for such order as the trustee deems appropriate.
  270  In that event, the court, in its own discretion or on the
  271  petition of such trustee or any person having an income or
  272  remainder interest in the trust, may appoint a disinterested
  273  person who, acting in a fiduciary capacity, shall present such
  274  information to the court as is shall be necessary for the court
  275  to make a determination hereunder.
  276         (4) All determinations made pursuant to sub-subparagraph
  277  (2)(b)2.b. shall be conclusive if reasonable and made in good
  278  faith. Such determination shall be conclusively presumed to have
  279  been made reasonably and in good faith unless proven otherwise
  280  in a proceeding commenced by or on behalf of a person interested
  281  in the trust within the time provided in s. 736.1008. The burden
  282  will be on the objecting interested party to prove that the
  283  determinations were not made reasonably and in good faith.
  284         (4)(5) Following the conversion of an income trust to a
  285  total return unitrust, the trustee:
  286         (a) Shall treat the unitrust amount as if it were net
  287  income of the trust for purposes of determining the amount
  288  available, from time to time, for distribution from the trust.
  289         (b) May allocate to trust income for each taxable year of
  290  the trust, or portion thereof:
  291         1. Net short-term capital gain described in the Internal
  292  Revenue Code, 26 U.S.C. s. 1222(5), for such year, or portion
  293  thereof, but only to the extent that the amount so allocated
  294  together with all other amounts allocated to trust income, as
  295  determined under the provisions of this chapter without regard
  296  to this section and s. 738.104, for such year, or portion
  297  thereof, does not exceed the unitrust amount for such year, or
  298  portion thereof.
  299         2. Net long-term capital gain described in the Internal
  300  Revenue Code, 26 U.S.C. s. 1222(7), for such year, or portion
  301  thereof, but only to the extent that the amount so allocated
  302  together with all other amounts, including amounts described in
  303  subparagraph 1., allocated to trust income for such year, or
  304  portion thereof, does not exceed the unitrust amount for such
  305  year, or portion thereof.
  306         (5)(6) In administering a total return unitrust, the
  307  trustee may, in its sole discretion but subject to the
  308  provisions of the governing instrument, determine:
  309         (a) The effective date of the conversion.
  310         (b) The timing of distributions, including provisions for
  311  prorating a distribution for a short year in which a
  312  beneficiary’s right to payments commences or ceases.
  313         (c) Whether distributions are to be made in cash or in kind
  314  or partly in cash and partly in kind.
  315         (d) If the trust is reconverted to an income trust, the
  316  effective date of such reconversion.
  317         (e) Such other administrative issues as may be necessary or
  318  appropriate to carry out the purposes of this section.
  319         (6)(7) Conversion to a total return unitrust under the
  320  provisions of this section does shall not affect any other
  321  provision of the governing instrument, if any, regarding
  322  distributions of principal.
  323         (7)(8) Any trustee or disinterested person who in good
  324  faith takes or fails to take any action under this section is
  325  shall not be liable to any person affected by such action or
  326  inaction, regardless of whether such person received written
  327  notice as provided in this section or and regardless of whether
  328  such person was under a legal disability at the time of the
  329  delivery of such notice. Such person’s exclusive remedy is shall
  330  be to obtain, under subsection (8) (9), an order of the court
  331  directing the trustee to convert an income trust to a total
  332  return unitrust, to reconvert from a total return unitrust to an
  333  income trust, or to change the percentage used to calculate the
  334  unitrust amount. If a court determines that the trustee or
  335  disinterested person has not acted in good faith in taking or
  336  failing to take any action under this section, the provisions of
  337  s. 738.105(3) applies apply.
  338         (8)(9) If a majority in interest of either the income or
  339  remainder beneficiaries of an income trust has delivered to the
  340  trustee a written objection to the amount of the income
  341  distributions of the trust, and, if the trustee has failed to
  342  resolve the objection to the satisfaction of the objecting
  343  beneficiaries within 6 months after from the receipt of such
  344  written objection, then the objecting beneficiaries may petition
  345  the court in accordance with subsection (3).
  346         (9)(10) This section pertains shall be construed as
  347  pertaining to the administration of a trust and is applicable to
  348  any trust that is administered either in this state or under
  349  Florida law unless:
  350         (a) The governing instrument reflects an intention that the
  351  current beneficiary or beneficiaries are to receive an amount
  352  other than a reasonable current return from the trust;
  353         (b) The trust is a trust described in the Internal Revenue
  354  Code, 26 U.S.C. s. 170(f)(2)(B), s. 642(c)(5), s. 664(d), s.
  355  2702(a)(3), or s. 2702(b);
  356         (c) One or more persons to whom the trustee could
  357  distribute income have a power of withdrawal over the trust:
  358         1. That is not subject to an ascertainable standard under
  359  the Internal Revenue Code, 26 U.S.C. s. 2041 or s. 2514, and
  360  exceeds in any calendar year the amount set forth in the
  361  Internal Revenue Code, 26 U.S.C. s. 2041(b)(2) or s. 2514(e); or
  362         2. A power of withdrawal over the trust that can be
  363  exercised to discharge a duty of support he or she possesses; or
  364         (d) The governing instrument expressly prohibits use of
  365  this section by specific reference to the section. A provision
  366  in the governing instrument that, “The provisions of section
  367  738.1041, Florida Statutes, as amended, or any corresponding
  368  provision of future law, may shall not be used in the
  369  administration of this trust,” or similar words reflecting such
  370  intent are shall be sufficient to preclude the use of this
  371  section; or
  372         (e) The trust is a trust with respect to which a trustee
  373  currently possesses the power to adjust under s. 738.104.
  374         (10)(11) The grantor of a trust may create an express total
  375  return unitrust that which will be become effective as provided
  376  in the trust instrument document without requiring a conversion
  377  under this section.
  378         (a) An express total return unitrust created by the grantor
  379  of the trust is shall be treated as a unitrust under this
  380  section only if the terms of the trust instrument document
  381  contain all of the following provisions:
  382         1.(a) That distributions from the trust will be unitrust
  383  amounts and the manner in which the unitrust amount will be
  384  calculated; and the method in which the fair market value of the
  385  trust will be determined.
  386         2.(b) The percentage to be used to calculate the unitrust
  387  amount, provided the percentage used is not greater than 5
  388  percent nor less than 3 percent.
  389         (b) The trust instrument may also contain provisions
  390  specifying:
  391         1.(c) The method to be used in determining the fair market
  392  value of the trust, including whether to use an average fair
  393  market value or the fair market value of the assets held by the
  394  trust at the beginning of the current year; or.
  395         2.(d) Which assets, if any, are to be excluded in
  396  determining the unitrust amount.
  397         (c) This section establishes the method of determining the
  398  fair market value of the trust if the trust instrument is silent
  399  as to subparagraph (b)1., and to specify those assets, if any,
  400  which are to be excluded in determining the unitrust amount if
  401  the trust instrument is silent as to subparagraph (b)2.
  402         Section 5. Subsections (1), (3), and (4) of section
  403  738.105, Florida Statutes, are amended to read:
  404         738.105 Judicial control of discretionary powers.—
  405         (1) A court may shall not change a trustee’s fiduciary’s
  406  decision to exercise or not to exercise a discretionary power
  407  conferred by this chapter unless the court determines that the
  408  decision was an abuse of the trustee’s fiduciary’s discretion. A
  409  court may shall not determine that a trustee fiduciary abused
  410  its discretion merely because the court would have exercised the
  411  discretion in a different manner or would not have exercised the
  412  discretion.
  413         (3) If a court determines that a trustee fiduciary has
  414  abused its discretion, the remedy is shall be to restore the
  415  income and remainder beneficiaries to the positions they would
  416  have occupied if the trustee fiduciary had not abused its
  417  discretion, in accordance with according to the following rules:
  418         (a) To the extent the abuse of discretion has resulted in
  419  no distribution to a beneficiary or a distribution that is too
  420  small, the court shall require the trustee fiduciary to
  421  distribute from the trust to the beneficiary an amount the court
  422  determines will restore the beneficiary, in whole or in part, to
  423  his or her appropriate position.
  424         (b) To the extent the abuse of discretion has resulted in a
  425  distribution to a beneficiary that is too large, the court shall
  426  restore the beneficiaries, the trust, or both, in whole or in
  427  part, to their appropriate positions by requiring the trustee
  428  fiduciary to withhold an amount from one or more future
  429  distributions to the beneficiary who received the distribution
  430  that was too large or requiring that beneficiary to return some
  431  or all of the distribution to the trust.
  432         (c) To the extent the court is unable, after applying
  433  paragraphs (a) and (b), to restore the beneficiaries or, the
  434  trust, or both, to the positions they would have occupied if the
  435  trustee fiduciary had not abused its discretion, the court may
  436  require the trustee fiduciary to pay an appropriate amount from
  437  its own funds to one or more of the beneficiaries or the trust
  438  or both.
  439         (4) Upon the filing of a petition by the trustee fiduciary,
  440  the court having jurisdiction over the trust or estate shall
  441  determine whether a proposed exercise or nonexercise by the
  442  trustee fiduciary of a discretionary power conferred by this
  443  chapter will result in an abuse of the trustee’s fiduciary’s
  444  discretion. If the petition describes the proposed exercise or
  445  nonexercise of the power and contains sufficient information to
  446  inform the beneficiaries of the reasons for the proposal, the
  447  facts upon which the trustee fiduciary relies, and an
  448  explanation of how the income and remainder beneficiaries will
  449  be affected by the proposed exercise or nonexercise of the
  450  power, a beneficiary who challenges the proposed exercise or
  451  nonexercise has the burden of establishing that such exercise or
  452  nonexercise will result in an abuse of discretion.
  453         Section 6. Subsections (1) through (4) of section 738.201,
  454  Florida Statutes, are amended to read:
  455         738.201 Determination and distribution of net income.—After
  456  a decedent dies, in the case of an estate, or after an income
  457  interest in a trust ends, the following rules apply:
  458         (1) A fiduciary of an estate or of a terminating income
  459  interest shall determine the amount of net income and net
  460  principal receipts received from property specifically given to
  461  a beneficiary under the rules in ss. 738.301-738.706 which apply
  462  to trustees and the rules in subsection (5). The fiduciary shall
  463  distribute the net income and net principal receipts to the
  464  beneficiary who is to receive the specific property.
  465         (2) A fiduciary shall determine the remaining net income of
  466  a decedent’s estate or a terminating income interest under the
  467  rules in ss. 738.301-738.706 which apply to trustees and by:
  468         (a) Including in net income all income from property used
  469  to discharge liabilities.
  470         (b) Paying from income or principal, in the fiduciary’s
  471  discretion, fees of attorneys, accountants, and fiduciaries;
  472  court costs and other expenses of administration; and interest
  473  on death taxes., but The fiduciary may pay those expenses from
  474  income of property passing to a trust for which the fiduciary
  475  claims an estate tax marital or charitable deduction under the
  476  Internal Revenue Code or comparable law of any state only to the
  477  extent the payment of those expenses from income will not cause
  478  the reduction or loss of the deduction.
  479         (c) Paying from principal all other disbursements made or
  480  incurred in connection with the settlement of a decedent’s
  481  estate or the winding up of a terminating income interest,
  482  including debts, funeral expenses, disposition of remains,
  483  family allowances, and death taxes and related penalties that
  484  are apportioned to the estate or terminating income interest by
  485  the will, the terms of the trust, or applicable law.
  486         (3) If A fiduciary shall distribute to a beneficiary who
  487  receives a pecuniary devise amount outright is also entitled to
  488  receive the interest or any other amount on the devise under the
  489  terms of provided by the will or, the terms of the trust, the
  490  fiduciary shall distribute the interest or other amount
  491  applicable law from net income determined under subsection (2)
  492  or from principal to the extent net income is insufficient. If a
  493  beneficiary is to receive a pecuniary amount outright from a
  494  trust after an income interest ends and no interest or other
  495  amount is provided for by the terms of the trust or applicable
  496  law, the fiduciary shall distribute the interest or other amount
  497  to which the beneficiary would be entitled under applicable law
  498  if the pecuniary amount were required to be paid under a will.
  499         (4) A fiduciary shall distribute the net income remaining
  500  after distributions required under subsections (1)-(3) by
  501  subsection (3) in the manner described in s. 738.202 to all
  502  other beneficiaries, including a beneficiary who receives a
  503  pecuniary amount in trust, even if the beneficiary holds an
  504  unqualified power to withdraw assets from the trust or other
  505  presently exercisable general power of appointment over the
  506  trust.
  507         Section 7. Section 738.202, Florida Statutes, is amended to
  508  read:
  509         738.202 Distribution to residuary and remainder
  510  beneficiaries.—
  511         (1) Each beneficiary described in s. 738.201(4) is entitled
  512  to receive a portion of the net income remaining after the
  513  application of s. 738.201(1)-(3), which is equal to the
  514  beneficiary’s fractional interest in undistributed principal
  515  assets, using carrying values as of the distribution date. If a
  516  fiduciary makes more than one distribution of assets to
  517  beneficiaries to whom this section applies, each beneficiary,
  518  including one who does not receive part of the distribution, is
  519  entitled, as of each distribution date, to the net income the
  520  fiduciary has received after the date of death or terminating
  521  event or earlier distribution date but has not distributed as of
  522  the current distribution date.
  523         (2) In determining a beneficiary’s share of net income, the
  524  following applies rules apply:
  525         (a) The beneficiary is entitled to receive a portion of the
  526  net income equal to the beneficiary’s fractional interest in the
  527  carrying value of the undistributed principal assets immediately
  528  before the distribution date, excluding the amount of unpaid
  529  liabilities including assets that later may be sold to meet
  530  principal obligations.
  531         (b) The beneficiary’s fractional interest in the
  532  undistributed principal assets shall be calculated: without
  533  regard to
  534         1. At the time the interest began and adjusted for any
  535  disproportionate distributions since the interest began;
  536         2. By excluding any liabilities of the estate or trust from
  537  the calculation;
  538         3. By also excluding property specifically given to a
  539  beneficiary and property required to pay pecuniary amounts not
  540  in trust; and.
  541         4.(c)The beneficiary’s fractional interest in the
  542  undistributed principal assets shall be calculated On the basis
  543  of the aggregate carrying value of those assets determined under
  544  subsection (1) as of the distribution date without reducing the
  545  value by any unpaid principal obligation.
  546         (c) If a disproportionate distribution of principal is made
  547  to any beneficiary, the respective fractional interests of all
  548  beneficiaries in the remaining underlying assets shall be
  549  recomputed by:
  550         1. Adjusting the carrying value of the principal assets to
  551  their fair market value before the distribution;
  552         2. Reducing the fractional interest of the recipient of the
  553  disproportionate distribution in the remaining principal assets
  554  by the fair market value of the principal distribution; and
  555         3. Recomputing the fractional interests of all
  556  beneficiaries in the remaining principal assets based upon the
  557  now restated carrying values.
  558         (d) The distribution date for purposes of this section may
  559  be the date as of which the fiduciary calculates the value of
  560  the assets if that date is reasonably near the date on which
  561  assets are actually distributed.
  562         (3) If a fiduciary does not distribute all of the collected
  563  but undistributed net income to each person as of a distribution
  564  date, the fiduciary shall maintain appropriate records showing
  565  the interest of each beneficiary in that net income.
  566         (4) A fiduciary may apply the provisions of rules in this
  567  section, to the extent the fiduciary considers appropriate, to
  568  net gain or loss realized after the date of death or terminating
  569  event or earlier distribution date from the disposition of a
  570  principal asset if this section applies to the income from the
  571  asset.
  572         (5) The carrying value or fair market value of trust assets
  573  shall be determined on an asset-by-asset basis and are shall be
  574  conclusive if reasonable and determined in good faith.
  575  Determinations of fair market value based on appraisals
  576  performed within 2 years before or after the valuation date are
  577  shall be presumed reasonable. The values value of trust assets
  578  are shall be conclusively presumed to be reasonable and
  579  determined in good faith unless proven otherwise in a proceeding
  580  commenced by or on behalf of a person interested in the trust
  581  within the time provided in s. 736.1008.
  582         (6) All distributions to a beneficiary shall be valued
  583  based on their fair market value on the date of distribution.
  584         Section 8. Subsection (4) of section 738.301, Florida
  585  Statutes, is amended to read:
  586         738.301 When right to income begins and ends.—An income
  587  beneficiary is entitled to net income from the date on which the
  588  income interest begins.
  589         (4) An income interest ends on the day before an income
  590  beneficiary dies or another terminating event occurs, or on the
  591  last day of a period during which there is no beneficiary to
  592  whom a fiduciary trustee may distribute income.
  593         Section 9. Subsections (1) and (2) of section 738.302,
  594  Florida Statutes, are amended to read:
  595         738.302 Apportionment of receipts and disbursements when
  596  decedent dies or income interest begins.—
  597         (1) A fiduciary trustee shall allocate an income receipt or
  598  disbursement other than one to which s. 738.201(1) applies to
  599  principal if the due date of the receipt or disbursement occurs
  600  before a decedent dies in the case of an estate or before an
  601  income interest begins in the case of a trust or successive
  602  income interest.
  603         (2) A fiduciary trustee shall allocate an income receipt or
  604  disbursement to income if the due date of the receipt or
  605  disbursement occurs on or after the date on which a decedent
  606  dies or an income interest begins and the due date is a periodic
  607  due date. An income receipt or disbursement shall be treated as
  608  accruing from day to day if the due date of the receipt or
  609  disbursement is not periodic or the receipt or disbursement has
  610  no due date. The portion of the receipt or disbursement accruing
  611  before the date on which a decedent dies or an income interest
  612  begins shall be allocated to principal and the balance shall be
  613  allocated to income.
  614         Section 10. Subsections (2) and (3) of section 738.303,
  615  Florida Statutes, are amended to read:
  616         738.303 Apportionment when income interest ends.—
  617         (2) When a mandatory income interest ends, the fiduciary
  618  trustee shall pay to a mandatory income beneficiary who survives
  619  that date, or the estate of a deceased mandatory income
  620  beneficiary whose death causes the interest to end, the
  621  beneficiary’s share of the undistributed income that is not
  622  disposed of under the terms of the trust unless the beneficiary
  623  has an unqualified power to revoke more than 5 percent of the
  624  trust immediately before the income interest ends. In the latter
  625  case, the undistributed income from the portion of the trust
  626  that may be revoked shall be added to principal.
  627         (3) When a fiduciary’s trustee’s obligation to pay a fixed
  628  annuity or a fixed fraction of the value of the trust’s assets
  629  ends, the fiduciary trustee shall prorate the final payment if
  630  and to the extent required by applicable law to accomplish a
  631  purpose of the trust or its grantor relating to income, gift,
  632  estate, or other tax requirements.
  633         Section 11. Section 738.401, Florida Statutes, is amended
  634  to read:
  635         738.401 Character of receipts.—
  636         (1) For purposes of this section, the term “entity” means a
  637  corporation, partnership, limited liability company, regulated
  638  investment company, real estate investment trust, common trust
  639  fund, or any other organization in which a fiduciary trustee has
  640  an interest other than a trust or estate to which s. 738.402
  641  applies, a business or activity to which s. 738.403 applies, or
  642  an asset-backed security to which s. 738.608 applies.
  643         (2) Except as otherwise provided in this section, a
  644  fiduciary trustee shall allocate to income money received from
  645  an entity.
  646         (3) Except as otherwise provided in this section, a
  647  fiduciary trustee shall allocate the following receipts from an
  648  entity to principal:
  649         (a) Property other than money.
  650         (b) Money received in one distribution or a series of
  651  related distributions in exchange for part or all of a trust’s
  652  or estate’s interest in the entity.
  653         (c) Money received in total or partial liquidation of the
  654  entity.
  655         (d) Money received from an entity that is a regulated
  656  investment company or a real estate investment trust if the
  657  money received distributed represents short-term or long-term
  658  capital gain realized within the entity.
  659         (e) Money received from an entity listed on a public stock
  660  exchange during any year of the trust or estate which exceeds 10
  661  percent of the fair market value of the trust’s or estate’s
  662  interest in the entity on the first day of that year. The amount
  663  to be allocated to principal must be reduced to the extent that
  664  the cumulative distributions from the entity to the trust or
  665  estate allocated to income does not exceed a cumulative annual
  666  return of 3 percent of the fair market value of the interest in
  667  the entity at the beginning of each year or portion of a year
  668  for the number of years or portion of years in the period that
  669  the interest in the entity has been held by the trust or estate.
  670  If a trustee has exercised a power to adjust under s. 738.104
  671  during any period the interest in the entity has been held by
  672  the trust, the trustee, in determining the total income
  673  distributions from that entity, must take into account the
  674  extent to which the exercise of that power resulted in income to
  675  the trust from that entity for that period. If the income of the
  676  trust for any period has been computed under s. 738.1041, the
  677  trustee, in determining the total income distributions from that
  678  entity for that period, must take into account the portion of
  679  the unitrust amount paid as a result of the ownership of the
  680  trust’s interest in the entity for that period.
  681         (4) If a fiduciary trustee elects, or continues an election
  682  made by its predecessor, to reinvest dividends in shares of
  683  stock of a distributing corporation or fund, whether evidenced
  684  by new certificates or entries on the books of the distributing
  685  entity, the new shares shall retain their character as income.
  686         (5) Money is received in partial liquidation:
  687         (a) To the extent the entity, at or near the time of a
  688  distribution, indicates that such money is a distribution in
  689  partial liquidation; or
  690         (b) To the extent If the total amount of money and property
  691  received in a distribution or series of related distributions
  692  from an entity that is not listed on a public stock exchange
  693  exceeds is greater than 20 percent of the trust’s or estate’s
  694  pro rata share of the entity’s gross assets, as shown by the
  695  entity’s year-end financial statements immediately preceding the
  696  initial receipt.
  697  
  698  This subsection does not apply to an entity to which subsection
  699  (7) applies.
  700         (6) Money may not is not received in partial liquidation,
  701  nor may money be taken into account in determining any excess
  702  under paragraph (5)(b), to the extent that the cumulative
  703  distributions from the entity to the trust or the estate
  704  allocated to income do not exceed the greater of: such money
  705  does not exceed the amount of income tax a trustee or
  706  beneficiary must pay on taxable income of the entity that
  707  distributes the money.
  708         (a) A cumulative annual return of 3 percent of the entity’s
  709  carrying value computed at the beginning of each period for the
  710  number of years or portion of years that the entity was held by
  711  the fiduciary. If a trustee has exercised a power to adjust
  712  under s. 738.104 during any period the interest in the entity
  713  has been held by the trust, the trustee, in determining the
  714  total income distributions from that entity, must take into
  715  account the extent to which exercise of the power resulted in
  716  income to the trust from that entity for that period. If the
  717  income of a trust for any period has been computed pursuant to
  718  s. 738.1041, the trustee, in determining the total income
  719  distributions from the entity for that period, must take into
  720  account the portion of the unitrust amount paid as a result of
  721  the ownership of the trust’s interest in the entity for that
  722  period; or
  723         (b) If the entity is treated as a partnership, subchapter S
  724  corporation, or a disregarded entity pursuant to the Internal
  725  Revenue Code of 1986, as amended, the amount of income tax
  726  attributable to the trust’s or estate’s ownership share of the
  727  entity, based on its pro rata share of the taxable income of the
  728  entity that distributes the money, for the number of years or
  729  portion of years that the interest in the entity was held by the
  730  fiduciary, calculated as if all of that tax was incurred by the
  731  fiduciary.
  732         (7) The following applies special rules shall apply to
  733  money moneys or property received by a private trustee as a
  734  distribution from an investment entity entities described in
  735  this subsection:
  736         (a) The trustee shall first treat as income of the trust
  737  all of the money or property received from the investment entity
  738  in the current year which would be considered income under this
  739  chapter if the trustee had directly held the trust’s pro rata
  740  share of the assets of the investment entity. For this purpose,
  741  all distributions received in the current year must be
  742  aggregated.
  743         (b) The trustee shall next treat as income of the trust any
  744  additional money or property received in the current year which
  745  would have been considered income in the prior 2 years under
  746  paragraph (a) if additional money or property had been received
  747  from the investment entity in any of those prior 2 years. The
  748  amount to be treated as income shall be reduced by any
  749  distributions of money or property made by the investment entity
  750  to the trust during the current and prior 2 years which were
  751  treated as income under this paragraph.
  752         (c) The remainder of the distribution, if any, is treated
  753  as principal.
  754         (d) As used in this subsection, the term:
  755         1. “Investment entity” means an entity, other than a
  756  business activity conducted by the trustee described in s.
  757  738.403 or an entity that is listed on a public stock exchange,
  758  which is treated as a partnership, subchapter S corporation, or
  759  disregarded entity pursuant to the Internal Revenue Code of
  760  1986, as amended, and which normally derives 50 percent or more
  761  of its annual cumulative net income from interest, dividends,
  762  annuities, royalties, rental activity, or other passive
  763  investments, including income from the sale or exchange of such
  764  passive investments.
  765         2. “Private trustee” means a trustee who is a natural
  766  person, but only if the trustee is unable to use the power to
  767  adjust between income and principal with respect to receipts
  768  from entities described in this subsection pursuant to s.
  769  738.104. A bank, trust company, or other commercial trustee is
  770  not considered a private trustee.
  771         (8) This section shall be applied before ss. 738.705 and
  772  738.706 and does not modify or change any of the provisions of
  773  those sections.
  774         (a) Moneys or property received from a targeted entity that
  775  is not an investment entity which do not exceed the trust’s pro
  776  rata share of the undistributed cumulative net income of the
  777  targeted entity during the time an ownership interest in the
  778  targeted entity was held by the trust shall be allocated to
  779  income. The balance of moneys or property received from a
  780  targeted entity shall be allocated to principal.
  781         (b) If trust assets include any interest in an investment
  782  entity, the designated amount of moneys or property received
  783  from the investment entity shall be treated by the trustee in
  784  the same manner as if the trustee had directly held the trust’s
  785  pro rata share of the assets of the investment entity
  786  attributable to the distribution of such designated amount.
  787  Thereafter, distributions shall be treated as principal.
  788         (c) For purposes of this subsection, the following
  789  definitions shall apply:
  790         1. “Cumulative net income” means the targeted entity’s net
  791  income as determined using the method of accounting regularly
  792  used by the targeted entity in preparing its financial
  793  statements, or if no financial statements are prepared, the net
  794  book income computed for federal income tax purposes, for every
  795  year an ownership interest in the entity is held by the trust.
  796  The trust’s pro rata share shall be the cumulative net income
  797  multiplied by the percentage ownership of the trust.
  798         2. “Designated amount” means moneys or property received
  799  from an investment entity during any year that is equal to the
  800  amount of the distribution that does not exceed the greater of:
  801         a. The amount of income of the investment entity for the
  802  current year, as reported to the trustee by the investment
  803  entity for federal income tax purposes; or
  804         b. The amount of income of the investment entity for the
  805  current year and the prior 2 years, as reported to the trustee
  806  by the investment entity for federal income tax purposes, less
  807  any distributions of moneys or property made by the investment
  808  entity to the trustee during the prior 2 years.
  809         3. “Investment entity” means a targeted entity that
  810  normally derives 50 percent or more of its annual cumulative net
  811  income from interest, dividends, annuities, royalties, rental
  812  activity, or other passive investments, including income from
  813  the sale or exchange of such passive investments.
  814         4. “Private trustee” means a trustee who is an individual,
  815  but only if the trustee is unable to utilize the power to adjust
  816  between income and principal with respect to receipts from
  817  entities described in this subsection pursuant to s. 738.104. A
  818  bank, trust company, or other commercial trustee shall not be
  819  considered to be a private trustee.
  820         5. “Targeted entity” means any entity that is treated as a
  821  partnership, subchapter S corporation, or disregarded entity
  822  pursuant to the Internal Revenue Code of 1986, as amended, other
  823  than an entity described in s. 738.403.
  824         6. “Undistributed cumulative net income” means the trust’s
  825  pro rata share of cumulative net income, less all prior
  826  distributions from the targeted entity to the trust that have
  827  been allocated to income.
  828         (d) This subsection shall not be construed to modify or
  829  change any of the provisions of ss. 738.705 and 738.706 relating
  830  to income taxes.
  831         (8) A trustee may rely upon a statement made by an entity
  832  about the source or character of a distribution, about the
  833  amount of profits of a targeted entity, or about the nature and
  834  value of assets of an investment entity if the statement is made
  835  at or near the time of distribution by the entity’s board of
  836  directors or other person or group of persons authorized to
  837  exercise powers to pay money or transfer property comparable to
  838  those of a corporation’s board of directors.
  839         Section 12. Section 738.402, Florida Statutes, is amended
  840  to read:
  841         738.402 Distribution from trust or estate.—A fiduciary
  842  trustee shall allocate to income an amount received as a
  843  distribution of income from a trust or an estate in which the
  844  trust has an interest other than a purchased interest and shall
  845  allocate to principal an amount received as a distribution of
  846  principal from such a trust or estate. If a fiduciary trustee
  847  purchases an interest in a trust that is an investment entity,
  848  or a decedent or donor transfers an interest in such a trust to
  849  a fiduciary trustee, s. 738.401 or s. 738.608 applies to a
  850  receipt from the trust.
  851         Section 13. Section 738.403, Florida Statutes, is amended
  852  to read:
  853         738.403 Business and other activities conducted by
  854  fiduciary trustee.—
  855         (1) If a fiduciary trustee who conducts a business or other
  856  activity determines that it is in the best interest of all the
  857  beneficiaries to account separately for the business or activity
  858  instead of accounting for the business or activity as part of
  859  the trust’s or estate’s general accounting records, the
  860  fiduciary trustee may maintain separate accounting records for
  861  the transactions of the such business or other activity, whether
  862  or not the assets of such business or activity are segregated
  863  from other trust or estate assets.
  864         (2) A fiduciary trustee who accounts separately for a
  865  business or other activity may determine the extent to which the
  866  net cash receipts of the such business or activity must be
  867  retained for working capital, the acquisition or replacement of
  868  fixed assets, and other reasonably foreseeable needs of the
  869  business or activity, and the extent to which the remaining net
  870  cash receipts are accounted for as principal or income in the
  871  trust’s or estate’s general accounting records. If a fiduciary
  872  trustee sells assets of the business or other activity, other
  873  than in the ordinary course of the business or activity, the
  874  fiduciary must trustee shall account for the net amount received
  875  as principal in the trust’s or estate’s general accounting
  876  records to the extent the fiduciary trustee determines that the
  877  amount received is no longer required in the conduct of the
  878  business.
  879         (3) Activities for which a fiduciary trustee may maintain
  880  separate accounting records include:
  881         (a) Retail, manufacturing, service, and other traditional
  882  business activities.
  883         (b) Farming.
  884         (c) Raising and selling livestock and other animals.
  885         (d) Management of rental properties.
  886         (e) Extraction of minerals and other natural resources.
  887         (f) Timber operations.
  888         (g) Activities to which s. 738.607 738.608 applies.
  889         Section 14. Section 738.501, Florida Statutes, is amended
  890  to read:
  891         738.501 Principal receipts.—A fiduciary trustee shall
  892  allocate to principal:
  893         (1) To the extent not allocated to income under this
  894  chapter, assets received from a donor transferor during the
  895  donor’s transferor’s lifetime, a decedent’s estate, a trust with
  896  a terminating income interest, or a payor under a contract
  897  naming the trust, estate, or fiduciary its trustee as
  898  beneficiary.
  899         (2) Money or other property received from the sale,
  900  exchange, liquidation, or change in form of a principal asset,
  901  including realized profit, subject to this section.
  902         (3) Amounts recovered from third parties to reimburse the
  903  trust or estate because of disbursements described in s.
  904  738.702(1)(g) or for other reasons to the extent not based on
  905  the loss of income.
  906         (4) Proceeds of property taken by eminent domain; however,
  907  but a separate award made for the loss of income with respect to
  908  an accounting period during which a current income beneficiary
  909  had a mandatory income interest is income.
  910         (5) Net income received in an accounting period during
  911  which there is no beneficiary to whom a fiduciary trustee may or
  912  shall distribute income.
  913         (6) Other receipts as provided in ss. 738.601-738.608.
  914         Section 15. Section 738.502, Florida Statutes, is amended
  915  to read:
  916         738.502 Rental property.—If To the extent a fiduciary
  917  trustee accounts for receipts from rental property pursuant to
  918  this section, the fiduciary trustee shall allocate to income an
  919  amount received as rent of real or personal property, including
  920  an amount received for cancellation or renewal of a lease. An
  921  amount received as a refundable deposit, including a security
  922  deposit or a deposit that is to be applied as rent for future
  923  periods, must shall be added to principal and held subject to
  924  the terms of the lease and is not available for distribution to
  925  a beneficiary until the fiduciary’s trustee’s contractual
  926  obligations have been satisfied with respect to that amount.
  927         Section 16. Subsections (1), (2), and (3) of section
  928  738.503, Florida Statutes, are amended to read:
  929         738.503 Obligation to pay money.—
  930         (1) An amount received as interest, whether determined at a
  931  fixed, variable, or floating rate, on an obligation to pay money
  932  to the fiduciary trustee, including an amount received as
  933  consideration for prepaying principal, shall be allocated to
  934  income without any provision for amortization of premium.
  935         (2) Except as otherwise provided herein, a fiduciary
  936  trustee shall allocate to principal an amount received from the
  937  sale, redemption, or other disposition of an obligation to pay
  938  money to the fiduciary trustee.
  939         (3) The increment in value of a bond or other obligation
  940  for the payment of money bearing no stated interest but payable
  941  at a future time in excess of the price at which it was issued
  942  or purchased, if purchased after issuance, is distributable as
  943  income. If the increment in value accrues and becomes payable
  944  pursuant to a fixed schedule of appreciation, it may be
  945  distributed to the beneficiary who was the income beneficiary at
  946  the this time of increment from the first principal cash
  947  available or, if none is available, when the increment is
  948  realized by sale, redemption, or other disposition. If When
  949  unrealized increment is distributed as income but out of
  950  principal, the principal must shall be reimbursed for the
  951  increment when realized. If, in the reasonable judgment of the
  952  fiduciary trustee, exercised in good faith, the ultimate payment
  953  of the bond principal is in doubt, the fiduciary trustee may
  954  withhold the payment of incremental interest to the income
  955  beneficiary.
  956         Section 17. Subsections (1) and (2) of section 738.504,
  957  Florida Statutes, are amended to read:
  958         738.504 Insurance policies and similar contracts.—
  959         (1) Except as otherwise provided in subsection (2), a
  960  fiduciary trustee shall allocate to principal the proceeds of a
  961  life insurance policy or other contract in which the trust,
  962  estate, or fiduciary its trustee is named as beneficiary,
  963  including a contract that insures the trust, estate, or
  964  fiduciary its trustee against loss for damage to, destruction
  965  of, or loss of title to a trust or estate asset. The fiduciary
  966  trustee shall allocate dividends on an insurance policy to
  967  income if the premiums on the policy are paid from income and to
  968  principal if the premiums are paid from principal.
  969         (2) A fiduciary trustee shall allocate to income the
  970  proceeds of a contract that insures the fiduciary trustee
  971  against loss of occupancy or other use by an income beneficiary,
  972  loss of income, or, subject to s. 738.403, loss of profits from
  973  a business.
  974         Section 18. Section 738.601, Florida Statutes, is amended
  975  to read:
  976         738.601 Insubstantial allocations not required.—If a
  977  fiduciary trustee determines that an allocation between
  978  principal and income required by s. 738.602, s. 738.603, s.
  979  738.604, s. 738.605, or s. 738.608 is insubstantial, the
  980  fiduciary trustee may allocate the entire amount to principal
  981  unless one of the circumstances described in s. 738.104(3)
  982  applies to the allocation. This power may be exercised by a
  983  cofiduciary under cotrustee in the circumstances described in s.
  984  738.104(4) and may be released for the reasons and in the manner
  985  described in s. 738.104(5). An allocation is presumed to be
  986  insubstantial if:
  987         (1) The amount of the allocation would increase or decrease
  988  net income in an accounting period, as determined before the
  989  allocation, by less than 10 percent; or
  990         (2) The value of the asset producing the receipt for which
  991  the allocation would be made is less than 10 percent of the
  992  total value of the trust or estate trust’s assets at the
  993  beginning of the accounting period.
  994         Section 19. Section 738.602, Florida Statutes, is amended
  995  to read:
  996         738.602 Payments from deferred compensation plans,
  997  annuities, and retirement plans or accounts.—
  998         (1) As used in For purposes of this section, the term:
  999         (a) “Fund” means a private or commercial annuity, an
 1000  individual retirement account, an individual retirement annuity,
 1001  a deferred compensation plan, a pension plan, a profit-sharing
 1002  plan, a stock-bonus plan, an employee stock-ownership plan, or
 1003  another similar arrangement in which federal income tax is
 1004  deferred.
 1005         (b) “Income of the fund” means income that is determined
 1006  according to subsection (2) or subsection (3).
 1007         (c) “Nonseparate account” means a fund for which the value
 1008  of the participant’s or account owner’s right to receive
 1009  benefits can be determined only by the occurrence of a date or
 1010  event as defined in the instrument governing the fund.
 1011         (d) “Payment” means a distribution from a fund that a
 1012  fiduciary trustee may receive over a fixed number of years or
 1013  during the life of one or more individuals because of services
 1014  rendered or property transferred to the payor in exchange for
 1015  future payments. The term includes a distribution made in money
 1016  or property from the payor’s general assets or from a fund
 1017  created by the payor or payee.
 1018         (e) “Separate account” means a fund holding assets
 1019  exclusively for the benefit of a participant or account owner
 1020  and:
 1021         1. The value of such assets or the value of the separate
 1022  account is ascertainable at any time; or
 1023         2. The administrator of the fund maintains records that
 1024  show receipts and disbursements associated with such assets.
 1025         (2)(a) For a fund that is a separate account, income of the
 1026  fund shall be determined:
 1027         1. As if the fund were a trust subject to the provisions of
 1028  ss. 738.401-738.706; or
 1029         2. As a unitrust amount calculated by multiplying the fair
 1030  market value of the fund as of the first day of the first
 1031  accounting period and, thereafter, as of the last day of the
 1032  accounting period that immediately precedes the accounting
 1033  period during which a payment is received by the percentage
 1034  determined in accordance with s. 738.1041(2)(b)2.a. The
 1035  fiduciary trustee shall determine such percentage as of the
 1036  first month that the fiduciary’s trustee’s election to treat the
 1037  income of the fund as a unitrust amount becomes effective. For
 1038  purposes of this subparagraph, “fair market value” means the
 1039  fair market value of the assets held in the fund as of the
 1040  applicable valuation date determined as provided in this
 1041  subparagraph. The fiduciary trustee is not liable for good faith
 1042  reliance upon any valuation supplied by the person or persons in
 1043  possession of the fund. If the fiduciary trustee makes or
 1044  terminates an election under this subparagraph, the fiduciary
 1045  trustee shall make such disclosure in a trust disclosure
 1046  document that satisfies the requirements of s. 736.1008(4)(a).
 1047         (b) The fiduciary may trustee shall have discretion to
 1048  elect the method of determining the income of the fund pursuant
 1049  to this subsection and may change the method of determining
 1050  income of the fund for any future accounting period.
 1051         (3) For a fund that is a nonseparate account, income of the
 1052  fund is a unitrust amount determined by calculating the present
 1053  value of the right to receive the remaining payments under 26
 1054  U.S.C. s. 7520 of the Internal Revenue Code as of the first day
 1055  of the accounting period and multiplying it by the percentage
 1056  determined in accordance with s. 738.1041(2)(b)2.a. The
 1057  fiduciary trustee shall determine the unitrust amount as of the
 1058  first month that the fiduciary’s trustee’s election to treat the
 1059  income of the fund as a unitrust amount becomes effective.
 1060         (4) Except for those trusts described in subsection (5),
 1061  the fiduciary trustee shall allocate to income the lesser of the
 1062  payment received from a fund or the income determined under
 1063  subsection (2) or subsection (3). Any remaining amount of the
 1064  payment shall be allocated to principal a payment from a fund as
 1065  follows:
 1066         (a) That portion of the payment the payor characterizes as
 1067  income shall be allocated to income, and any remaining portion
 1068  of the payment shall be allocated to principal.
 1069         (b) To the extent that the payor does not characterize any
 1070  portion of a payment as income or principal and the trustee can
 1071  ascertain the income of the fund by the fund’s account
 1072  statements or any other reasonable source, the trustee shall
 1073  allocate to income the lesser of the income of the fund or the
 1074  entire payment and shall allocate to principal any remaining
 1075  portion of the payment.
 1076         (c) If the trustee, acting reasonably and in good faith,
 1077  determines that neither paragraph (a) nor paragraph (b) applies
 1078  and all or part of the payment is required to be made, the
 1079  trustee shall allocate to income 10 percent of the portion of
 1080  the payment that is required to be made during the accounting
 1081  period and shall allocate the balance to principal. If no part
 1082  of a payment is required to be made or the payment received is
 1083  the entire amount to which the trustee is entitled, the trustee
 1084  shall allocate the entire payment to principal. For purposes of
 1085  this paragraph, a payment is not “required to be made” to the
 1086  extent the payment is made because the trustee exercises a right
 1087  of withdrawal.
 1088         (5) For a trust that which, in order to qualify for the
 1089  estate or gift tax marital deduction under the Internal Revenue
 1090  Code or comparable law of any state, entitles the spouse to all
 1091  of the income of the trust, and the terms of the trust are
 1092  silent as to the time and frequency for distribution of the
 1093  income of the fund, then:
 1094         (a) For a fund that is a separate account, unless the
 1095  spouse directs the fiduciary trustee to leave the income of the
 1096  fund in the fund, the fiduciary trustee shall withdraw and pay
 1097  to the spouse, at least no less frequently than annually:
 1098         1. All of the income of the fund determined in accordance
 1099  with subparagraph (2)(a)1.; or
 1100         2. The income of the fund as a unitrust amount determined
 1101  in accordance with subparagraph (2)(a)2.
 1102         (b) For a fund that is a nonseparate account, the fiduciary
 1103  trustee shall withdraw and pay to the spouse, at least no less
 1104  frequently than annually, the income of the fund as a unitrust
 1105  amount determined in accordance with subsection (3).
 1106         (6) This section does not apply to payments to which s.
 1107  738.603 applies.
 1108         Section 20. Section 738.603, Florida Statutes, is amended
 1109  to read:
 1110         738.603 Liquidating asset.—
 1111         (1) For purposes of this section, the term “liquidating
 1112  asset” means an asset the value of which will diminish or
 1113  terminate because the asset is expected to produce receipts for
 1114  a period of limited duration. The term includes a leasehold,
 1115  patent, copyright, royalty right, and right to receive payments
 1116  for during a period of more than 1 year under an arrangement
 1117  that does not provide for the payment of interest on the unpaid
 1118  balance. The term does not include a payment subject to s.
 1119  738.602, resources subject to s. 738.604, timber subject to s.
 1120  738.605, an activity subject to s. 738.607, an asset subject to
 1121  s. 738.608, or any asset for which the fiduciary trustee
 1122  establishes a reserve for depreciation under s. 738.703.
 1123         (2) A fiduciary trustee shall allocate to income 5 10
 1124  percent of the receipts from the carrying value of a liquidating
 1125  asset and the balance to principal. Amounts allocated to
 1126  principal shall reduce the carrying value of the liquidating
 1127  asset, but not below zero. Amounts received in excess of the
 1128  remaining carrying value must be allocated to principal.
 1129         Section 21. Subsections (1), (3), and (4) of section
 1130  738.604, Florida Statutes, are amended to read:
 1131         738.604 Minerals, water, and other natural resources.—
 1132         (1) If To the extent a fiduciary trustee accounts for
 1133  receipts from an interest in minerals or other natural resources
 1134  pursuant to this section, the fiduciary trustee shall allocate
 1135  such receipts as follows:
 1136         (a) If received as nominal delay rental or nominal annual
 1137  rent on a lease, a receipt shall be allocated to income.
 1138         (b) If received from a production payment, a receipt shall
 1139  be allocated to income if and to the extent the agreement
 1140  creating the production payment provides a factor for interest
 1141  or its equivalent. The balance shall be allocated to principal.
 1142         (c) If an amount received as a royalty, shut-in-well
 1143  payment, take-or-pay payment, bonus, or delay rental is more
 1144  than nominal, 90 percent shall be allocated to principal and the
 1145  balance to income.
 1146         (d) If an amount is received from a working interest or any
 1147  other interest not provided for in paragraph (a), paragraph (b),
 1148  or paragraph (c), 90 percent of the net amount received shall be
 1149  allocated to principal and the balance to income.
 1150         (3) This chapter applies whether or not a decedent or donor
 1151  was extracting minerals, water, or other natural resources
 1152  before the interest became subject to the trust or estate.
 1153         (4) If a trust or estate owns an interest in minerals,
 1154  water, or other natural resources on January 1, 2003, the
 1155  fiduciary trustee may allocate receipts from the interest as
 1156  provided in this chapter or in the manner used by the fiduciary
 1157  trustee before January 1, 2003. If the trust or estate acquires
 1158  an interest in minerals, water, or other natural resources after
 1159  January 1, 2003, the fiduciary trustee shall allocate receipts
 1160  from the interest as provided in this chapter.
 1161         Section 22. Section 738.605, Florida Statutes, is amended
 1162  to read:
 1163         738.605 Timber.—
 1164         (1) If To the extent a fiduciary trustee accounts for
 1165  receipts from the sale of timber and related products pursuant
 1166  to this section, the fiduciary trustee shall allocate such the
 1167  net receipts as follows:
 1168         (a) To income to the extent the amount of timber removed
 1169  from the land does not exceed the rate of growth of the timber
 1170  during the accounting periods in which a beneficiary has a
 1171  mandatory income interest;
 1172         (b) To principal to the extent the amount of timber removed
 1173  from the land exceeds the rate of growth of the timber or the
 1174  net receipts are from the sale of standing timber;
 1175         (c) To or between income and principal if the net receipts
 1176  are from the lease of timberland or from a contract to cut
 1177  timber from land owned by a trust or estate by determining the
 1178  amount of timber removed from the land under the lease or
 1179  contract and applying the rules in paragraphs (a) and (b); or
 1180         (d) To principal to the extent advance payments, bonuses,
 1181  and other payments are not allocated pursuant to paragraph (a),
 1182  paragraph (b), or paragraph (c).
 1183         (2) In determining net receipts to be allocated pursuant to
 1184  subsection (1), a fiduciary trustee shall deduct and transfer to
 1185  principal a reasonable amount for depletion.
 1186         (3) This chapter applies whether or not a decedent or donor
 1187  transferor was harvesting timber from the property before the
 1188  property became subject to the trust or estate.
 1189         (4) If a trust or estate owns an interest in timberland on
 1190  January 1, 2003, the fiduciary trustee may allocate net receipts
 1191  from the sale of timber and related products as provided in this
 1192  chapter or in the manner used by the fiduciary trustee before
 1193  January 1, 2003. If the trust or estate acquires an interest in
 1194  timberland after January 1, 2003, the fiduciary trustee shall
 1195  allocate net receipts from the sale of timber and related
 1196  products as provided in this chapter.
 1197         Section 23. Subsection (1) of section 738.606, Florida
 1198  Statutes, is amended to read:
 1199         738.606 Property not productive of income.—
 1200         (1) If a marital deduction under the Internal Revenue Code
 1201  or comparable law of any state is allowed for all or part of a
 1202  trust the income of which must is required to be distributed to
 1203  the grantor’s spouse and the assets of which consist
 1204  substantially of property that does not provide the spouse with
 1205  sufficient income from or use of the trust assets, and if the
 1206  amounts the trustee transfers from principal to income under s.
 1207  738.104 and distributes to the spouse from principal pursuant to
 1208  the terms of the trust are insufficient to provide the spouse
 1209  with the beneficial enjoyment required to obtain the marital
 1210  deduction, the spouse may require the trustee to make property
 1211  productive of income, convert property within a reasonable time,
 1212  or exercise the power conferred by ss. 738.104 and 738.1041. The
 1213  trustee may decide which action or combination of actions to
 1214  take.
 1215         Section 24. Subsections (2) and (3) of section 738.607,
 1216  Florida Statutes, are amended to read:
 1217         738.607 Derivatives and options.—
 1218         (2) To the extent a fiduciary trustee does not account
 1219  under s. 738.403 for transactions in derivatives, the fiduciary
 1220  trustee shall allocate to principal receipts from and
 1221  disbursements made in connection with those transactions.
 1222         (3) If a fiduciary trustee grants an option to buy property
 1223  from the trust or estate whether or not the trust or estate owns
 1224  the property when the option is granted, grants an option that
 1225  permits another person to sell property to the trust or estate,
 1226  or acquires an option to buy property for the trust or estate or
 1227  an option to sell an asset owned by the trust or estate, and the
 1228  fiduciary trustee or other owner of the asset is required to
 1229  deliver the asset if the option is exercised, an amount received
 1230  for granting the option shall be allocated to principal. An
 1231  amount paid to acquire the option shall be paid from principal.
 1232  A gain or loss realized upon the exercise of an option,
 1233  including an option granted to a grantor of the trust or estate
 1234  for services rendered, shall be allocated to principal.
 1235         Section 25. Subsections (2) and (3) of section 738.608,
 1236  Florida Statutes, are amended to read:
 1237         738.608 Asset-backed securities.—
 1238         (2) If a trust or estate receives a payment from interest
 1239  or other current return and from other proceeds of the
 1240  collateral financial assets, the fiduciary trustee shall
 1241  allocate to income the portion of the payment which the payor
 1242  identifies as being from interest or other current return and
 1243  shall allocate the balance of the payment to principal.
 1244         (3) If a trust or estate receives one or more payments in
 1245  exchange for the trust’s or estate’s entire interest in an
 1246  asset-backed security during a single accounting period, the
 1247  fiduciary trustee shall allocate the payments to principal. If a
 1248  payment is one of a series of payments that will result in the
 1249  liquidation of the trust’s or estate’s interest in the security
 1250  over more than a single accounting period, the fiduciary trustee
 1251  shall allocate 10 percent of the payment to income and the
 1252  balance to principal.
 1253         Section 26. Section 738.701, Florida Statutes, is amended
 1254  to read:
 1255         738.701 Disbursements from income.—A fiduciary trustee
 1256  shall make the following disbursements from income to the extent
 1257  they are not disbursements to which s. 738.201(2)(a) or (c)
 1258  applies:
 1259         (1) One-half of the regular compensation of the fiduciary
 1260  trustee and of any person providing investment advisory or
 1261  custodial services to the fiduciary trustee.
 1262         (2) One-half of all expenses for accountings, judicial
 1263  proceedings, or other matters that involve both the income and
 1264  remainder interests.
 1265         (3) All of the other ordinary expenses incurred in
 1266  connection with the administration, management, or preservation
 1267  of trust property and the distribution of income, including
 1268  interest, ordinary repairs, regularly recurring taxes assessed
 1269  against principal, and expenses of a proceeding or other matter
 1270  that concerns primarily the income interest.
 1271         (4) Recurring premiums on insurance covering the loss of a
 1272  principal asset or the loss of income from or use of the asset.
 1273         Section 27. Subsection (1) of section 738.702, Florida
 1274  Statutes, is amended to read:
 1275         738.702 Disbursements from principal.—
 1276         (1) A fiduciary trustee shall make the following
 1277  disbursements from principal:
 1278         (a) The remaining one-half of the disbursements described
 1279  in s. 738.701(1) and (2).
 1280         (b) All of the trustee’s compensation calculated on
 1281  principal as a fee for acceptance, distribution, or termination
 1282  and disbursements made to prepare property for sale.
 1283         (c) Payments on the principal of a trust debt.
 1284         (d) Expenses of a proceeding that concerns primarily
 1285  principal, including a proceeding to construe the trust or will,
 1286  or to protect the trust, estate, or its property.
 1287         (e) Premiums paid on a policy of insurance not described in
 1288  s. 738.701(4) of which the trust or estate is the owner and
 1289  beneficiary.
 1290         (f) Estate, inheritance, and other transfer taxes,
 1291  including penalties, apportioned to the trust.
 1292         (g) Disbursements related to environmental matters,
 1293  including reclamation, assessing environmental conditions,
 1294  remedying and removing environmental contamination, monitoring
 1295  remedial activities and the release of substances, preventing
 1296  future releases of substances, collecting amounts from persons
 1297  liable or potentially liable for the costs of such activities,
 1298  penalties imposed under environmental laws or regulations and
 1299  other payments made to comply with those laws or regulations,
 1300  statutory or common law claims by third parties, and defending
 1301  claims based on environmental matters.
 1302         (h) Payments representing extraordinary repairs or expenses
 1303  incurred in making a capital improvement to principal, including
 1304  special assessments; however, a fiduciary trustee may establish
 1305  an allowance for depreciation out of income to the extent
 1306  permitted by s. 738.703.
 1307         Section 28. Subsection (2) of section 738.703, Florida
 1308  Statutes, is amended to read:
 1309         738.703 Transfers from income to principal for
 1310  depreciation.—
 1311         (2) A fiduciary trustee may transfer to principal a
 1312  reasonable amount of the net cash receipts from a principal
 1313  asset that is subject to depreciation but may not transfer any
 1314  amount for depreciation:
 1315         (a) Of that portion of real property used or available for
 1316  use by a beneficiary as a residence or of tangible personal
 1317  property held or made available for the personal use or
 1318  enjoyment of a beneficiary;
 1319         (b) During the administration of a decedent’s estate; or
 1320         (c) Under this section if the fiduciary trustee is
 1321  accounting under s. 738.403 for the business or activity in
 1322  which the asset is used.
 1323         Section 29. Subsections (1), (2), and (3) of section
 1324  738.704, Florida Statutes, are amended to read:
 1325         738.704 Transfers from income to reimburse principal.—
 1326         (1) If a fiduciary trustee makes or expects to make a
 1327  principal disbursement described in this section, the fiduciary
 1328  trustee may transfer an appropriate amount from income to
 1329  principal in one or more accounting periods to reimburse
 1330  principal or to provide a reserve for future principal
 1331  disbursements.
 1332         (2) Principal disbursements to which subsection (1) applies
 1333  include the following, but only to the extent the fiduciary
 1334  trustee has not been and does not expect to be reimbursed by a
 1335  third party:
 1336         (a) An amount chargeable to income but paid from principal
 1337  because the amount is unusually large.
 1338         (b) Disbursements made to prepare property for rental,
 1339  including tenant allowances, leasehold improvements, and
 1340  broker’s commissions.
 1341         (c) Disbursements described in s. 738.702(1)(g).
 1342         (3) If the asset the ownership of which gives rise to the
 1343  disbursements becomes subject to a successive income interest
 1344  after an income interest ends, a fiduciary trustee may continue
 1345  to transfer amounts from income to principal as provided in
 1346  subsection (1).
 1347         Section 30. Section 738.705, Florida Statutes, is amended
 1348  to read:
 1349         738.705 Income taxes.—
 1350         (1) A tax required to be paid by a fiduciary trustee based
 1351  on receipts allocated to income shall be paid from income.
 1352         (2) A tax required to be paid by a fiduciary trustee based
 1353  on receipts allocated to principal shall be paid from principal,
 1354  even if the tax is called an income tax by the taxing authority.
 1355         (3) A tax required to be paid by a fiduciary trustee on the
 1356  trust’s or estate’s share of an entity’s taxable income shall be
 1357  paid proportionately:
 1358         (a) From income to the extent receipts from the entity are
 1359  allocated to income; and
 1360         (b) From principal to the extent:
 1361         1. receipts from the entity are allocated to principal; and
 1362         2. The trust’s share of the entity’s taxable income exceeds
 1363  the total receipts described in paragraph (a) and subparagraph
 1364  1.
 1365         (c) From principal to the extent that the income taxes
 1366  payable by the trust or estate exceed the total receipts from
 1367  the entity.
 1368         (4) After applying subsections (1)-(3), the fiduciary shall
 1369  adjust income or principal receipts to the extent that the
 1370  trust’s or estate’s income taxes are reduced, but not
 1371  eliminated, because the trust or estate receives a deduction for
 1372  payments made to a beneficiary. The amount distributable to that
 1373  beneficiary as income as a result of this adjustment shall be
 1374  equal to the cash received by the trust or estate, reduced, but
 1375  not below zero, by the entity’s taxable income allocable to the
 1376  trust or estate multiplied by the trust’s or estate’s income tax
 1377  rate. The reduced amount shall be divided by the difference
 1378  between 1 and the trust’s or estate’s income tax rate in order
 1379  to determine the amount distributable to that beneficiary as
 1380  income before giving effect to other receipts or disbursements
 1381  allocable to that beneficiary’s interest. For purposes of this
 1382  section, receipts allocated to principal or income shall be
 1383  reduced by the amount distributed to a beneficiary from
 1384  principal or income for which the trust receives a deduction in
 1385  calculating the tax.
 1386         Section 31. Section 738.801, Florida Statutes, is amended
 1387  to read:
 1388         (Substantial rewording of section. See
 1389         s. 738.801, F.S., for present text.)
 1390         738.801 Apportionment of expenses; improvements.—
 1391         (1) For purposes of this section, the term:
 1392         (a) “Remainderman” means the holder of the remainder
 1393  interests after the expiration of a tenant’s estate in property.
 1394         (b) “Tenant” means the holder of an estate for life or term
 1395  of years in real property or personal property, or both.
 1396         (2) If a trust has not been created, expenses shall be
 1397  apportioned between the tenant and remainderman as follows:
 1398         (a) The following expenses are allocated to and shall be
 1399  paid by the tenant:
 1400         1. All ordinary expenses incurred in connection with the
 1401  administration, management, or preservation of the property,
 1402  including interest, ordinary repairs, regularly recurring taxes
 1403  assessed against the property, and expenses of a proceeding or
 1404  other matter that concerns primarily the tenant’s estate or use
 1405  of the property.
 1406         2. Recurring premiums on insurance covering the loss of the
 1407  property or the loss of income from or use of the property.
 1408         3. Any of the expenses described in subparagraph (b)3.
 1409  which are attributable to the use of the property by the tenant.
 1410         (b) The following expenses are allocated to and shall be
 1411  paid by the remainderman:
 1412         1. Payments on the principal of a debt secured by the
 1413  property, except to the extent the debt is for expenses
 1414  allocated to the tenant.
 1415         2. Expenses of a proceeding or other matter that concerns
 1416  primarily the title to the property, other than title to the
 1417  tenant’s estate.
 1418         3. Except as provided in subparagraph (a)3., expenses
 1419  related to environmental matters, including reclamation,
 1420  assessing environmental conditions, remedying and removing
 1421  environmental contamination, monitoring remedial activities and
 1422  the release of substances, preventing future releases of
 1423  substances, collecting amounts from persons liable or
 1424  potentially liable for the costs of such activities, penalties
 1425  imposed under environmental laws or regulations and other
 1426  payments made to comply with those laws or regulations,
 1427  statutory or common law claims by third parties, and defending
 1428  claims based on environmental matters.
 1429         4. Extraordinary repairs.
 1430         (c) If the tenant or remainderman incurred an expense for
 1431  the benefit of his or her own estate without consent or
 1432  agreement of the other, he or she must pay such expense in full.
 1433         (d) Except as provided in paragraph (c), the cost of, or
 1434  special taxes or assessments for, an improvement representing an
 1435  addition of value to property forming part of the principal
 1436  shall be paid by the tenant if the improvement is not reasonably
 1437  expected to outlast the estate of the tenant. In all other
 1438  cases, only a part shall be paid by the tenant while the
 1439  remainder shall be paid by the remainderman. The part payable by
 1440  the tenant is ascertainable by taking that percentage of the
 1441  total that is found by dividing the present value of the
 1442  tenant’s estate by the present value of an estate of the same
 1443  form as that of the tenant, except that it is limited for a
 1444  period corresponding to the reasonably expected duration of the
 1445  improvement. The computation of present values of the estates
 1446  shall be made by using the rate defined in 26 U.S.C. s. 7520,
 1447  then in effect and, in the case of an estate for life, the
 1448  official mortality tables then in effect under 26 U.S.C. s.
 1449  7520. Other evidence of duration or expectancy may not be
 1450  considered.
 1451         (3) This section does not apply to the extent it is
 1452  inconsistent with the instrument creating the estates, the
 1453  agreement of the parties, or the specific direction of the
 1454  taxing or other statutes.
 1455         (4) The common law applicable to tenants and remaindermen
 1456  supplements this section, except as modified by this section or
 1457  other laws.
 1458         Section 32. This act shall take effect January 1, 2013.