2023 Florida Statutes › Title XLII - Estates and Trusts › Chapter 738 - Principal and Income › 738.1041 - Total Return Unitrust.

738.1041 Total return unitrust.—
(1) For purposes of this section, the term:
(a) “Average fair market value” means the average of the fair market values of assets held by the trust at the beginning of the current and each of the 2 preceding years, or for the entire term of the trust if there are less than 2 preceding years, and adjusted as follows:
1. If assets have been added to the trust during the years used to determine the average, the amount of each addition is added to all years in which such addition was not included.
2. If assets have been distributed from the trust during the years used to determine the average, other than in satisfaction of the unitrust amount, the amount of each distribution is subtracted from all years in which such distribution was not included.
(b) “Disinterested person” means a person who is not a related or subordinate party with respect to the person acting as trustee of the trust and excludes the grantor and any interested trustee.
(c) “Fair market value” means the fair market value of the assets held by the trust as otherwise determined under this chapter, reduced by all known noncontingent liabilities.
(d) “Income trust” means a trust, created by an inter vivos or a testamentary instrument, which directs or permits the trustee to distribute the net income of the trust to one or more persons, in fixed proportions or in amounts or proportions determined by the trustee and regardless of whether the trust directs or permits the trustee to distribute the principal of the trust to one or more such persons.
(e) “Interested distributee” means a person to whom distributions of income or principal can currently be made and who has the power to remove the existing trustee and designate as successor a person who may be a related or subordinate party with respect to such distributee.
(f) “Interested trustee” means an individual trustee to whom the net income or principal of the trust can currently be distributed or would be distributed if the trust were then to terminate and be distributed, any trustee whom an interested distributee has the power to remove and replace with a related or subordinate party, or an individual trustee whose legal obligation to support a beneficiary may be satisfied by distributions of income and principal of the trust.
(g) “Related or subordinate party” has the same meaning as provided in the Internal Revenue Code, 26 U.S.C. s. 672(c) or any successor provision thereof.
(h) “Unitrust amount” means the amount determined by multiplying the average fair market value of the assets as calculated in paragraph (a) by the percentage calculated under paragraph (2)(b).
(2) A trustee may, without court approval, convert an income trust to a total return unitrust, reconvert a total return unitrust to an income trust, or change the percentage used to calculate the unitrust amount or the method used to determine the fair market value of the trust if:
(a) The trustee adopts a written statement regarding trust distributions which provides:
1. In the case of a trust being administered as an income trust, that future distributions from the trust will be unitrust amounts rather than net income, and indicates the manner in which the unitrust amount will be calculated and the method in which the fair market value of the trust will be determined.
2. In the case of a trust being administered as a total return unitrust, that:
a. Future distributions from the trust will be net income rather than unitrust amounts; or
b. The percentage used to calculate the unitrust amount or the method used to determine the fair market value of the trust will be changed, and indicates the manner in which the new unitrust amount will be calculated and the method in which the new fair market value of the trust will be determined;
(b) The trustee determines the terms of the unitrust under one of the following methods:
1. A disinterested trustee determines, or if there is no trustee other than an interested trustee, the interested trustee appoints a disinterested person who, in its sole discretion but acting in a fiduciary capacity, determines for the interested trustee:
a. The percentage to be used to calculate the unitrust amount, provided the percentage used is not greater than 5 percent nor less than 3 percent;
b. The method to be used in determining the fair market value of the trust; and
c. Which assets, if any, are to be excluded in determining the unitrust amount; or
2. The interested trustee or disinterested trustee administers the trust such that:
a. The percentage used to calculate the unitrust amount is 50 percent of the rate as defined in the Internal Revenue Code, 26 U.S.C. s. 7520, in effect for the month the conversion under this section becomes effective and for each January thereafter; however, if the percentage calculated exceeds 5 percent, the unitrust percentage is 5 percent and if the percentage calculated is less than 3 percent, the unitrust percentage is 3 percent; and
b. The fair market value of the trust shall be determined at least annually on an asset-by-asset basis, reasonably and in good faith, in accordance with s. 738.202(5), except the following property shall not be included in determining the value of the trust:
(I) Any residential property or any tangible personal property that, as of the first business day of the current valuation year, one or more current beneficiaries of the trust have or have had the right to occupy, or have or have had the right to possess or control, other than in his or her capacity as trustee of the trust, and instead the right of occupancy or the right to possession and control is the unitrust amount with respect to such property; however, the unitrust amount must be adjusted to take into account partial distributions from or receipt into the trust of such property during the valuation year;
(II) Any asset specifically given to a beneficiary and the return on investment on such property, which return on investment shall be distributable to the beneficiary; or
(III) Any asset while held in a decedent’s estate;
(c) The trustee sends written notice of its intention to take such action, along with copies of the written statement regarding trust distributions and this section, and, if applicable, the determinations of the trustee or the disinterested person to:
1. The grantor of the trust, if living.
2. All living persons who are currently receiving or eligible to receive distributions of income from the trust.
3. All living persons who would receive distributions of principal of the trust if the trust were to terminate at the time of giving such notice without regard to the exercise of any power of appointment, or, if the trust does not provide for its termination, all living persons who would receive or be eligible to receive distributions of income or principal of the trust if the persons identified in subparagraph 2. were deceased.
4. All persons acting as advisers or protectors of the trust.
Notice under this paragraph shall be served informally in the manner provided in the Florida Rules of Civil Procedure relating to service of pleadings subsequent to the initial pleading. Notice may be served on a legal representative or natural guardian of a person without filing any proceeding or approval of any court;
(d) At least one person receiving notice under each of subparagraphs (c)2. and 3. is legally competent; and
(e) No person receiving such notice objects, by written instrument delivered to the trustee, to the proposed action of the trustee or the determinations of the disinterested person within 60 days after service of such notice. An objection may be executed by a legal representative or natural guardian of a person without filing any proceeding or approval of any court.
(3) If a trustee desires to convert an income trust to a total return unitrust, reconvert a total return unitrust to an income trust, or change the percentage used to calculate the unitrust amount or the method used to determine a fair market value of the trust but does not have the ability to or elects not to do it under subsection (2), the trustee may petition the circuit court for such order as the trustee deems appropriate. In that event, the court, in its own discretion or on the petition of such trustee or any person having an income or remainder interest in the trust, may appoint a disinterested person who, acting in a fiduciary capacity, shall present such information to the court as is necessary for the court to make a determination hereunder.
(4) Following the conversion of an income trust to a total return unitrust, the trustee:
(a) Shall treat the unitrust amount as if it were net income of the trust for purposes of determining the amount available, from time to time, for distribution from the trust.
(b) May allocate to trust income for each taxable year of the trust, or portion thereof:
1. Net short-term capital gain described in the Internal Revenue Code, 26 U.S.C. s. 1222(5), for such year, or portion thereof, but only to the extent that the amount so allocated together with all other amounts allocated to trust income, as determined under the provisions of this chapter without regard to this section and s. 738.104, for such year, or portion thereof, does not exceed the unitrust amount for such year, or portion thereof.
2. Net long-term capital gain described in the Internal Revenue Code, 26 U.S.C. s. 1222(7), for such year, or portion thereof, but only to the extent that the amount so allocated together with all other amounts, including amounts described in subparagraph 1., allocated to trust income for such year, or portion thereof, does not exceed the unitrust amount for such year, or portion thereof.
(5) In administering a total return unitrust, the trustee may, in its sole discretion but subject to the provisions of the governing instrument, determine:
(a) The effective date of the conversion.
(b) The timing of distributions, including provisions for prorating a distribution for a short year in which a beneficiary’s right to payments commences or ceases.
(c) Whether distributions are to be made in cash or in kind or partly in cash and partly in kind.
(d) If the trust is reconverted to an income trust, the effective date of such reconversion.
(e) Such other administrative issues as may be necessary or appropriate to carry out the purposes of this section.
(6) Conversion to a total return unitrust under this section does not affect any other provision of the governing instrument, if any, regarding distributions of principal.
(7) Any trustee or disinterested person who in good faith takes or fails to take any action under this section is not liable to any person affected by such action or inaction, regardless of whether such person received written notice as provided in this section or such person was under a legal disability at the time of the delivery of such notice. Such person’s exclusive remedy is to obtain, under subsection (8), an order of the court directing the trustee to convert an income trust to a total return unitrust, to reconvert from a total return unitrust to an income trust, or to change the percentage used to calculate the unitrust amount. If a court determines that the trustee or disinterested person has not acted in good faith in taking or failing to take any action under this section, s. 738.105(3) applies.
(8) If a majority in interest of the income or remainder beneficiaries of an income trust has delivered to the trustee a written objection to the amount of the income distributions of the trust, and, if the trustee has failed to resolve the objection to the satisfaction of the objecting beneficiaries within 6 months after receipt of such written objection, the objecting beneficiaries may petition the court in accordance with subsection (3).
(9) This section pertains to the administration of a trust and is applicable to any trust that is administered in this state or under Florida law unless:
(a) The governing instrument reflects an intention that the current beneficiary or beneficiaries are to receive an amount other than a reasonable current return from the trust;
(b) The trust is a trust described in the Internal Revenue Code, 26 U.S.C. s. 170(f)(2)(B), s. 642(c)(5), s. 664(d), s. 2702(a)(3), or s. 2702(b);
(c) One or more persons to whom the trustee could distribute income have a power of withdrawal over the trust:
1. That is not subject to an ascertainable standard under the Internal Revenue Code, 26 U.S.C. s. 2041 or s. 2514, and exceeds in any calendar year the amount set forth in the Internal Revenue Code, 26 U.S.C. s. 2041(b)(2) or s. 2514(e); or
2. A power of withdrawal over the trust that can be exercised to discharge a duty of support he or she possesses; or
(d) The governing instrument expressly prohibits use of this section by specific reference to the section. A provision in the governing instrument that, “The provisions of section 738.1041, Florida Statutes, as amended, or any corresponding provision of future law, may not be used in the administration of this trust,” or similar words reflecting such intent are sufficient to preclude the use of this section.
(10) The grantor of a trust may create an express total return unitrust that will be effective as provided in the trust instrument without requiring a conversion under this section.
(a) An express total return unitrust created by the grantor of the trust is treated as a unitrust only if the terms of the trust instrument contain all of the following provisions:
1. That distributions from the trust will be unitrust amounts and the manner in which the unitrust amount will be calculated; and
2. The percentage to be used to calculate the unitrust amount, provided the percentage used is not greater than 5 percent nor less than 3 percent.
(b) The trust instrument may also contain provisions specifying:
1. The method to be used in determining the fair market value of the trust, including whether to use an average fair market value or the fair market value of the assets held by the trust at the beginning of the current year; or
2. Which assets, if any, are to be excluded in determining the unitrust amount.
(c) This section establishes the method of determining the fair market value of the trust if the trust instrument is silent as to subparagraph (b)1., and to specify those assets, if any, which are to be excluded in determining the unitrust amount if the trust instrument is silent as to subparagraph (b)2.
History.—s. 1, ch. 2002-42; s. 2, ch. 2003-43; s. 6, ch. 2005-85; s. 41, ch. 2006-217; s. 5, ch. 2012-49.