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92_HB0774eng HB0774 Engrossed LRB9205859WHcs 1 AN ACT in relation to trusts. 2 Be it enacted by the People of the State of Illinois, 3 represented in the General Assembly: 4 Section 5. The Trusts and Trustees Act is amended by 5 adding Section 5.3 as follows: 6 (760 ILCS 5/5.3 new) 7 Sec. 5.3. Investing for total return. With the consent 8 of the beneficiaries then entitled to receive or eligible to 9 have the benefit of the income, and in the absence of 10 specific direction to the contrary by the settlor in the 11 trust document, a trustee may, but is not required to, invest 12 for total return. A trustee invests for total return when the 13 trustee, exercising reasonable business judgment, invests the 14 trust's portfolio with the object of increasing the total 15 return from the trust's investments expected over the life of 16 the trust without regard to whether the return takes the form 17 of current income or capital gain. 18 If a trustee invests for total return, the income of the 19 trust shall be credited with income from the trust's 20 investments in accordance with the Principal and Income Act, 21 and shall also be credited, first from realized capital gain, 22 and then from unrealized capital gain, but only to the extent 23 either gain exists, with the additional income amount. As 24 used in this Section, "additional income amount" means the 25 amount of additional trust accounting income, if any, that 26 would have been earned by the trust had the trustee invested 27 without regard to a total return approach and the trust's 28 portfolio had been allocated among asset classes solely in 29 accordance with the duty to balance the needs of income 30 beneficiaries for trust accounting income and the interests 31 of remaindermen in growth of principal. In determining the HB0774 Engrossed -2- LRB9205859WHcs 1 amount of additional trust accounting income that would have 2 been generated from the portfolio allocation, the trustee 3 may use the average current income return for market indices 4 that are customarily used by trustees in the measurement of 5 investment performance for each such asset class. 6 The trustee shall credit the income of the trust with the 7 additional income amount within a reasonable time after the 8 close of the trust's tax year, and shall calculate realized 9 and unrealized capital gains as of the close of the trust's 10 tax year on average over the 3 preceding tax years (or, if 11 the trust has existed for less than 3 years, over the lesser 12 number of years). 13 A trustee's judgment concerning any portfolio allocation, 14 any additional income amount, or investing for total return 15 under this Section may be challenged if it was an abuse of 16 discretion. A court may determine that a trustee abused its 17 discretion only if the trustee's judgment was inconsistent 18 with the prudent investor rule, but not merely because the 19 court would have made a different judgment. A beneficiary 20 who challenges a trustee's judgment has the burden of 21 establishing that it was an abuse of discretion. 22 A trustee shall notify the primary beneficiaries, as 23 defined in Section 16.1 of this Act, of its election to 24 invest for total return and the election shall remain in 25 effect until revoked by a notice from the trustee to the then 26 primary beneficiaries.