PMWJ C.S.H.B. 1314 75(R)BILL ANALYSIS JUDICIAL AFFAIRS H.B. 1314 By: Naishtat C.S.H.B. 1314 By: Hartnett 4-16-97 Committee Report (Substituted) BACKGROUND The Texas Probate Code was amended in 1993 to allow probate courts to create management trusts in limited circumstances. The limits are that there must be a guardianship of a ward's estate in existence, the ward must be the sole beneficiary of the trust, and distributions must be only used for the ward's (or his dependents') health, education, support or maintenance to the extent allowed by law. (The law requires a parent of a minor, and in some instances of a disabled adult, to support the minor disabled adult and to invest in the best interest of the minor/incapacitated adult). These corporate fiduciary managed trusts were most appropriate for certain limited circumstances, such as when there were large sums of money that would normally be turned over to the person reaching the age of eighteen or when an incapacitated person other than a minor has such a large sum of money that a corporate fiduciary's investment expertise would be needed to manage these large estates. Recent federal legislation has allowed assets of certain mentally disabled persons, primarily those under age sixty five, to shelter assets in a trust from Medicaid eligibility disqualification rules, when the trust instrument provided (1) that the sheltered assets were only to be used to supplement the needs of the disabled person beyond that provided by the Medicaid program and (2) that any trust funds remaining upon the death of the beneficiary be used to repay the Medicaid fund for any payments made on behalf of the beneficiary during the time of "special need." If there were no funds remaining at the time of death, or there were insufficient funds to repay Medicaid, then any Medicaid claim would cease to exist. Although all agree that "special needs trusts" are beneficial to the disabled (and that failure to avail ourselves of this federal law results in Texans getting less federal aid than the law allows), there has been disagreement among probate practitioners whether the current management trust language in Probate Code Section 867 allows such "special needs trusts" to be created in Texas. Amending the current law would recognize the authority to of our probate courts to create these types of trusts. PURPOSE The purpose of this bill is to allow probate courts the right to create special needs trusts. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1 amends Section 867, Texas Probate Code, to allow a ward's attorney ad litem to apply to the court for the creation of a trust for the management of guardianship funds for the ward's benefit. SECTION 2 amends Section 868, Texas Probate Code. Subsec. (a) is amended to provide an exception as stated in new Subsec. (d) from the provisions required in a Section 867 trust. Subsec. (b) is amended (1) to authorize a trustee to make distributions for the health, education, support or maintenance of the ward or a person the ward is obligated to support, (2) to delete "for the health, education, support, or maintenance of the ward" following "a person who has physical custody of the ward," and (3) to add "a person providing a good or service" to the category of persons to whom a trustee may make distributions of trust funds for the health, education, support, or maintenance of the ward without the intervention of a guardian or other representative of the ward. New Subsec. (d) provides that the provisions of a Section 867 trust, including terms otherwise required by Section 868, can be modified if the court determines that the modifications are necessary for the ward to receive public benefits under a state or federal program and the modifications are in the ward's best interests. New Subsec. (e) authorizes the court to include additional provisions in a trust created or modified under this section if the provisions do not conflict with Subsecs. (a) or (d). SECTION 3 adds Sections 868A, 869B, and 869C to the Texas Probate Code. Section 868A allows a court to discharge a ward's guardian of the estate while continuing a trust created under Section 867, if the guardian of the person remains and the court determines the discharge is in the ward's best interest. Section 869B makes a Section 867 trust subject to the Subtitle B, Title 9 of the Property Code and provides for resolving conflicts between statutes or a statute and the trust. Section 869C gives the court that creates a Section 867 trust the jurisdiction to hear matters relating to the trust. SECTION 4 amends Section 870(b), Texas Probate Code, to provide that the trust, if created for an incapacitated person other than a minor, will terminate when the court determines that continuing the trust is not in the ward's best interest, instead of upon the date that the court determines that the guardianship is no longer necessary for the ward. SECTION 5 amends Section 115.001(d), Texas Property Code. Current Sec. 115.001(d) provides that a district court's jurisdiction over trusts is exclusive except for jurisdiction conferred by law on a statutory probate court; new language adds "or a court that creates a Section 867 trust." SECTION 6 repeals Section 868(c), Texas Probate Code. SECTION 7 validates otherwise valid Section 867 trusts created for guardianships in existence before September 1, 1993, and authorizes the creation of Section 867 trusts regardless of when the guardianship was established. SECTION 8. Effective date. Application of act. SECTION 9. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE Section 1 in both the substitute and the original are the same. Probate Code Section 868(d), in Section 2 of the substitute, omitted references to additions to the trust that were in the original bill. Section 868(e) in Section 2 of the substitute was not in the original bill. Sections 3, 4, 5, and 6 are the same in both versions of the bill. Section 7 in the substitute was not in the original bill. Section 7 in the original bill becomes Section 8 in the substitute and was modified significantly. The original bill continued the old law in effect for governing guardianships instituted prior to the effective date and made this act prospective in application. Section 8 in the substitute applies this act to all trusts created under Section 867 regardless of the date the trust was created. Section 8 in the original bill becomes Section 9 in the substitute.