GEC C.S.H.B. 2039 75(R) BILL ANALYSIS BUSINESS & INDUSTRY C.S.H.B. 2039 By: Smith 4-21-97 Committee Report (Substituted) BACKGROUND Current Trust Fund law has a provision which, for the most part, represents a very sensible means of settling a Trust when the following conditions exist: 1.) the Beneficiary of a Trust is dead; 2.) the charity named in the trust is no longer is existence; and 3.) the Settlor of the trust is also dead. In this case, the state directs the Attorney General to select a new charity to receive the Funds of the Trust. However, if the Settlor is alive when the Beneficiary dies and the charity selected has become defunct, the same law is applied with no regard to the Settlor's desires. If the Settlor wished to now pick a new charity, they have no ability to do so. The attorney general will pick a similar charity for them. PURPOSE As proposed, HB 2039 would give the trustee of a trust the power to name a replacement charity and provides that the trustee shall attempt to consult with the Settlor, if living, concerning the Settlor's wishes and shall consider the Settlor's wishes before naming a replacement charitable beneficiary. As well, the bill would apply to the circumstances that occur when a charity designated as the recipient of a trust's funds cease to be a "charitable" trust during the term of the trust. 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 113.026 of the Property Code by adding the following Subsections: Subsection (a) provides a statutory definition of both a "Charitable entity" and a "Failed charitable entity". Subsection (b) states that a trustee can, without obtaining judicial approval, select a replacement charitable beneficiary if the original beneficiary falls under the definition of a "failed charitable entity". Subsection (c) states that if a Settlor is alive at the time that the originally stated beneficiary becomes a "failed charitable entity", then the trustee shall consult with the Settlor concerning the Settlor's recommendation before naming a replacement beneficiary. Subsection (d) states that if the Settlor is alive and the trustee chooses the replacement beneficiary recommended by the Settlor, then the new beneficiary does not have to have the same or similar charitable purpose as the original trust and that the Attorney General's office does not have to be notified. However, in all other cases, the trustee's selection must be a beneficiary with a same or similar purpose as the failed entity, and the Attorney General's office must be given notice. SECTION 2. Specifies that this bill applies to existing trusts as well as to trusts created after the effective date. SECTION 3. Emergency Clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute bill gives the trustee, not the settlor, the power to name a replacement charity. While the settlor is living, the trustee must attempt to consult with the settlor and, if the trustee follows the settlor's recommendation, the replacement charitable beneficiary does not have to have the same charitable purpose and no notice to the attorney general is required. If the settlor is dead, however, or if the trustee does not follow the settlor's recommendation, then the trustee may name the replacement charitable beneficiary without judicial interference, but the the trustee must pick a replacement entity with the same or similar purpose of the charity being replaced; and the trustee must notify the attorney general.