Bill not drafted by TLC or Senate E&E.

      Line and page numbers may not match official copy.

      By Williams                                     H.B. No. 2936

                                A BILL TO BE ENTITLED

 1-1                                   AN ACT

 1-2     relating to the allocation of principal and income in certain

 1-3     trusts.

 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

 1-5           SECTION 1.  Section 113.102, Texas Trust Code (Vernon's Texas

 1-6     Statutes and Codes Annotated Property Code, Title 9.) is amended by

 1-7     adding Subsection (d) to read as follows:

 1-8           (d) (a)  Except as provided in subsections (b) and (d), bonds

 1-9     or other obligations for the payment of money and the proceeds of

1-10     sale, redemption, or other disposition thereof are principal.  No

1-11     provision may be made for the amortization of bond premiums or for

1-12     accumulation for discount.

1-13                 (b)  Unless otherwise provided in this chapter or the

1-14     trust instrument, an increase in the value of the following

1-15     obligations is distributable as income:

1-16                 1.  A zero coupon security.

1-17                 2.  A deferred annuity contract before annuitization.

1-18                 3.  A life insurance contract before the death of the

1-19     insured.

1-20                 4.  An interest in a common trust fund (as defined

1-21     under Section 584 of the Internal Revenue Code) owned by a pooled

1-22     income fund (as defined under Section 642(c)(5) of the Internal

1-23     Revenue Code) or charitable remainder unitrust (as defined under

1-24     Section 664(d)(2) and 664(d)(3) if the Internal Revenue Code).

 2-1     payable at a future time in accordance with a fixed, variable, or

 2-2     discretionary schedule of appreciation in excess of the price at

 2-3     which it was issued.

 2-4                 (c)  The increase in value is distributable to the

 2-5     beneficiary at the time of the increase from the first principal

 2-6     cash available, when realized by sale, redemption, or other

 2-7     disposition.  Whenever an unrealized increase is distributed out of

 2-8     principal as income, the principal shall be reimbursed for the

 2-9     increase when realized.

2-10                 (d)  For the purposes of this section, the increase in

2-11     value of an obligation defined in subsection (b) is available for

2-12     distribution only when the trustee receives cash on account of the

2-13     obligation.

2-14           SECTION 2.  This Act takes effect September 1, 91997.

2-15           SECTION 3.  The importance of this legislation and the

2-16     crowded condition of the calendars in both houses create an

2-17     emergency and an imperative public necessity that the

2-18     constitutional rule requiring bills to be read on three several

2-19     days in each house be suspended, and this rule is hereby suspended.