HBA-ATS H.B. 3001 76(R) BILL ANALYSIS
Office of House Bill AnalysisH.B. 3001
By: Hartnett
Business & Industry
4/11/1999
Introduced
BACKGROUND AND PURPOSE
Community foundations assist people in meeting their charitable goals in
their local communities by raising money and giving grants to causes
identified by the foundation or chosen by the foundation's donors.
Currently, thirteen of these private charitable institutions exist in
Texas. Ten are organized as nonprofit corporations and three are organized
as community trusts. Organization as a nonprofit corporation may offer
advantages over organization as a community trust. For example, a
nonprofit corporation can directly control all assets and funds, increasing
investment returns while decreasing transaction costs. Unlike nonprofit
organizations, community trusts have separate institutional trustees handle
trust accounts, which increases costs. To allow community trusts to
convert to nonprofit corporations may result in greater operating
efficiencies and investment returns.
H.B. 3001 authorizes a community trust to request that a court permit it
to transfer the assets of its component trust funds to a nonprofit
corporation. To convert, five criteria must be satisfied. First,
the governing board of the trust must file a petition in the court
requesting that the board be permitted to transfer the assets of the
trust's component trust funds to a nonprofit corporation and to terminate
the trust and its component trusts. Second, the governing board must
publish a notice once in a newspaper of general circulation in the county
in which the proceeding is pending. Third,
the governing board must send to all living settlors of the trust funds
that comprise the trust who can be located with the exercise of reasonable
diligence a copy of the board's petition and a notice of the time and place
of the hearing on the petition. Fourth, a hearing must be held by the
court. Fifth, the nonprofit corporation to which the assets of the funds
comprising the trust are transferred must be properly organized under the
Texas Non-Profit Corporation Act and be organized for the same purposes as
the trust, and the charter of the corporation must, to the fullest extent
possible, contain language describing the purpose or goals of the
corporation and the use or uses to be made of the assets of the
corporation, which language must be identical to the language contained in
the initial instrument used to form the trust.
RULEMAKING AUTHORITY
It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution.
SECTION BY SECTION ANALYSIS
SECTION 1. PREAMBLE. Sets forth findings and intent of the legislature.
SECTION 2. Amends Subchapter C, Chapter 112, Subtitle B, Title 9, Property
Code, by adding Section 112.058, as follows:
Sec. 112.058. CONVERTING COMMUNITY TRUST TO NON-PROFIT CORPORATION (a)
Authorizes a community trust (trust), as described in Section 1.170A of the
Income Tax Regulations, to request that a court permit it to transfer the
assets of its component trust funds to a nonprofit corporation. Sets forth
that the trust must proceed in accordance with this section.
(b) Provides that the court must order that the assets of the trust's
component trust funds be transferred to a nonprofit corporation organized
under the Texas Non-Profit Corporation Act and must order that the trust
and its component funds be terminated, if all of the following requirements
are met:
_the governing board of the trust files a petition in the appropriate
court requesting that the board be permitted to transfer the assets of the
trust's component trust funds to a nonprofit corporation and to terminate
the trust and its component trusts;
_the governing board publishes a notice, as described by this section,
once in a newspaper of general circulation in the county in which the
proceeding is pending;
_the governing board sends to all living settlors of the trust funds that
comprise the trust who can be located with the exercise of reasonable
diligence a copy of the board's petition and a notice of the time and place
of the hearing on the petition;
_a hearing is held by the court stated in the published and sent notices;
and
_the nonprofit corporation to which the assets of the funds comprising
the trust are transferred must be properly organized under the Texas
Non-Profit Corporation Act and be organized for the same purposes as the
trust. Provides that the charter of the corporation must, to the fullest
extent possible, contain language describing the purpose or goals of the
corporation and the use or uses to be made of the assets of the
corporation, which language must be identical to the language contained in
the initial instrument used to form the trust.
(c) Authorizes the governing board to request that the court's order be
subject to Internal Revenue Service (IRS) approval of the asset transfer.
Requires the court's order, if the governing board requests that the order
be contingent on IRS approval, to be final and effective on the filing by
the governing board of a notice that IRS approval has been obtained.
Provides that this notice must be filed within 360 days of the date the
court's order is signed and if not filed within that time, the court's
order is, as a matter of law, dissolved ab initio ("from the inception":
Black's Law Dictionary, Sixth Edition), and of no force and effect.
(d) Requires that the duties of the trustee of each component trust, if the
court orders that the assets of the trust funds comprising the trust be
transferred to a nonprofit corporation and the trust and its component
funds are terminated under this section, be terminated on the date on which
the assets are so transferred and the order must provide that as of such
date, the trustee is discharged. Provides that the liability of the
trustee, if any, for acts or omissions occurring before the trustee is
discharged are not affected by this subdivision.
SECTION 3. Effective date: September 1, 1999.
SECTION 4. Emergency clause.