HBA-JLV S.B. 698 77(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 698 By: Carona Financial Institutions 4/20/2001 Engrossed BACKGROUND AND PURPOSE Currently, perpetual trusts are prohibited by the Texas Constitution and the Property Code. The Rule Against Perpetuities (RAP) provides that a trust must end twenty-one years after the death of the last "measuring life," or family members who are alive at the time the trust is created. Since a Texas resident cannot create a perpetual trust in Texas, that resident can create a perpetual trust by moving their capital to a trust fund created in another state that allows perpetual trusts. By revising the RAP provision, Texans may be encouraged to leave trust assets in the state, which may prevent an erosion of the intangible personal property tax base. Senate Bill 698 removes the prohibition on perpetual trusts and provides that no interest is invalid under any rule against perpetuities during the 360 years following the date the instrument creating the interest becomes irrevocable. 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. ANALYSIS Senate Bill 698 amends the Property Code to provide that the rule against perpetuities, as that rule relates to trusts, does not apply in this state. The bill provides that the rule against perpetuities does not apply to trusts, with exceptions. The bill provides that no nonvested property interest, interest in a trust, or other disposition of property, including any interest created pursuant to the exercise of a power of appointment, is invalid under any rule against perpetuities during the 360 years following the date the instrument creating the interest becomes irrevocable. The bill provides that if, at the end of the 360 years following the date the instrument creating an interest becomes irrevocable, any of the assets subject to the interest have not vested, the assets are required to be distributed by a court having jurisdiction. The court is required to give effect to the general intent of the settlor of the trust or person exercising a power of appointment in the case of any further trust or other disposition of property made pursuant to the exercise of a power of appointment. The bill provides that perpetual charitable trusts are permitted and are not subject to the rule against perpetuities. EFFECTIVE DATE The Act takes effect January 1, 2002, but only if the constitutional amendment proposed by the 77th Legislature, removing the prohibition against perpetual trusts is approved by the voters. If that amendment is not approved by the voters, this Act has no effect.