SRC-JBJ C.S.S.B. 698 77(R)BILL ANALYSIS


Senate Research CenterC.S.S.B. 698
77R5412 CAS-FBy: Carona
Jurisprudence
4/3/2001
Committee Report (Substituted)


DIGEST AND PURPOSE 

Currently in Texas, a property interest must vest in a person entitled to
the property within a certain period of time.  This practice, commonly
known as the rule against perpetuities, limits the right to control the
disposition of trust assets for more than one or two generations by
requiring a trust to terminate in the same period of time.  Under current
federal law, however, it is possible to create a trust that can grow, free
of estate, gift, or generation-skipping tax as long as the trust lasts.
C.S.S.B. 698 provides that the common-law rule against perpetuities as that
rule relates to trusts does not apply in this state and that the rule
against  perpetuities does not apply to trusts.  Additionally, C.S.S.B. 698
amends provisions regarding the vesting period for the rule against
perpetuities.  

RULEMAKING AUTHORITY

This bill does not expressly grant any additional rulemaking authority to a
state officer, institution, or agency.  

SECTION BY SECTION ANALYSIS


SECTION 1.  Amends Section 5.042(a), Property Code, to set forth certain
specific common-law rules or doctrines that do not apply in this state. 

SECTION 2.  Amends Section 112.036, Property Code, as follows:

Sec. 112.036.  (a)  Provides that the rule against perpetuities, except as
provided by Section 121.004 and this section, does not apply to trusts.
Deletes existing text regarding charitable trusts.   

(b)  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.  Deletes existing text regarding
interest in a trust. 

(c)  Requires certain assets to be distributed by a court having
jurisdiction, 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.  Requires the court 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. 

(d)  Provides that perpetual charitable trusts are permitted and are not
subject to the rule of perpetuities. 

SECTION 3.  Amends Section 121.004, Property Code, as follows:
 
Sec. 121.004.  New heading:  CONTINUATION OF PENSION TRUSTS.  Deletes
existing text pertaining to the rule against perpetuities. 

SECTION 4.  (a)  Effective date: January 1, 2002.  Makes application of
this Act contingent upon approval by the voters of the constitutional
amendment proposed by the 77th Legislature removing the prohibition against
perpetual trusts. 

(b)  Makes application of the change in law made by this Act to a trust
that becomes irrevocable or is judicially modified or reformed to make the
provisions of the Act applicable, prospective.  
    

SUMMARY OF COMMITTEE CHANGES

SECTION 1.  Differs from the original by amending the previously proposed
changes to provisions regarding the application of certain common-law rules
in this state. 

SECTION 2.  Differs from the original by amending the previously proposed
changes to provisions regarding the application of the rule against
perpetuities to trusts.  Adds new Subsections (b) - (d). 

SECTION 3.  No change.

SECTION 4.  Differs from the original by amending the previously proposed
provisions regarding the prospective application of this Act.