C.S.H.B. 3503 78(R)    BILL ANALYSIS


C.S.H.B. 3503
By: Hartnett
Judicial Affairs
Committee Report (Substituted)



BACKGROUND AND PURPOSE 

The Texas supreme court recently issued its opinion in the case of Texas
Commerce Bank, N.A. v. Grizzle, --- S.W.3d ---, 2002 WL 31890895 (Tex.
2002).  The case involved a plaintiff who brought suit against a trustee
alleging, among other things, self-dealing.   

The Grizzle trust contained an exculpatory clause, which provided that the
trustee "shall not be liable for any act or omission except in the case of
gross negligence, bad faith, or fraud."  The question before the court was
whether a trust's exculpatory clause can exonerate a corporate trustee
from liability for self-dealing without violating public policy.  The
Grizzle court concluded that it could.  
 
The court stated that it recognized that the broad authority of a settlor
of a trust to exonerate a corporate trustee from liability "can lead to
harsh results," but said that it "presume[d] the Legislature was aware of
this when it enacted the Texas Trust Act" (predecessor to the current
Trust Code).  C.S.H.B. 3503 sets forth new provisions regarding
exculpatory clauses in trusts.  

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. 

ANALYSIS

C.S.H.B. 3503 amends the Property Code to provide that a trust created
under Section 142.005, Property Code, is subject to Subtitle B, Title 9,
Property Code.  Notwithstanding the preceding, Section 142.005 prevails
over a provision in Subtitle B, Title 9 that is in conflict with Section
142.005.   

The bill provides that a provision in a trust created under Section
142.005 that relieves a trustee from a duty, responsibility or liability
imposed by Section 142.005 or Subtitle B, Title 9, is enforceable only if:
1) the provision is limited to specific facts and circumstances unique to
the property of that trust and is not applicable generally to the trust;
and 2) the court creating or modifying the trust makes a specific finding
that there is clear and convincing evidence that the inclusion of the
provision is in the best interests of the beneficiary of the trust.   

The bill amends the Probate Code to provide that provision in a trust
created under Section 867, Probate Code, that relieves a trustee from a
duty, responsibility or liability imposed by Subpart N, Part 4, Chapter
XIII, Probate Code, or Subtitle B, Title 9, Property Code, is enforceable
only if:  1) the provision is limited to specific facts and circumstances
unique to the property of that trust and is not applicable generally to
the trust; and 2) the court creating or modifying the trust makes a
specific finding that there is clear and convincing evidence that the
inclusion of the provision is in the best interests of the beneficiary of
the trust.  

EFFECTIVE DATE

September 1, 2003.



 COMPARISON OF ORIGINAL TO SUBSTITUTE

The substitute deletes Sections 1-4 of the original, which contained
certain provisions forbidding a settlor from including certain exculpatory
clauses in a trust instrument.   

The remaining provisions have minor semantic differences from the original
due to Legislative Council drafting, but there are no substantive changes.