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By: Paxton H.B. No. 2240
A BILL TO BE ENTITLED
AN ACT
relating to the management of certain trusts and the adoption of the
Uniform Prudent Investor Act.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle B, Title 9, Property Code, is amended by
adding Chapter 117 to read as follows:
CHAPTER 117. UNIFORM PRUDENT INVESTOR ACT
Sec. 117.001. SHORT TITLE. This chapter may be cited as
the "Uniform Prudent Investor Act."
Sec. 117.002. UNIFORMITY OF APPLICATION AND
CONSTRUCTION. This chapter shall be applied and construed to
effectuate its general purpose to make uniform the law with respect
to the subject of this chapter among the states enacting it.
Sec. 117.003. PRUDENT INVESTOR RULE. (a) Except as
otherwise provided in Subsection (b), a trustee who invests and
manages trust assets owes a duty to the beneficiaries of the trust
to comply with the prudent investor rule set forth in this chapter.
(b) The prudent investor rule, a default rule, may be
expanded, restricted, eliminated, or otherwise altered by the
provisions of a trust. A trustee is not liable to a beneficiary to
the extent that the trustee acted in reasonable reliance on the
provisions of the trust.
Sec. 117.004. STANDARD OF CARE; PORTFOLIO STRATEGY; RISK
AND RETURN OBJECTIVES. (a) A trustee shall invest and manage
trust assets as a prudent investor would, by considering the
purposes, terms, distribution requirements, and other
circumstances of the trust. In satisfying this standard, the
trustee shall exercise reasonable care, skill, and caution.
(b) A trustee's investment and management decisions
respecting individual assets must be evaluated not in isolation but
in the context of the trust portfolio as a whole and as a part of an
overall investment strategy having risk and return objectives
reasonably suited to the trust.
(c) Among circumstances that a trustee shall consider in
investing and managing trust assets are such of the following as are
relevant to the trust or its beneficiaries:
(1) general economic conditions;
(2) the possible effect of inflation or deflation;
(3) the expected tax consequences of investment
decisions or strategies;
(4) the role that each investment or course of action
plays within the overall trust portfolio, which may include
financial assets, interests in closely held enterprises, tangible
and intangible personal property, and real property;
(5) the expected total return from income and the
appreciation of capital;
(6) other resources of the beneficiaries;
(7) needs for liquidity, regularity of income, and
preservation or appreciation of capital; and
(8) an asset's special relationship or special value,
if any, to the purposes of the trust or to one or more of the
beneficiaries.
(d) A trustee shall make a reasonable effort to verify facts
relevant to the investment and management of trust assets.
(e) Except as otherwise provided by and subject to this
subtitle, a trustee may invest in any kind of property or type of
investment consistent with the standards of this chapter.
(f) A trustee who has special skills or expertise, or is
named trustee in reliance upon the trustee's representation that
the trustee has special skills or expertise, has a duty to use those
special skills or expertise.
Sec. 117.005. DIVERSIFICATION. A trustee shall diversify
the investments of the trust unless the trustee reasonably
determines that, because of special circumstances, the purposes of
the trust are better served without diversifying.
Sec. 117.006. DUTIES AT INCEPTION OF TRUSTEESHIP. Within a
reasonable time after accepting a trusteeship or receiving trust
assets, a trustee shall review the trust assets and make and
implement decisions concerning the retention and disposition of
assets, in order to bring the trust portfolio into compliance with
the purposes, terms, distribution requirements, and other
circumstances of the trust, and with the requirements of this
chapter.
Sec. 117.007. LOYALTY. A trustee shall invest and manage
the trust assets solely in the interest of the beneficiaries.
Sec. 117.008. IMPARTIALITY. If a trust has two or more
beneficiaries, the trustee shall act impartially in investing and
managing the trust assets, taking into account any differing
interests of the beneficiaries.
Sec. 117.009. INVESTMENT COSTS. In investing and managing
trust assets, a trustee may only incur costs that are appropriate
and reasonable in relation to the assets, the purposes of the trust,
and the skills of the trustee.
Sec. 117.010. REVIEWING COMPLIANCE. Compliance with the
prudent investor rule is determined in light of the facts and
circumstances existing at the time of a trustee's decision or
action and not by hindsight.
Sec. 117.011. DELEGATION OF INVESTMENT AND MANAGEMENT
FUNCTIONS. (a) A trustee may delegate investment and management
functions that a prudent trustee of comparable skills could
properly delegate under the circumstances. The trustee shall
exercise reasonable care, skill, and caution in:
(1) selecting an agent;
(2) establishing the scope and terms of the
delegation, consistent with the purposes and terms of the trust;
and
(3) periodically reviewing the agent's actions in
order to monitor the agent's performance and compliance with the
terms of the delegation.
(b) In performing a delegated function, an agent owes a duty
to the trust to exercise reasonable care to comply with the terms of
the delegation.
(c) A trustee who complies with the requirements of
Subsection (a) is not liable to the beneficiaries or to the trust
for the decisions or actions of the agent to whom the function was
delegated, unless:
(1) the agent is an affiliate of the trustee; or
(2) under the terms of the delegation:
(A) the trustee or a beneficiary of the trust is
required to arbitrate disputes with the agent; or
(B) the period for bringing an action by the
trustee or a beneficiary of the trust with respect to an agent's
actions is shortened from that which is applicable to trustees
under the law of this state.
(d) By accepting the delegation of a trust function from the
trustee of a trust that is subject to the law of this state, an agent
submits to the jurisdiction of the courts of this state.
Sec. 117.012. LANGUAGE INVOKING STANDARD OF CHAPTER. The
following terms or comparable language in the provisions of a
trust, unless otherwise limited or modified, authorizes any
investment or strategy permitted under this chapter: "investments
permissible by law for investment of trust funds," "legal
investments," "authorized investments," "using the judgment and
care under the circumstances then prevailing that persons of
prudence, discretion, and intelligence exercise in the management
of their own affairs, not in regard to speculation but in regard to
the permanent disposition of their funds, considering the probable
income as well as the probable safety of their capital," "prudent
man rule," "prudent trustee rule," "prudent person rule," and
"prudent investor rule."
SECTION 2. Section 111.004(1), Property Code, is amended to
read as follows:
(1) "Affiliate" includes:
(A) [means] a person who directly or indirectly,
through one or more intermediaries, controls, is [controlling,]
controlled by, or is under common control with another person; or
(B) any officer, director, partner, employee, or
relative of a person, and any corporation or partnership of which a
person is an officer, director, or partner[, including a person
with whom a trustee has an express or implied agreement regarding
the direct or indirect purchase of trust investments by each from
the other, except a broker or stock exchange].
SECTION 3. Section 113.006, Property Code, is amended to
read as follows:
Sec. 113.006. GENERAL AUTHORITY TO MANAGE AND INVEST TRUST
PROPERTY. Subject to the requirements of Chapter 117, a [A] trustee
may manage the trust property and invest and reinvest in property of
any character on the conditions and for the lengths of time as the
trustee considers proper, notwithstanding that the time may extend
beyond the term of the trust.
SECTION 4. Sections 113.053(e) and (g), Property Code, are
amended to read as follows:
(e) A trustee may:
(1) comply with the terms of a written executory
contract signed by the settlor, including a contract for deed,
earnest money contract, buy/sell agreement, or stock purchase or
redemption agreement; and
(2) sell the stock, bonds, obligations, or other
securities of a corporation to the issuing corporation or to its
corporate affiliate if the sale is made under an agreement
described in Subdivision (1) or complies with the duties imposed by
Chapter 117 [Section 113.056].
(g) In addition to other investments authorized by law for
the investment of funds held by a fiduciary or by the instrument
governing the fiduciary relationship, and notwithstanding any
other provision of law and subject to the standard contained in
Chapter 117 [Section 113.056], a bank or trust company acting as a
fiduciary, agent, or otherwise, in the exercise of its investment
discretion or at the direction of another person authorized to
direct the investment of funds held by the bank or trust company as
fiduciary, may invest and reinvest in the securities of an open-end
or closed-end management investment company or investment trust
registered under the Investment Company Act of 1940 (15 U.S.C. Sec.
80a-1 et seq.) if the portfolio of the investment company or
investment trust consists substantially of investments that are not
prohibited by the governing instrument. The fact that the bank or
trust company or an affiliate of the bank or trust company provides
services to the investment company or investment trust, such as
those of an investment advisor, custodian, transfer agent,
registrar, sponsor, distributor, manager, or otherwise, and
receives compensation for those services does not preclude the bank
or trust company from investing or reinvesting in the securities if
the compensation is disclosed by prospectus, account statement, or
otherwise. An executor or administrator of an estate under a
dependent administration or a guardian of an estate shall not so
invest or reinvest unless specifically authorized by the court in
which such estate or guardianship is pending.
SECTION 5. Section 113.055(b), Property Code, is amended to
read as follows:
(b) A trustee may:
(1) retain stock already owned by the trust unless
[if] the retention does not satisfy the requirements prescribed by
Chapter 117 [satisfies Section 113.056 of this Act]; and
(2) exercise stock rights or purchase fractional
shares under Section 113.053 of this Act.
SECTION 6. The heading of Section 113.056, Property Code,
is amended to read as follows:
Sec. 113.056. AUTHORIZATION TO MAKE CERTAIN INVESTMENTS
[STANDARD FOR TRUST MANAGEMENT AND INVESTMENT].
SECTION 7. Sections 113.056(a) and (d), Property Code, are
amended to read as follows:
(a) Unless the terms of the trust instrument provide
otherwise, and subject to the investment standards provided by this
subtitle and any investment standards provided by the trust
instrument, the trustee may invest all or part of the trust assets
in [in acquiring, investing, reinvesting, exchanging, retaining,
selling, supervising, and managing trust property, including] an
investment vehicle authorized for the collective investment of
trust funds pursuant to Part 9, Title 12, of the Code of Federal
Regulations[, a trustee shall exercise the judgment and care under
the circumstances then prevailing that persons of ordinary
prudence, discretion, and intelligence exercise in the management
of their own affairs, not in regard to speculation but in regard to
the permanent disposition of their funds, considering the probable
income from as well as the probable increase in value and the safety
of their capital. In determining whether a trustee has exercised
prudence with respect to an investment decision, such determination
shall be made taking into consideration the investment of all the
assets of the trust, or the assets of the collective investment
vehicle, as the case may be, over which the trustee had management
and control, rather than a consideration as to the prudence of the
single investment of the trust, or the single investment of the
collective investment vehicle, as the case may be].
(d) Subject to any investment standards provided by this
chapter, Chapter 117, or the trust instrument [Within the
limitations of Subsection (a) of this section], whenever the
instrument directs, requires, authorizes, or permits investment in
obligations of the United States government, the trustee may invest
in and hold such obligations either directly or in the form of
interests in an open-end management type investment company or
investment trust registered under the Investment Company Act of
1940, 15 U.S.C. 80a-1 et seq., or in an investment vehicle
authorized for the collective investment of trust funds pursuant to
Part 9, Title 12 of the Code of Federal Regulations, so long as the
portfolio of such investment company, investment trust, or
collective investment vehicle is limited to such obligations and to
repurchase agreements fully collateralized by such obligations.
SECTION 8. Section 113.060(c), Property Code, is amended to
read as follows:
(c) A trustee is not responsible for investment decisions
made by an investment agent employed as provided by this section if:
(1) the trustee exercises the judgment and care under
the circumstances then prevailing that a person of ordinary
prudence, discretion, and intelligence would exercise in the
management of the person's own funds in selecting the investment
agent and in establishing the scope and terms of the delegation;
(2) the trustee investigates the credentials of the
investment agent, including:
(A) reviewing the agent's experience,
performance history, and financial stability;
(B) verifying the agent's professional license
and registration, if any; and
(C) establishing that the agent is insured or
bonded;
(3) the investment agent is subject to the
jurisdiction of the courts of this state;
(4) under the terms of the delegation agreement, the
investment agent:
(A) is subject to the standard of trust
management and investment applicable to the trust [prescribed by
Section 113.056]; and
(B) assumes liability for the failure to follow
that standard; and
(5) the trustee periodically reviews the investment
decisions made by the investment agent to ensure compliance with
the investment strategy prescribed by the trustee for the trust.
SECTION 9. Section 114.001(b), Property Code, is amended to
read as follows:
(b) The trustee is not liable to the beneficiary for a loss
or depreciation in value of the trust property or for a failure to
make a profit that does not result from a failure to perform the
duties set forth in this subtitle [Section 113.056] or from any
other breach of trust.
SECTION 10. Section 45.107, Education Code, is amended to
read as follows:
Sec. 45.107. INVESTMENT OF GIFTS, DEVISES, AND BEQUESTS. A
gift, devise, or bequest made to a school district to provide
college scholarships for graduates of the district may be invested
[or retained] by the board of trustees of the district as provided
by Section 117.004 [113.056], Property Code, unless otherwise
specifically provided by the terms of the gift, devise, or bequest.
SECTION 11. Section 815.307, Government Code, is amended to
read as follows:
Sec. 815.307. DUTY OF CARE. The assets of the retirement
system shall be invested and reinvested without distinction as to
their source in accordance with Section 67, Article XVI, Texas
Constitution. Investment decisions are subject to the standard
provided in the Texas Trust Code by Sections 117.004(a)-(c)
[Section 113.056(a)], Property Code.
SECTION 12. Section 825.301(a), Government Code, is amended
to read as follows:
(a) The board of trustees shall invest and reinvest assets
of the retirement system without distinction as to their source in
accordance with Section 67, Article XVI, Texas Constitution. For
purposes of the investment authority of the board of trustees under
Section 67, Article XVI, Texas Constitution, "securities" means any
investment instrument within the meaning of the term as defined by
Section 4, The Securities Act (Article 581-4, Vernon's Texas Civil
Statutes), 15 U.S.C. Section 77b(a)(1), or 15 U.S.C. Section
78c(a)(10). An interest in a limited partnership or investment
contract is considered a security without regard to the number of
investors or the control, access to information, or rights granted
to or retained by the retirement system. Any instrument or contract
intended to manage transaction or currency exchange risk in
purchasing, selling, or holding securities is considered to be a
security. Investment decisions are subject to the standard
provided in the Texas Trust Code by Sections 117.004(a)-(c)
[Section 113.056(a)], Property Code.
SECTION 13. Section 840.303, Government Code, is amended to
read as follows:
Sec. 840.303. DUTY OF CARE. The assets of the retirement
system shall be invested and reinvested without distinction as to
their source in accordance with Section 67, Article XVI, Texas
Constitution. Investment decisions are subject to the standard
provided in the Texas Trust Code by Sections 117.004(a)-(c)
[Section 113.056(a)], Property Code.
SECTION 14. Section 845.301(a), Government Code, is amended
to read as follows:
(a) The assets of the retirement system shall be invested
and reinvested without distinction as to their source in accordance
with Section 67, Article XVI, Texas Constitution. For purposes of
the investment authority of the board of trustees under Section 67,
Article XVI, Texas Constitution, "securities" means any investment
instrument within the meaning of the term as defined by Section 4,
The Securities Act (Article 581-4, Vernon's Texas Civil Statutes),
15 U.S.C. Section 77b(a)(1), or 15 U.S.C. Section 78c(a)(10).
Investment decisions are subject to the standard provided in the
Texas Trust Code by Sections 117.004(a)-(c) [Section 113.056(a)],
Property Code.
SECTION 15. Section 333(b), Texas Probate Code, is amended
to read as follows:
(b) In determining whether to order the sale of an asset
under Subsection (a) of this section, the court shall consider:
(1) the representative's duty to take care of and
manage the estate as a person of ordinary prudence, discretion, and
intelligence would exercise in the management of the person's own
affairs; and
(2) whether the asset constitutes an asset that a
trustee is authorized to invest under Chapter 117 [Section 113.056]
or Subchapter F, Chapter 113, Property Code.
SECTION 16. Section 812(b), Texas Probate Code, is amended
to read as follows:
(b) In determining whether to order the sale of an asset
under Subsection (a) of this section, the court shall consider:
(1) the guardian's duty to take care of and manage the
estate as a person of ordinary prudence, discretion, and
intelligence would exercise in the management of the person's own
affairs; and
(2) whether the asset constitutes an asset that a
trustee is authorized to invest under Chapter 117 [Section 113.056]
or Subchapter F, Chapter 113, Property Code.
SECTION 17. Section 856(a), Texas Probate Code, is amended
to read as follows:
(a) If a guardian of an estate deems it is in the best
interests of the ward the guardian is appointed to represent to
invest on behalf of the ward in the Texas tomorrow constitutional
trust fund [Tomorrow Fund] established by Subchapter F, Chapter 54,
Education Code, or to invest in or sell any property or security in
which a trustee is authorized to invest by either Chapter 117
[Section 113.056] or Subchapter F, Chapter 113, of the Texas Trust
Code (Subtitle B, Title 9, Property Code), and the investment or
sale is not expressly permitted by other sections of this chapter,
the guardian may file a written application in the court in which
the guardianship is pending that asks for an order authorizing the
guardian to make the desired investment or sale and states the
reason why the guardian is of the opinion that the investment or
sale would be beneficial to the ward. A citation or notice is not
necessary under this subsection unless ordered by the court.
SECTION 18. Sections 113.003, 113.056(b) and (c), and
113.060, Property Code, are repealed.
SECTION 19. (a) This Act takes effect January 1, 2004, and
applies only to a trust existing on or created after that date.
(b) With respect to a trust existing on January 1, 2004,
this Act applies only to an act or decision relating to the trust
occurring after December 31, 2003.