80R6984 AJA-F
 
  By: Hartnett H.B. No. 564
 
  Substitute the following for H.B. No. 564:
 
  By:  Hartnett C.S.H.B. No. 564
 
 
A BILL TO BE ENTITLED
AN ACT
relating to the administration and operation of certain trusts and
other property interests held for the benefit of another.
       BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
       SECTION 1.  Section 187.005(b), Finance Code, is amended to
read as follows:
       (b)  Unless another law specifies governing law [and except
as provided in Subsection (c)], if a trust or its subject matter
bears a reasonable relation to this state and also to another state
or a foreign country, a trust institution and its affected client
may agree that the law of this state or of the other state or country
governs their rights and duties, including the law of a state or a
foreign country where the affected client resides or where the
trust institution has its principal office.
       SECTION 2.  Section 111.0035, Property Code, is amended by
amending Subsection (b) and adding Subsection (c) to read as
follows:
       (b)  The terms of a trust prevail over any provision of this
subtitle, except that the terms of a trust may not limit:
             (1)  the requirements imposed under Section 112.031;
             (2)  [the duties and liabilities of and restrictions
placed on a corporate trustee under Section 113.052 or 113.053;
             [(3)]  the applicability of Section 114.007 to an
exculpation term of a trust;
             (3) [(4)]  the periods of limitation for commencing a
judicial proceeding regarding a trust;
             (4) [(5)]  a trustee's duty:
                   (A)  with regard to an irrevocable trust, to
respond to a demand for accounting made under Section 113.151 if the
demand is from a beneficiary who, at the time of the demand:
                         (i)  is entitled or permitted to receive
distributions from the trust; or
                         (ii)  would receive a distribution from the
trust if the trust terminated at the time of the demand; and
                   (B)  to act in good faith and in accordance with
the purposes of the trust; [and
                   [(C)  under Section 113.060 to a beneficiary
described by Paragraph (A) that is 25 years of age or older;] or
             (5)  [(6)] the power of a court, in the interest of
justice, to take action or exercise jurisdiction, including the
power to:
                   (A)  modify or terminate a trust or take other
action under Section 112.054;
                   (B)  remove a trustee under Section 113.082;
                   (C)  exercise jurisdiction under Section 115.001;
                   (D)  require, dispense with, modify, or terminate
a trustee's bond; or
                   (E)  adjust or deny a trustee's compensation if
the trustee commits a breach of trust.
       (c)  The terms of a trust may not limit any common-law duty to
keep a beneficiary of an irrevocable trust who is 25 years of age or
older informed at any time during which the beneficiary:
             (1)  is entitled or permitted to receive distributions
from the trust; or
             (2)  would receive a distribution from the trust if the
trust were terminated.
       SECTION 3.  Section 111.004, Property Code, is amended by
amending Subdivisions (10) and (18) to read as follows:
             (10)  "Person" means:
                   (A)  an individual;
                   (B)  [,] a corporation;
                   (C)  a limited liability company;
                   (D)  [,] a partnership;
                   (E)  a joint venture;
                   (F)  [,] an association;
                   (G)  [,] a joint-stock company;
                   (H)  [,] a business trust;
                   (I)  [,] an unincorporated organization;
                   (J)  [, or] two or more persons having a joint or
common interest, including an individual or a corporation acting as
a personal representative or in any other fiduciary capacity;
                   (K)  a government;
                   (L)  a governmental subdivision, agency, or
instrumentality;
                   (M)  a public corporation; or
                   (N)  any other legal or commercial entity.
             (18)  "Trustee" means the person holding the property
in trust, including an original, additional, or successor trustee,
whether or not the person is appointed or confirmed by a court.
       SECTION 4.  Section 112.035(d), Property Code, is amended to
read as follows:
       (d)  If the settlor is also a beneficiary of the trust, a
provision restraining the voluntary or involuntary transfer of the
settlor's [his] beneficial interest does not prevent the settlor's
[his] creditors from satisfying claims from the settlor's [his]
interest in the trust estate. A settlor is not considered a
beneficiary of a trust solely because a trustee who is not the
settlor is authorized under the trust instrument to pay or
reimburse the settlor for, or pay directly to the taxing
authorities, any tax on trust income or principal that is payable by
the settlor under the law imposing the tax.
       SECTION 5.  Subchapter C, Chapter 112, Property Code, is
amended by adding Section 112.059 to read as follows:
       Sec. 112.059.  TERMINATION OF UNECONOMIC TRUST. (a) After
notice to beneficiaries who are distributees or permissible
distributees of trust income or principal or who would be
distributees or permissible distributees if the interests of the
distributees or the trust were to terminate and no powers of
appointment were exercised, the trustee of a trust consisting of
trust property having a total value of less than $50,000 may
terminate the trust if the trustee concludes after considering the
purpose of the trust and the nature of the trust assets that the
value of the trust property is insufficient to justify the
continued cost of administration.
       (b)  On termination of a trust under this section, the
trustee shall distribute the trust property in a manner consistent
with the purposes of the trust.
       (c)  This section does not apply to an easement for
conservation or preservation.
       SECTION 6.  Section 113.058, Property Code, is amended by
amending Subsections (b), (c), and (d) to read as follows:
       (b)  Unless a court orders otherwise or the instrument
creating the trust provides otherwise, a noncorporate trustee is
not required to [must] give a bond[:
             [(1)  payable to each person interested in the trust,
as their interests may appear; and
             [(2)  conditioned on the faithful performance of the
trustee's duties].
       (c)  A bond required by the instrument creating the trust
must be conditioned, payable, and in the amount as provided in the
instrument. A bond required by a court must be:
             (1)  in an amount and with the sureties required by the
court order and payable to:
                   (A)  the trust estate of the trust;
                   (B)  the registry of the court; or
                   (C)  each person interested in the trust, as their
interests may appear; and
             (2)  conditioned on the faithful performance of the
trustee's duties as trustee under the instrument creating the
trust, this code, or the common law of trusts [The bond must be in an
amount and with the sureties required by order of a court in a
proceeding brought for this determination].
       (d)  Any interested person may bring an action to:
             (1)  require a bond, including a bond for a
noncorporate trustee who is not required to provide a bond by the
instrument creating the trust;
             (2)  terminate a requirement for a bond, including a
bond that is required by the instrument creating the trust;
             (3)  increase or decrease the amount of a bond; or
             (4)  [to] substitute or add sureties.
       SECTION 7.  Section 113.085(a), Property Code, is amended to
read as follows:
       (a)  Cotrustees [that are unable to reach a unanimous
decision] may act by majority decision.
       SECTION 8.  Section 114.005(a), Property Code, is amended to
read as follows:
       (a)  A beneficiary who has full legal capacity and is acting
on full information may relieve a trustee from any duty,
responsibility, restriction, or liability as to the beneficiary
that would otherwise be imposed on the trustee by this subtitle,
including liability for past violations[, except as to the duties,
restrictions, and liabilities imposed on corporate trustees by
Section 113.052 or 113.053 of this subtitle].
       SECTION 9.  Section 114.081, Property Code, is amended to
read as follows:
       Sec. 114.081.  PROTECTION OF PERSON DEALING WITH [PAYMENT OF
MONEY TO] TRUSTEE.  (a) A person who deals with a trustee [actually
and] in good faith and for fair value actually received by the trust
is not liable to the trustee or the beneficiaries of the trust if
the trustee has exceeded the trustee's authority in dealing with
the person [pays to a trustee money that the trustee is authorized
to receive is not responsible for the proper application of the
money according to the trust].
       (b)  A person other than a beneficiary is not required to
inquire into the extent of the trustee's powers or the propriety of
the exercise of those powers if the person:
             (1)  deals with the trustee in good faith; and
             (2)  obtains:
                   (A)  a certification of trust described by Section
114.086; or
                   (B)  a copy of the trust instrument.
       (c)  A person who in good faith delivers money or other
assets to a trustee is not required to ensure the proper application
of the money or other assets.
       (d)  A person other than a beneficiary who in good faith
assists a former trustee, or who in good faith and for value deals
with a former trustee, without knowledge that the trusteeship has
terminated, is protected from liability as if the former trustee
were still a trustee.
       (e)  Comparable protective provisions of other laws relating
to commercial transactions or transfer of securities by fiduciaries
prevail over the protection provided by this section [A right or
title derived from the trustee in consideration of the monetary
payment under Subsection (a) of this section may not be impeached or
questioned because of the trustee's misapplication of the money].
       SECTION 10.  Chapter 114, Property Code, is amended by
adding Section 114.086 to read as follows:
       Sec. 114.086. CERTIFICATION OF TRUST. (a) As an
alternative to providing a copy of the trust instrument to a person
other than a beneficiary, the trustee may provide to the person a
certification of trust containing the following information:
             (1)  a statement that the trust exists and the date the
trust instrument was executed;
             (2)  the identity of the settlor;
             (3)  the identity and mailing address of the currently
acting trustee;
             (4)  one or more powers of the trustee or a statement
that the trust powers include at least all the powers granted a
trustee by Subchapter A, Chapter 113;
             (5)  the revocability or irrevocability of the trust
and the identity of any person holding a power to revoke the trust;
             (6)  the authority of cotrustees to sign or otherwise
authenticate and whether all or less than all of the cotrustees are
required in order to exercise powers of the trustee; and
             (7)  the manner in which title to trust property should
be taken.
       (b)  A certification of trust may be signed or otherwise
authenticated by any trustee.
       (c)  A certification of trust must state that the trust has
not been revoked, modified, or amended in any manner that would
cause the representations contained in the certification to be
incorrect.
       (d)  A certification of trust:
             (1)  is not required to contain the dispositive terms
of a trust; and
             (2)  may contain information in addition to the
information required by Subsection (a).
       (e)  A recipient of a certification of trust may require the
trustee to furnish copies of the excerpts from the original trust
instrument and later amendments to the trust instrument that
designate the trustee and confer on the trustee the power to act in
the pending transaction.
       (f)  A person who acts in reliance on a certification of
trust without knowledge that the representations contained in the
certification are incorrect is not liable to any person for the
action and may assume without inquiry the existence of the facts
contained in the certification.
       (g)  If a person has actual knowledge that the trustee is
acting outside the scope of the trust, and the actual knowledge was
acquired by the person before the person entered into the
transaction with the trustee or made a binding commitment to enter
into the transaction, the transaction is not enforceable against
the trust.
       (h)  A person who in good faith enters into a transaction
relying on a certification of trust may enforce the transaction
against the trust property as if the representations contained in
the certification are correct. This section does not create an
implication that a person is liable for acting in reliance on a
certification of trust that fails to contain all the information
required by Subsection (a). A person's failure to demand a
certification of trust does not:
             (1)  affect the protection provided to the person by
Section 114.081; or
             (2)  create an inference as to whether the person has
acted in good faith.
       (i)  A person making a demand for the trust instrument in
addition to a certification of trust or excerpts as described by
Subsection (e) is liable for damages if the court determines that
the person did not act in good faith in making the demand.
       (j)  This section does not limit the right of a person to
obtain a copy of the trust instrument in a judicial proceeding
concerning the trust.
       (k)  This section does not limit the rights of a beneficiary
of the trust against the trustee.
       SECTION 11.  Section 116.002, Property Code, is amended by
amending Subdivisions (9) and (13) to read as follows:
             (9)  "Person" has the meaning assigned by Section
111.004 [means an individual, corporation, business trust, estate,
trust, partnership, limited liability company, association, joint
venture, government; governmental subdivision, agency, or
instrumentality; public corporation, or any other legal or
commercial entity].
             (13)  "Trustee" has the meaning assigned by Section
111.004 [includes an original, additional, or successor trustee,
whether or not appointed or confirmed by a court].
       SECTION 12.  Section 116.172, Property Code, is amended by
amending Subsections (c) and (e) to read as follows:
       (c)  If no part of a payment is characterized as interest, a
dividend, or an equivalent payment, and all or part of the payment
is required to be made, a trustee shall allocate to income the part
of the payment that does not exceed an amount equal to:
             (1)  four percent of the fair market value of the future
payment asset on the date specified in Subsection (d); less
             (2)  the total amount that the trustee has allocated to
income for all previous payments received from the future payment
asset during the same accounting period in which the payment is
received [made].
        (e) For each accounting period [year] a [future] payment
[asset] is received [made], the amount determined under Subsection
(c)(1) [(c)] must be prorated on a daily basis unless the
determination of the fair market value of a future payment asset is
made under Subsection (d)(2) and is for an accounting period of 365
days or more.
       SECTION 13.  Section 116.174(a), Property Code, is amended
to read as follows:
       (a)  To the extent that a trustee accounts for receipts from
an interest in minerals or other natural resources pursuant to this
section, the trustee shall allocate them as follows:
             (1)  If received as [nominal] delay rental or [nominal]
annual rent on a lease, a receipt must be allocated to income.
             (2)  If received from a production payment, a receipt
must be allocated to income if and to the extent that the agreement
creating the production payment provides a factor for interest or
its equivalent. The balance must be allocated to principal.
             (3)  If [an amount] received as a royalty, shut-in-well
payment, take-or-pay payment, or bonus, [or delay rental is more
than nominal,] the trustee shall allocate the receipt equitably.
             (4)  If an amount is received from a working interest or
any other interest not provided for in Subdivision (1), (2), or (3),
the trustee must allocate the receipt equitably.
       SECTION 14.  Section 123.003(a), Property Code, is amended
to read as follows:
       (a)  Any party initiating a proceeding involving a
charitable trust shall give notice of the proceeding to the
attorney general by sending to the attorney general, by registered
or certified mail, a true copy of the petition or other instrument
initiating the proceeding involving a charitable trust within 30
days of the filing of such petition or other instrument, but no less
than 25 days prior to a hearing in such a proceeding. This
subsection does not apply to a proceeding that[:
             [(1)] is initiated by an application that exclusively
seeks the admission of a will to probate, regardless of whether the
application seeks the appointment of a personal representative, if
the application:
             (1)  is uncontested; and [or]
             (2)  is not subject to [a proceeding under] Section 83,
Texas Probate Code.
       SECTION 15.  Section 141.002, Property Code, is amended by
amending Subdivision (2) and adding Subdivision (12-a) to read as
follows:
             (2)  "Benefit plan" means a [an employer's plan for the
benefit of an employee or partner or an individual] retirement
plan, including an interest described by Sections 111.004(19)-(23)
[account].
             (12-a) "Qualified minor's trust" means a trust to which
a gift is considered a present interest under Section 2503(c),
Internal Revenue Code of 1986.
       SECTION 16.  Section 141.004(a), Property Code, is amended
to read as follows:
       (a)  A person having the right to designate the recipient of
property transferable on the occurrence of a future event may
revocably nominate a custodian to receive the property for a minor
beneficiary on the occurrence of that event by naming the custodian
followed in substance by the words: "as custodian for     (name of
minor)     under the Texas Uniform Transfers to Minors Act." The
nomination may name one or more persons as substitute custodians to
whom the property must be transferred, in the order named, if the
first nominated custodian dies before the transfer or is unable,
declines, or is ineligible to serve. The nomination may be made in
a will, a trust, a deed, an instrument exercising a power of
appointment, or in a writing designating a beneficiary of
contractual rights, including the right to receive payments from a
benefit plan, that is registered with or delivered to the payor,
issuer, or other obligor of the contractual rights.
       SECTION 17.  Section 141.008, Property Code, is amended by
amending Subsections (a) and (c) to read as follows:
       (a)  Subject to Subsections (b) and (c), a person who is not
subject to Section 141.006 or 141.007 and who holds property,
including a benefit plan of a minor who does not have a guardian, or
who owes a liquidated debt to a minor who does not have a guardian
may make an irrevocable transfer to a custodian for the benefit of
the minor under Section 141.010.
       (c)  If a custodian has not been nominated under Section
141.004, or all persons nominated as custodian die before the
transfer or are unable, decline, or are ineligible to serve, a
transfer under this section may be made to an adult member of the
minor's family or to a trust company unless the property exceeds
$15,000 [$10,000] in value.
       SECTION 18.  Section 141.015, Property Code, is amended by
adding Subsection (b-1) to read as follows:
       (b-1)  A custodian may, without a court order, transfer all
or part of the custodial property to a qualified minor's trust. A
transfer of property under this subsection terminates the
custodianship to the extent of the property transferred.
       SECTION 19.  Section 187.005(c), Finance Code, and Section
113.060, Property Code, are repealed.
       SECTION 20.  The enactment of Section 113.060, Property
Code, by Chapter 148, Acts of the 79th Legislature, Regular
Session, 2005, was not intended to repeal any common-law duty to
keep a beneficiary of a trust informed, and the repeal by this Act
of Section 113.060, Property Code, does not repeal any common-law
duty to keep a beneficiary informed. The common-law duty to keep a
beneficiary informed that existed immediately before January 1,
2006, is continued in effect.
       SECTION 21.  Except as otherwise provided by the terms of a
trust, the changes in law made by this Act apply to a trust existing
or created on or after the effective date of this Act.
       SECTION 22.  (a)  Except as provided by Subsection (b) of
this section, this Act takes effect September 1, 2007.
       (b)  Section 111.0035, Property Code, as amended by this Act,
and the repeal by this Act of Section 113.060, Property Code, take
effect immediately if this Act receives a vote of two-thirds of all
the members elected to each house, as provided by Section 39,
Article III, Texas Constitution.  If this Act does not receive the
vote necessary for immediate effect, Section 111.0035, Property
Code, as amended by this Act and the repeal by this Act of Section
113.060, Property Code, take effect September 1, 2007.