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A BILL TO BE ENTITLED
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AN ACT
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relating to the participation of certain family members in a |
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family-controlled state trust company. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Subchapter B, Chapter 183, Finance Code, is |
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amended by adding Section 183.1065 to read as follows: |
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Sec. 183.1065. LIMITATION OF POWERS IN RELATION TO |
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FAMILY-CONTROLLED TRUST COMPANY. (a) This section applies only to |
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a family member who: |
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(1) is an owner of voting securities in a |
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family-controlled state trust company; or |
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(2) holds an equity interest in, or is serving as a |
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director, officer, manager, agent, or employee of, a |
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family-controlled state trust company. |
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(b) A family member may not participate in or otherwise have |
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a voice in a discretionary decision by the family-controlled state |
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trust company to exercise a power or make a decision with respect |
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to: |
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(1) a distribution of trust income or principal of any |
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managed trust to or for the benefit of a family member unless: |
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(A) the exercise of the discretion in exercising |
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that power is limited by an ascertainable standard related to the |
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health, education, maintenance, or support of the family member |
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benefiting from the distribution and does not discharge a legal |
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obligation of another family member; |
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(B) the distribution is necessary for the health, |
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education, maintenance, or support of the family member exercising |
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the discretion and the exercise of the discretion in exercising |
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that power does not discharge a legal obligation of another family |
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member; or |
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(C) the instrument governing the administration |
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of that trust clearly provides for the exercise of that authority by |
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the family member exercising the authority; |
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(2) the use or occupancy of any property of a managed |
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trust by a beneficiary of the trust or by a family member of the |
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beneficiary, unless use or occupancy of the property is necessary |
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for the health, maintenance, or support of the beneficiary; |
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(3) the exercise of an incident of ownership with |
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respect to any life insurance policy owned by a managed trust or a |
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family-controlled state trust company; |
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(4) the voting, directly or indirectly, of stock in a |
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corporation if the stock is held by a managed trust of which any |
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family member is a grantor, and the corporation is a controlled |
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corporation, as defined by Section 2036(b)(2) of the Internal |
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Revenue Code of 1986, with respect to that grantor; |
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(5) the exercise of any power that, under the terms of |
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the applicable trust instrument, must be held by a trustee who is |
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"independent," is not a "related or subordinate" party, or is |
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described by similar words of similar meaning; and |
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(6) the exercise of any other power that if held by the |
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family member would cause all or part of the trust to be included in |
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the estate of a grantor or beneficiary of a managed trust for |
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federal estate tax purposes or would cause a distribution from the |
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trust to be treated as a transfer by a grantor or beneficiary for |
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federal gift tax purposes. |
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(c) In this section: |
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(1) "Current beneficiary of a managed trust" means a |
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beneficiary of a managed trust who: |
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(A) is currently permitted or entitled to receive |
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a distribution from the trust or who would receive a distribution |
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from the trust if it were currently terminated; or |
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(B) possesses an interest in the trust with |
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respect to which the likelihood of a distribution of any kind is not |
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so remote as to be negligible, as defined by Treasury Regulation |
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Section 26.2612-1(b)(iii). |
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(2) "Descendant" means a present and future lineal |
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descendant of an individual, including an individual who becomes a |
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lineal descendant by virtue of adoption. |
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(3) "Family-controlled state trust company" means a |
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state trust company: |
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(A) that is organized primarily to engage in |
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family-controlled trust business with one or more family members; |
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and |
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(B) voting control for which is held, directly or |
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indirectly, by one or more family members or trusts organized |
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primarily for the benefit of family members. |
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(4) "Family-controlled trust business" means acting |
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as or performing the duties of an executor, administrator, |
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conservator, guardian, or trustee for family members in the regular |
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course of its business. |
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(5) "Family member" means: |
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(A) a grantor or current beneficiary of a managed |
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trust; |
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(B) a spouse, parent, descendant, sibling, or |
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employee of a person described by Paragraph (A); or |
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(C) a person who is otherwise related or |
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subordinate, within the meaning of Section 672(c) of the Internal |
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Revenue Code of 1986, to a person described by Paragraph (A), but |
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only if a person described by Paragraph (A) or (B), acting alone or |
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in conjunction with another, has the power to: |
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(i) remove the related or subordinate |
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person from a position in which the related or subordinate person |
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exercises a power described by Subsection (b); and |
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(ii) fill the vacancy under Subparagraph |
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(i) with a person who: |
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(a) is described by Paragraph (A) or |
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(B); or |
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(b) is otherwise related or |
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subordinate, within the meaning of Section 672(c) of the Internal |
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Revenue Code of 1986, to a person described by Paragraph (A). |
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(6) "Managed trust" means a trust with respect to |
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which a family-controlled state trust company serves as trustee or |
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cotrustee. |
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SECTION 2. This Act takes effect immediately if it receives |
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a vote of two-thirds of all the members elected to each house, as |
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provided by Section 39, Article III, Texas Constitution. If this |
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Act does not receive the vote necessary for immediate effect, this |
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Act takes effect September 1, 2007. |