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A BILL TO BE ENTITLED
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AN ACT
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relating to trusts. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Section 111.004(12), Property Code, is amended |
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to read as follows: |
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(12) "Property" means any type of property, whether |
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real, tangible or intangible, legal, or equitable, including |
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property held in any digital or electronic medium. The term also |
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includes choses in action, claims, and contract rights, including a |
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contractual right to receive death benefits as designated |
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beneficiary under a policy of insurance, contract, employees' |
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trust, retirement account, or other arrangement. |
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SECTION 2. Section 112.035, Property Code, is amended by |
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amending Subsection (d) and adding Subsections (g) and (h) to read |
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as follows: |
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(d) If the settlor is also a beneficiary of the trust, a |
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provision restraining the voluntary or involuntary transfer of the |
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settlor's beneficial interest does not prevent the settlor's |
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creditors from satisfying claims from the settlor's interest in the |
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trust estate. A settlor is not considered a beneficiary of a trust |
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solely because: |
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(1) a trustee who is not the settlor is authorized |
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under the trust instrument to pay or reimburse the settlor for, or |
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pay directly to the taxing authorities, any tax on trust income or |
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principal that is payable by the settlor under the law imposing the |
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tax; or |
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(2) the settlor's interest in the trust was created by |
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the exercise of a power of appointment by a third party. |
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(g) For the purposes of this section, property contributed |
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to the following trusts is not considered to have been contributed |
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by the settlor, and a person who would otherwise be treated as a |
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settlor or a deemed settlor of the following trusts may not be |
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treated as a settlor: |
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(1) an irrevocable inter vivos marital trust if: |
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(A) the settlor is a beneficiary of the trust |
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after the death of the settlor's spouse; and |
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(B) the trust is treated as: |
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(i) qualified terminable interest property |
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under Section 2523(f), Internal Revenue Code of 1986; or |
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(ii) a general power of appointment trust |
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under Section 2523(e), Internal Revenue Code of 1986; |
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(2) an irrevocable inter vivos trust for the settlor's |
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spouse if the settlor is a beneficiary of the trust after the death |
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of the settlor's spouse; or |
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(3) an irrevocable trust for the benefit of a person: |
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(A) if the settlor is the person's spouse, |
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regardless of whether or when the person was the settlor of an |
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irrevocable trust for the benefit of that spouse; or |
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(B) to the extent that the property of the trust |
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was subject to a general power of appointment in another person. |
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(h) For the purposes of Subsection (g), a person is a |
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beneficiary whether named a beneficiary: |
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(1) under the initial trust instrument; or |
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(2) through the exercise of a limited or general power |
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of appointment by: |
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(A) that person's spouse; or |
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(B) another person. |
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SECTION 3. Chapter 112, Property Code, is amended by adding |
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Subchapter D to read as follows: |
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SUBCHAPTER D. DISTRIBUTION OF TRUST PRINCIPAL IN FURTHER TRUST |
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Sec. 112.071. DEFINITIONS. In this subchapter: |
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(1) "Authorized trustee" means a person, other than |
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the settlor, who has authority under the terms of a first trust to |
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distribute the principal of the trust to or for the benefit of one |
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or more current beneficiaries. |
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(2) "Current beneficiary," with respect to a |
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particular date, means a person who is receiving or is eligible to |
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receive a distribution of income or principal from a trust on that |
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date. |
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(3) "First trust" means an existing irrevocable inter |
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vivos or testamentary trust all or part of the principal of which is |
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distributed in further trust under Section 112.072 or 112.073. |
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(4) "Full discretion" means the power to distribute |
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principal to or for the benefit of one or more of the beneficiaries |
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of a trust that is not limited or modified by the terms of the trust |
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in any way, including by restrictions that limit distributions to |
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purposes such as the best interests, welfare, or happiness of the |
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beneficiaries. |
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(5) "Limited discretion" means a limited or modified |
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power to distribute principal to or for the benefit of one or more |
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beneficiaries of a trust. |
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(6) "Presumptive remainder beneficiary," with respect |
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to a particular date, means a beneficiary of a trust on that date |
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who, assuming any powers of appointment under the trust are not |
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exercised, would be eligible to receive a distribution from the |
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trust if: |
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(A) the trust terminated on that date; or |
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(B) the interests of all beneficiaries currently |
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eligible to receive income or principal from the trust ended on that |
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date without causing the trust to terminate. |
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(7) "Principal" means property held in trust for |
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distribution to a remainder beneficiary when the trust terminates |
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and includes income of the trust that, at the time of the exercise |
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of a power of distribution under Section 112.072 or 112.073, is not |
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currently required to be distributed. |
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(8) "Second trust" means any irrevocable trust to |
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which principal is distributed under Section 112.072 or 112.073. |
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(9) "Successor beneficiary" means a beneficiary other |
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than a current or presumptive remainder beneficiary. The term does |
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not include a potential appointee under a power of appointment held |
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by a beneficiary. |
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Sec. 112.072. DISTRIBUTION TO SECOND TRUST: TRUSTEE WITH |
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FULL DISCRETION. (a) An authorized trustee who has the full |
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discretion to distribute the principal of a trust may distribute |
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all or part of the principal of that trust in favor of a trustee of a |
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second trust for the benefit of one or more current beneficiaries of |
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the first trust and for the benefit of one or more successor or |
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presumptive remainder beneficiaries of the first trust. |
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(b) The authorized trustee may, in connection with the |
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exercise of a power of distribution under this section, grant a |
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power of appointment, including a currently exercisable power of |
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appointment, in the second trust to one or more of the current |
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beneficiaries of the first trust who, at the time the power of |
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appointment is granted, is eligible to receive the principal |
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outright under the terms of the first trust. |
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(c) If the authorized trustee grants a power of appointment |
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to a beneficiary under Subsection (b), the class of permissible |
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appointees the beneficiary may appoint under that power may be |
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broader or different than the current, successor, and presumptive |
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remainder beneficiaries of the first trust. |
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(d) If the beneficiaries of the first trust are described as |
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a class of persons, the beneficiaries of the second trust may |
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include one or more persons who become includable in that class |
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after the distribution to the second trust. |
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Sec. 112.073. DISTRIBUTION TO SECOND TRUST: TRUSTEE WITH |
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LIMITED DISCRETION. (a) An authorized trustee who has limited |
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discretion to distribute the principal of a trust may distribute |
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all or part of the principal of that trust in favor of a trustee of a |
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second trust as provided by this section. |
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(b) The current beneficiaries of the second trust must be |
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the same as the current beneficiaries of the first trust, and the |
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successor and remainder beneficiaries of the second trust must be |
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the same as the successor and remainder beneficiaries of the first |
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trust. |
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(c) The second trust must include the same language |
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authorizing the trustee to distribute the income or principal of |
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the trust that was included in the first trust. |
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(d) If the beneficiaries of the first trust are described as |
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a class of persons, the beneficiaries of the second trust must |
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include all persons who become includable in that class after the |
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distribution to the second trust. |
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(e) If the first trust grants a power of appointment to a |
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beneficiary of the trust, the second trust must grant the power of |
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appointment to the beneficiary in the second trust, and the class of |
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permissible appointees under that power must be the same as the |
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class of permissible appointees under the power granted by the |
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first trust. |
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(f) The exercise of a power of distribution under this |
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section is subject to Section 113.029. |
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Sec. 112.074. NOTICE REQUIRED. (a) An authorized trustee |
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may exercise a power of distribution under Section 112.072 or |
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112.073 without the consent of the settlor or beneficiaries of the |
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first trust and without court approval if: |
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(1) there are one or more current beneficiaries who |
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are not legally incapacitated; |
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(2) there are one or more presumptive remainder |
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beneficiaries who are not legally incapacitated; and |
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(3) the authorized trustee provides to all of the |
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current beneficiaries and presumptive remainder beneficiaries who |
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are not legally incapacitated written notice of the trustee's |
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decision to exercise the power, specifying the manner in which the |
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trustee intends to exercise the power and the proposed effective |
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date of the distribution. |
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(b) For the purpose of determining who is entitled to the |
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notice, a beneficiary is determined as of the date the notice is |
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sent with the assumption that any existing power of appointment has |
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not been exercised. |
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(c) A trustee is not required to provide a copy of the notice |
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to a beneficiary who: |
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(1) is known to the trustee and cannot be located by |
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the trustee after reasonable diligence; or |
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(2) is not known to the trustee. |
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(d) If a charity is a current beneficiary or presumptive |
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remainder beneficiary of the trust, the authorized trustee shall |
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also give written notice of the trustee's decision to the attorney |
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general. |
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Sec. 112.075. WRITTEN INSTRUMENT REQUIRED. A distribution |
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under Section 112.072 or 112.073 must be made by a written |
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instrument that is signed and acknowledged by the trustee and filed |
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with the records of the first trust and the second trust. |
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Sec. 112.076. REFERENCE TO TRUST TERMS. A reference to the |
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governing instrument or terms of the governing instrument of a |
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trust includes the terms of a second trust to which that trust's |
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principal was distributed under this subchapter. |
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Sec. 112.077. SETTLOR OF SECOND TRUST. (a) Except as |
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provided by Subsection (b), the settlor of a first trust is |
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considered to be the settlor of a second trust established under |
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this subchapter. |
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(b) If a settlor of a first trust is not also the settlor of |
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a second trust into which principal of that first trust is |
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distributed, the settlor of the first trust is considered the |
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settlor of the portion of the second trust distributed to the second |
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trust from that first trust under this subchapter. |
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Sec. 112.078. COURT-ORDERED DISTRIBUTION. (a) The trustee |
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may petition a court to order a distribution under this subchapter |
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if the power to make a distribution under this subchapter is |
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unavailable for any reason. |
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(b) If the trustee receives a written objection to a |
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distribution under this subchapter from a beneficiary before the |
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proposed effective date of the distribution specified in the notice |
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provided to the beneficiary under Section 112.074, the trustee or |
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the beneficiary may petition a court to approve, modify, or deny the |
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exercise of the trustee's power to make a distribution under this |
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subchapter. The trustee has the burden of proving that the proposed |
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exercise of the power furthers the purposes of the trust. |
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(c) In a judicial proceeding under this section, the trustee |
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may present the trustee's reasons for supporting or opposing a |
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proposed distribution, including whether the trustee believes the |
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distribution would enable the trustee to better carry out the |
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purposes of the trust. |
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(d) A trustee's actions under this subchapter may not be |
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considered improper or inconsistent with the trustee's duty of |
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impartiality unless the court finds, based on all the evidence, |
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that the trustee acted in bad faith. |
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Sec. 112.079. TERM OF SECOND TRUST. A second trust may have |
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a term that is longer than the term of a first trust whose principal |
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was distributed to the trust, including a term that is measured by |
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the lifetime of a current beneficiary. |
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Sec. 112.080. DIVIDED DISCRETION. If an authorized trustee |
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has full discretion to distribute the principal of a trust and |
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another trustee has limited discretion to distribute principal |
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under the trust instrument, the authorized trustee having full |
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discretion may exercise the power to distribute the trust's |
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principal under Section 112.072. |
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Sec. 112.081. LATER DISCOVERED ASSETS. To the extent the |
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authorized trustee does not provide otherwise: |
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(1) the distribution of all of the principal of a first |
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trust to a second trust includes subsequently discovered assets |
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otherwise belonging to the first trust and principal paid to or |
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acquired by the first trust after the distribution of the first |
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trust's principal to the second trust; and |
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(2) the distribution of part of the principal of a |
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first trust to a second trust does not include subsequently |
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discovered assets belonging to the first trust or principal paid to |
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or acquired by the first trust after the distribution of principal |
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from the first trust to the second trust, and those assets or that |
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principal remain the assets or principal of the first trust. |
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Sec. 112.082. OTHER AUTHORITY TO DISTRIBUTE IN FURTHER |
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TRUST NOT LIMITED. This subchapter may not be construed to limit |
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the power of a trustee to distribute property in further trust under |
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the terms of the governing instrument of a trust, other law, or a |
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court order. |
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Sec. 112.083. NEED FOR DISTRIBUTION NOT REQUIRED. An |
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authorized trustee may exercise the power to distribute principal |
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to a second trust under Section 112.072 or 112.073 regardless of |
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whether there is a current need to distribute principal under the |
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terms of the first trust. |
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Sec. 112.084. DUTIES NOT CREATED. (a) This subchapter does |
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not create or imply a duty for an authorized trustee to exercise a |
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power to distribute principal, and impropriety may not be inferred |
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as a result of the trustee not exercising a power conferred by |
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Section 112.072 or 112.073. |
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(b) A trustee does not have a duty to inform beneficiaries |
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about the availability of the authority provided by this subchapter |
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or a duty to review the trust to determine whether any action should |
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be taken under this subchapter. |
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Sec. 112.085. CERTAIN DISTRIBUTIONS PROHIBITED. (a) |
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Except as provided by Subsection (b), an authorized trustee may not |
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exercise a power to distribute principal of a trust otherwise |
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provided by Section 112.072 or 112.073 if the distribution is |
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expressly prohibited by the terms of the governing instrument of |
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the trust. |
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(b) A general prohibition of the amendment or revocation of |
|
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a trust or a provision that constitutes a spendthrift clause does |
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not preclude the exercise of a power to distribute principal of a |
|
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trust under Section 112.072 or 112.073. |
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Sec. 112.086. EXCEPTIONS TO POWER OF DISTRIBUTION. An |
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authorized trustee may not exercise a power to distribute principal |
|
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of a trust under Section 112.072 or 112.073 to: |
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(1) reduce, limit, or modify a beneficiary's current, |
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vested right to: |
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(A) receive a mandatory distribution of income or |
|
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principal; |
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(B) receive a mandatory annuity or unitrust |
|
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interest; |
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(C) withdraw a percentage of the value of the |
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trust; or |
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(D) withdraw a specified dollar amount from the |
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trust; |
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(2) decrease or indemnify against a trustee's |
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liability or exonerate a trustee from liability for failure to |
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exercise reasonable care, diligence, and prudence; |
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(3) eliminate a provision granting another person the |
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right to remove or replace the authorized trustee exercising the |
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distribution power under Section 112.072 or 112.073; or |
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(4) reduce, limit, or modify in the second trust a |
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perpetuities provision included in the first trust, unless |
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expressly permitted by the terms of the first trust. |
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Sec. 112.087. TAX-RELATED LIMITATIONS. (a) The authorized |
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trustee may not distribute the principal of a trust under Section |
|
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112.072 or 112.073 in a manner that would prevent a contribution to |
|
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that trust from qualifying for or reducing the exclusion, |
|
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deduction, or other federal tax benefit that was originally claimed |
|
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for that contribution, including: |
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(1) the annual exclusion under Section 2503(b), |
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Internal Revenue Code of 1986; |
|
|
(2) a marital deduction under Section 2056(a) or |
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2523(a), Internal Revenue Code of 1986; |
|
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(3) the charitable deduction under Section 170(a), |
|
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642(c), 2055(a), or 2522(a), Internal Revenue Code of 1986; |
|
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(4) direct skip treatment under Section 2642(c), |
|
|
Internal Revenue Code of 1986; or |
|
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(5) any other tax benefit for income, gift, estate, or |
|
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generation-skipping transfer tax purposes under the Internal |
|
|
Revenue Code of 1986. |
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(b) Notwithstanding Subsection (a), an authorized trustee |
|
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may distribute the principal of a first trust to a second trust |
|
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regardless of whether the settlor of the first trust is treated as |
|
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the owner of the second trust under Sections 671-679, Internal |
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|
Revenue Code of 1986. |
|
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(c) If a trust owns Subchapter S Corporation stock, an |
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authorized trustee may not distribute all or part of that stock |
|
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under Section 112.072 or 112.073 to a second trust that is not a |
|
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permitted shareholder under Section 1361(c)(2), Internal Revenue |
|
|
Code of 1986. |
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(d) If a trust owns an interest in property that is subject |
|
|
to the minimum distribution rules of Section 401(a)(9), Internal |
|
|
Revenue Code of 1986, an authorized trustee may not distribute the |
|
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trust's interest in the property to a second trust under Section |
|
|
112.072 or 112.073 if the distribution would shorten the minimum |
|
|
distribution period applicable to the property. |
|
|
Sec. 112.088. COMPENSATION OF TRUSTEE. (a) Except as |
|
|
provided by Subsection (b) and unless a court, on application of the |
|
|
trustee, directs otherwise, an authorized trustee may not exercise |
|
|
a power under Section 112.072 or 112.073 solely to change trust |
|
|
provisions regarding the determination of the compensation of any |
|
|
trustee. |
|
|
(b) An authorized trustee, in connection with the exercise |
|
|
of a power under Section 112.072 or 112.073 for another valid and |
|
|
reasonable purpose, may bring the trustee's compensation into |
|
|
conformance with reasonable limits authorized by state law. |
|
|
(c) The compensation payable to the trustee of the first |
|
|
trust may continue to be paid to the trustee of the second trust |
|
|
during the term of the second trust and may be determined in the |
|
|
same manner as the compensation would have been determined in the |
|
|
first trust. |
|
|
(d) A trustee may not receive a commission or other |
|
|
compensation for the distribution of a particular asset from a |
|
|
first trust to a second trust under Section 112.072 or 112.073. |
|
|
Sec. 112.089. LIABILITY OF TRUSTEE FOR ACTS OR OMISSIONS. |
|
|
(a) A trustee who reasonably and in good faith takes or omits to |
|
|
take any action under this subchapter is not liable for the act or |
|
|
omission to any person interested in the trust. An act or omission |
|
|
by a trustee under this subchapter is rebuttably presumed to have |
|
|
been taken or omitted reasonably and in good faith. |
|
|
(b) If a person interested in the trust opposes an act or |
|
|
omission of a trustee under this subchapter, the person's exclusive |
|
|
remedy is to obtain a court order directing the trustee to act as |
|
|
the court determines necessary or beneficial for the proper |
|
|
functioning of the trust, including to modify or reverse a previous |
|
|
action of the trustee. |
|
|
(c) A person interested in a trust must bring a suit |
|
|
claiming that an act or omission by a trustee under this subchapter |
|
|
was an abuse of discretion not later than two years after the date |
|
|
the trustee provided the person or the person's representative with |
|
|
a written notice or report that sufficiently discloses facts |
|
|
fundamental to the claim so that the person knew or reasonably |
|
|
should have known of the claim. |
|
|
(d) If a person otherwise entitled to bring an action that |
|
|
is subject to the limitations period provided by Subsection (c) is, |
|
|
at the time the notice or report was provided, under a legal |
|
|
disability and does not at that time have a personal representative |
|
|
appointed by a court as the guardian of the person's estate, the |
|
|
time during which the person is under that disability and |
|
|
unrepresented is not included in the limitations period. |
|
|
SECTION 4. Section 113.029, Property Code, is amended by |
|
|
amending Subsection (b) and adding Subsection (e) to read as |
|
|
follows: |
|
|
(b) Subject to Subsection (d), and unless the terms of the |
|
|
trust expressly indicate that a requirement provided by this |
|
|
subsection does not apply: |
|
|
(1) a person, other than a settlor, who is a |
|
|
beneficiary and trustee, trustee affiliate, or discretionary power |
|
|
holder of a trust that confers on the trustee a power to make |
|
|
discretionary distributions to or for the trustee's, the trustee |
|
|
affiliate's, or the discretionary power holder's personal benefit |
|
|
may exercise the power only in accordance with an ascertainable |
|
|
standard relating to the trustee's, the trustee affiliate's, or the |
|
|
discretionary power holder's individual health, education, |
|
|
support, or maintenance within the meaning of Section 2041(b)(1)(A) |
|
|
or 2514(c)(1), Internal Revenue Code of 1986; and |
|
|
(2) a trustee may not exercise a power to make |
|
|
discretionary distributions to satisfy a legal obligation of |
|
|
support that the trustee personally owes another person. |
|
|
(e) In this section, "discretionary power holder" means a |
|
|
person who has the sole power or power shared with another person to |
|
|
make discretionary decisions on behalf of a trustee with respect to |
|
|
distributions from a trust. |
|
|
SECTION 5. Section 11.13(j), Tax Code, is amended to read as |
|
|
follows: |
|
|
(j) For purposes of this section: |
|
|
(1) "Residence homestead" means a structure |
|
|
(including a mobile home) or a separately secured and occupied |
|
|
portion of a structure (together with the land, not to exceed 20 |
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|
acres, and improvements used in the residential occupancy of the |
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|
structure, if the structure and the land and improvements have |
|
|
identical ownership) that: |
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|
(A) is owned by one or more individuals, either |
|
|
directly or through a beneficial interest in a qualifying trust; |
|
|
(B) is designed or adapted for human residence; |
|
|
(C) is used as a residence; and |
|
|
(D) is occupied as the individual's [his] |
|
|
principal residence by an owner or, for property owned through a |
|
|
beneficial interest in a qualifying trust, by a trustor or |
|
|
beneficiary of the trust who qualifies for the exemption. |
|
|
(2) "Trustor" means a person who transfers an interest |
|
|
in real or personal [residential] property to a qualifying trust, |
|
|
whether during the person's lifetime or at death [by deed or by
|
|
|
will], or the person's spouse. |
|
|
(3) "Qualifying trust" means a trust: |
|
|
(A) in which the agreement, will, or court order |
|
|
creating the trust, an instrument transferring property to the |
|
|
trust, or any other agreement that is binding on the trustee |
|
|
provides that the trustor of the trust or a [the] beneficiary of the |
|
|
trust [if created by court order] has the right to use and occupy as |
|
|
the trustor's or beneficiary's principal residence residential |
|
|
property rent free and without charge except for taxes and other |
|
|
costs and expenses specified in the instrument or court order: |
|
|
(i) for life; |
|
|
(ii) for the lesser of life or a term of |
|
|
years; or |
|
|
(iii) until the date the trust is revoked or |
|
|
terminated by an instrument or court order that describes the |
|
|
property with sufficient certainty to identify it and is recorded |
|
|
in the real property records of the county in which the property is |
|
|
located; and |
|
|
(B) that acquires the property in an instrument |
|
|
of title or under a court order that: |
|
|
(i) describes the property with sufficient |
|
|
certainty to identify it and the interest acquired; and |
|
|
(ii) is recorded in the real property |
|
|
records of the county in which the property is located[; and
|
|
|
[(iii)
in the case of a trust that is not
|
|
|
created by court order, is executed by the trustor or the personal
|
|
|
representative of the trustor]. |
|
|
SECTION 6. Section 152.025(a), Tax Code, is amended to read |
|
|
as follows: |
|
|
(a) A tax is imposed on the recipient of a gift of a motor |
|
|
vehicle. This section applies only if the person receiving the |
|
|
motor vehicle: |
|
|
(1) receives the vehicle from: |
|
|
(A) the person's: |
|
|
(i) spouse; |
|
|
(ii) parent or stepparent; |
|
|
(iii) grandparent or grandchild; |
|
|
(iv) child or stepchild; |
|
|
(v) sibling; or |
|
|
(vi) guardian; [or] |
|
|
(B) a decedent's estate; |
|
|
(C) a trust that was revocable by a decedent or |
|
|
that was jointly revocable by a decedent and the decedent's spouse; |
|
|
or |
|
|
(D) a trust that is revocable by the person |
|
|
receiving the motor vehicle or that is jointly revocable by the |
|
|
recipient and the recipient's spouse; |
|
|
(2) is a trust that is revocable by the transferor of |
|
|
the motor vehicle or that is jointly revocable by the transferor and |
|
|
the transferor's spouse; or |
|
|
(3) is exempt from federal income taxation under |
|
|
Section 501(a), Internal Revenue Code of 1986, by being listed as an |
|
|
exempt organization under Section 501(c)(3) of that code, and the |
|
|
vehicle will be used for the purposes of the organization. |
|
|
SECTION 7. (a) Except as otherwise expressly provided by a |
|
|
trust, a will creating a trust, or this section, the changes in law |
|
|
made by this Act apply to a trust existing or created on or after |
|
|
September 1, 2013. |
|
|
(b) For a trust existing on September 1, 2013, that was |
|
|
created before that date, the changes in law made by this Act apply |
|
|
only to an act or omission relating to the trust that occurs on or |
|
|
after September 1, 2013. |
|
|
SECTION 8. This Act takes effect September 1, 2013. |