83R3603 NC-F
 
  By: Rodriguez S.B. No. 648
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to trusts.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 111.004(12), Property Code, is amended
  to read as follows:
               (12)  "Property" means any type of property, whether
  real, tangible or intangible, legal, or equitable, including
  property held in any digital or electronic medium. The term also
  includes choses in action, claims, and contract rights, including a
  contractual right to receive death benefits as designated
  beneficiary under a policy of insurance, contract, employees'
  trust, retirement account, or other arrangement.
         SECTION 2.  Section 112.035, Property Code, is amended by
  amending Subsection (d) and adding Subsections (g) and (h) 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 beneficial interest does not prevent the settlor's
  creditors from satisfying claims from the settlor's interest in the
  trust estate.  A settlor is not considered a beneficiary of a trust
  solely because:
               (1)  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; or
               (2)  the settlor's interest in the trust was created by
  the exercise of a power of appointment by a third party.
         (g)  For the purposes of this section, property contributed
  to the following trusts is not considered to have been contributed
  by the settlor, and a person who would otherwise be treated as a
  settlor or a deemed settlor of the following trusts may not be
  treated as a settlor:
               (1)  an irrevocable inter vivos marital trust if:
                     (A)  the settlor is a beneficiary of the trust
  after the death of the settlor's spouse; and
                     (B)  the trust is treated as:
                           (i)  qualified terminable interest property
  under Section 2523(f), Internal Revenue Code of 1986; or
                           (ii)  a general power of appointment trust
  under Section 2523(e), Internal Revenue Code of 1986;
               (2)  an irrevocable inter vivos trust for the settlor's
  spouse if the settlor is a beneficiary of the trust after the death
  of the settlor's spouse; or
               (3)  an irrevocable trust for the benefit of a person:
                     (A)  if the settlor is the person's spouse,
  regardless of whether or when the person was the settlor of an
  irrevocable trust for the benefit of that spouse; or
                     (B)  to the extent that the property of the trust
  was subject to a general power of appointment in another person.
         (h)  For the purposes of Subsection (g), a person is a
  beneficiary whether named a beneficiary:
               (1)  under the initial trust instrument; or
               (2)  through the exercise of a limited or general power
  of appointment by:
                     (A)  that person's spouse; or
                     (B)  another person.
         SECTION 3.  Chapter 112, Property Code, is amended by adding
  Subchapter D to read as follows:
  SUBCHAPTER D. DISTRIBUTION OF TRUST PRINCIPAL IN FURTHER TRUST
         Sec. 112.071.  DEFINITIONS. In this subchapter:
               (1)  "Authorized trustee" means a person, other than
  the settlor, who has authority under the terms of a first trust to
  distribute the principal of the trust to or for the benefit of one
  or more current beneficiaries.
               (2)  "Current beneficiary," with respect to a
  particular date, means a person who is receiving or is eligible to
  receive a distribution of income or principal from a trust on that
  date.
               (3)  "First trust" means an existing irrevocable inter
  vivos or testamentary trust all or part of the principal of which is
  distributed in further trust under Section 112.072 or 112.073.
               (4)  "Full discretion" means the power to distribute
  principal to or for the benefit of one or more of the beneficiaries
  of a trust that is not limited or modified by the terms of the trust
  in any way, including by restrictions that limit distributions to
  purposes such as the best interests, welfare, or happiness of the
  beneficiaries.
               (5)  "Limited discretion" means a limited or modified
  power to distribute principal to or for the benefit of one or more
  beneficiaries of a trust.
               (6)  "Presumptive remainder beneficiary," with respect
  to a particular date, means a beneficiary of a trust on that date
  who, assuming any powers of appointment under the trust are not
  exercised, would be eligible to receive a distribution from the
  trust if:
                     (A)  the trust terminated on that date; or
                     (B)  the interests of all beneficiaries currently
  eligible to receive income or principal from the trust ended on that
  date without causing the trust to terminate.
               (7)  "Principal" means property held in trust for
  distribution to a remainder beneficiary when the trust terminates
  and includes income of the trust that, at the time of the exercise
  of a power of distribution under Section 112.072 or 112.073, is not
  currently required to be distributed.
               (8)  "Second trust" means any irrevocable trust to
  which principal is distributed under Section 112.072 or 112.073.
               (9)  "Successor beneficiary" means a beneficiary other
  than a current or presumptive remainder beneficiary.  The term does
  not include a potential appointee under a power of appointment held
  by a beneficiary.
         Sec. 112.072.  DISTRIBUTION TO SECOND TRUST: TRUSTEE WITH
  FULL DISCRETION. (a) An authorized trustee who has the full
  discretion to distribute the principal of a trust may distribute
  all or part of the principal of that trust in favor of a trustee of a
  second trust for the benefit of one or more current beneficiaries of
  the first trust and for the benefit of one or more successor or
  presumptive remainder beneficiaries of the first trust.
         (b)  The authorized trustee may, in connection with the
  exercise of a power of distribution under this section, grant a
  power of appointment, including a currently exercisable power of
  appointment, in the second trust to one or more of the current
  beneficiaries of the first trust who, at the time the power of
  appointment is granted, is eligible to receive the principal
  outright under the terms of the first trust.
         (c)  If the authorized trustee grants a power of appointment
  to a beneficiary under Subsection (b), the class of permissible
  appointees the beneficiary may appoint under that power may be
  broader or different than the current, successor, and presumptive
  remainder beneficiaries of the first trust.
         (d)  If the beneficiaries of the first trust are described as
  a class of persons, the beneficiaries of the second trust may
  include one or more persons who become includable in that class
  after the distribution to the second trust.
         Sec. 112.073.  DISTRIBUTION TO SECOND TRUST: TRUSTEE WITH
  LIMITED DISCRETION. (a) An authorized trustee who has limited
  discretion to distribute the principal of a trust may distribute
  all or part of the principal of that trust in favor of a trustee of a
  second trust as provided by this section.
         (b)  The current beneficiaries of the second trust must be
  the same as the current beneficiaries of the first trust, and the
  successor and remainder beneficiaries of the second trust must be
  the same as the successor and remainder beneficiaries of the first
  trust.
         (c)  The second trust must include the same language
  authorizing the trustee to distribute the income or principal of
  the trust that was included in the first trust.
         (d)  If the beneficiaries of the first trust are described as
  a class of persons, the beneficiaries of the second trust must
  include all persons who become includable in that class after the
  distribution to the second trust.
         (e)  If the first trust grants a power of appointment to a
  beneficiary of the trust, the second trust must grant the power of
  appointment to the beneficiary in the second trust, and the class of
  permissible appointees under that power must be the same as the
  class of permissible appointees under the power granted by the
  first trust.
         (f)  The exercise of a power of distribution under this
  section is subject to Section 113.029.
         Sec. 112.074.  NOTICE REQUIRED. (a)  An authorized trustee
  may exercise a power of distribution under Section 112.072 or
  112.073 without the consent of the settlor or beneficiaries of the
  first trust and without court approval if:
               (1)  there are one or more current beneficiaries who
  are not legally incapacitated;
               (2)  there are one or more presumptive remainder
  beneficiaries who are not legally incapacitated; and
               (3)  the authorized trustee provides to all of the
  current beneficiaries and presumptive remainder beneficiaries who
  are not legally incapacitated written notice of the trustee's
  decision to exercise the power, specifying the manner in which the
  trustee intends to exercise the power and the proposed effective
  date of the distribution.
         (b)  For the purpose of determining who is entitled to the
  notice, a beneficiary is determined as of the date the notice is
  sent with the assumption that any existing power of appointment has
  not been exercised.
         (c)  A trustee is not required to provide a copy of the notice
  to a beneficiary who:
               (1)  is known to the trustee and cannot be located by
  the trustee after reasonable diligence; or
               (2)  is not known to the trustee.
         (d)  If a charity is a current beneficiary or presumptive
  remainder beneficiary of the trust, the authorized trustee shall
  also give written notice of the trustee's decision to the attorney
  general.
         Sec. 112.075.  WRITTEN INSTRUMENT REQUIRED. A distribution
  under Section 112.072 or 112.073 must be made by a written
  instrument that is signed and acknowledged by the trustee and filed
  with the records of the first trust and the second trust.
         Sec. 112.076.  REFERENCE TO TRUST TERMS. A reference to the
  governing instrument or terms of the governing instrument of a
  trust includes the terms of a second trust to which that trust's
  principal was distributed under this subchapter.
         Sec. 112.077.  SETTLOR OF SECOND TRUST. (a)  Except as
  provided by Subsection (b), the settlor of a first trust is
  considered to be the settlor of a second trust established under
  this subchapter.
         (b)  If a settlor of a first trust is not also the settlor of
  a second trust into which principal of that first trust is
  distributed, the settlor of the first trust is considered the
  settlor of the portion of the second trust distributed to the second
  trust from that first trust under this subchapter.
         Sec. 112.078.  COURT-ORDERED DISTRIBUTION. (a)  The trustee
  may petition a court to order a distribution under this subchapter
  if the power to make a distribution under this subchapter is
  unavailable for any reason.
         (b)  If the trustee receives a written objection to a
  distribution under this subchapter from a beneficiary before the
  proposed effective date of the distribution specified in the notice
  provided to the beneficiary under Section 112.074, the trustee or
  the beneficiary may petition a court to approve, modify, or deny the
  exercise of the trustee's power to make a distribution under this
  subchapter. The trustee has the burden of proving that the proposed
  exercise of the power furthers the purposes of the trust.
         (c)  In a judicial proceeding under this section, the trustee
  may present the trustee's reasons for supporting or opposing a
  proposed distribution, including whether the trustee believes the
  distribution would enable the trustee to better carry out the
  purposes of the trust.
         (d)  A trustee's actions under this subchapter may not be
  considered improper or inconsistent with the trustee's duty of
  impartiality unless the court finds, based on all the evidence,
  that the trustee acted in bad faith.
         Sec. 112.079.  TERM OF SECOND TRUST. A second trust may have
  a term that is longer than the term of a first trust whose principal
  was distributed to the trust, including a term that is measured by
  the lifetime of a current beneficiary.
         Sec. 112.080.  DIVIDED DISCRETION. If an authorized trustee
  has full discretion to distribute the principal of a trust and
  another trustee has limited discretion to distribute principal
  under the trust instrument, the authorized trustee having full
  discretion may exercise the power to distribute the trust's
  principal under Section 112.072.
         Sec. 112.081.  LATER DISCOVERED ASSETS. To the extent the
  authorized trustee does not provide otherwise:
               (1)  the distribution of all of the principal of a first
  trust to a second trust includes subsequently discovered assets
  otherwise belonging to the first trust and principal paid to or
  acquired by the first trust after the distribution of the first
  trust's principal to the second trust; and
               (2)  the distribution of part of the principal of a
  first trust to a second trust does not include subsequently
  discovered assets belonging to the first trust or principal paid to
  or acquired by the first trust after the distribution of principal
  from the first trust to the second trust, and those assets or that
  principal remain the assets or principal of the first trust.
         Sec. 112.082.  OTHER AUTHORITY TO DISTRIBUTE IN FURTHER
  TRUST NOT LIMITED. This subchapter may not be construed to limit
  the power of a trustee to distribute property in further trust under
  the terms of the governing instrument of a trust, other law, or a
  court order.
         Sec. 112.083.  NEED FOR DISTRIBUTION NOT REQUIRED. An
  authorized trustee may exercise the power to distribute principal
  to a second trust under Section 112.072 or 112.073 regardless of
  whether there is a current need to distribute principal under the
  terms of the first trust.
         Sec. 112.084.  DUTIES NOT CREATED.  (a)  This subchapter does
  not create or imply a duty for an authorized trustee to exercise a
  power to distribute principal, and impropriety may not be inferred
  as a result of the trustee not exercising a power conferred by
  Section 112.072 or 112.073.
         (b)  A trustee does not have a duty to inform beneficiaries
  about the availability of the authority provided by this subchapter
  or a duty to review the trust to determine whether any action should
  be taken under this subchapter.
         Sec. 112.085.  CERTAIN DISTRIBUTIONS PROHIBITED. (a)  
  Except as provided by Subsection (b), an authorized trustee may not
  exercise a power to distribute principal of a trust otherwise
  provided by Section 112.072 or 112.073 if the distribution is
  expressly prohibited by the terms of the governing instrument of
  the trust.
         (b)  A general prohibition of the amendment or revocation of
  a trust or a provision that constitutes a spendthrift clause does
  not preclude the exercise of a power to distribute principal of a
  trust under Section 112.072 or 112.073.
         Sec. 112.086.  EXCEPTIONS TO POWER OF DISTRIBUTION.  An
  authorized trustee may not exercise a power to distribute principal
  of a trust under Section 112.072 or 112.073 to:
               (1)  reduce, limit, or modify a beneficiary's current,
  vested right to:
                     (A)  receive a mandatory distribution of income or
  principal;
                     (B)  receive a mandatory annuity or unitrust
  interest;
                     (C)  withdraw a percentage of the value of the
  trust; or
                     (D)  withdraw a specified dollar amount from the
  trust;
               (2)  decrease or indemnify against a trustee's
  liability or exonerate a trustee from liability for failure to
  exercise reasonable care, diligence, and prudence;
               (3)  eliminate a provision granting another person the
  right to remove or replace the authorized trustee exercising the
  distribution power under Section 112.072 or 112.073; or
               (4)  reduce, limit, or modify in the second trust a
  perpetuities provision included in the first trust, unless
  expressly permitted by the terms of the first trust.
         Sec. 112.087.  TAX-RELATED LIMITATIONS. (a)  The authorized
  trustee may not distribute the principal of a trust under Section
  112.072 or 112.073 in a manner that would prevent a contribution to
  that trust from qualifying for or reducing the exclusion,
  deduction, or other federal tax benefit that was originally claimed
  for that contribution, including:
               (1)  the annual exclusion under Section 2503(b),
  Internal Revenue Code of 1986;
               (2)  a marital deduction under Section 2056(a) or
  2523(a), Internal Revenue Code of 1986;
               (3)  the charitable deduction under Section 170(a),
  642(c), 2055(a), or 2522(a), Internal Revenue Code of 1986;
               (4)  direct skip treatment under Section 2642(c),
  Internal Revenue Code of 1986; or
               (5)  any other tax benefit for income, gift, estate, or
  generation-skipping transfer tax purposes under the Internal
  Revenue Code of 1986.
         (b)  Notwithstanding Subsection (a), an authorized trustee
  may distribute the principal of a first trust to a second trust
  regardless of whether the settlor of the first trust is treated as
  the owner of the second trust under Sections 671-679, Internal
  Revenue Code of 1986.
         (c)  If a trust owns Subchapter S Corporation stock, an
  authorized trustee may not distribute all or part of that stock
  under Section 112.072 or 112.073 to a second trust that is not a
  permitted shareholder under Section 1361(c)(2), Internal Revenue
  Code of 1986.
         (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
  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
  acres, and improvements used in the residential occupancy of the
  structure, if the structure and the land and improvements have
  identical ownership) that:
                     (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.