88R13473 DRS-F
 
  By: VanDeaver H.B. No. 4376
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to self-settled asset protection trusts.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 112.035(d), Property Code, is amended to
  read as follows:
         (d)  Except as provided by Subchapter F, if [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.
         SECTION 2.  Chapter 112, Property Code, is amended by adding
  Subchapter F to read as follows:
  SUBCHAPTER F.  SELF-SETTLED ASSET PROTECTION TRUST
         Sec. 112.151.  SELF-SETTLED ASSET PROTECTION TRUST. If a
  spendthrift trust of which the settlor is a beneficiary satisfies
  the requirements of Section 112.152:
               (1)  the trust is considered a self-settled asset
  protection trust; and
               (2)  except as provided by this subchapter, a restraint
  by the trust of the voluntary or involuntary transfer of the
  settlor's beneficial interest in the trust prevents the settlor's
  creditors from satisfying claims from that interest.
         Sec. 112.152.  CREATION.  (a)  A spendthrift trust of which
  the settlor is a beneficiary may be considered a self-settled asset
  protection trust under this subchapter only if:
               (1)  the trust:
                     (A)  is created in a writing signed by the
  settlor;
                     (B)  is irrevocable;
                     (C)  does not require that any part of the income
  or principal of the trust be distributed to the settlor; and
                     (D)  is not intended to hinder, delay, or defraud
  known creditors; and
               (2)  at least one trustee of the trust is:
                     (A)  an individual who resides in and is domiciled
  in this state;
                     (B)  a trust company that:
                           (i)  is organized under federal law or under
  the laws of this state or another state; and
                           (ii)  maintains an office in this state for
  the transaction of business; or
                     (C)  a financial institution, as defined by
  Section 201.101, Finance Code, that:
                           (i)  is organized under federal law or under
  the laws of this state or another state;
                           (ii)  maintains an office in this state for
  the transaction of business; and
                           (iii)  has and exercises trust powers.
         (b)  A spendthrift trust may be considered a self-settled
  asset protection trust even if under the trust terms:
               (1)  the settlor may prevent a distribution from the
  trust;
               (2)  the settlor holds a special lifetime or
  testamentary power of appointment, so long as that power cannot be
  exercised in favor of the settlor, the settlor's estate, a creditor
  of the settlor, or a creditor of the settlor's estate;
               (3)  the settlor is a beneficiary of a trust that
  qualifies as a charitable remainder trust under 26 U.S.C. Section
  664, or a successor provision, even if the settlor has the right to
  release all or part of the settlor's retained interest in that trust
  in favor of one or more of the remainder beneficiaries of the trust;
               (4)  the settlor is authorized or entitled to receive a
  percentage of the value of the trust each year as specified in the
  trust instrument, whether of the initial value of the trust assets
  or their value determined from time to time as provided by the trust
  instrument, so long as the authorized annual distribution may not
  exceed:
                     (A)  the amount that may be considered income
  under 26 U.S.C. Section 643(b); or
                     (B)  with respect to benefits from any qualified
  retirement plan or any eligible deferred compensation plan, the
  minimum required distribution as defined by 26 U.S.C. Section
  4974(b);
               (5)  the settlor is authorized or entitled to receive
  income or principal from:
                     (A)  a grantor retained annuity trust paying out a
  qualified annuity interest within the meaning of 26 C.F.R. Section
  25.2702-3(b); or
                     (B)  a grantor retained unitrust paying out a
  qualified unitrust interest within the meaning of 26 C.F.R. Section
  25.2702-3(c);
               (6)  the settlor:
                     (A)  is authorized or entitled to use real
  property held under a qualified personal residence trust as
  described in 26 C.F.R. Section 25.2702-5(c), or a successor
  provision; or
                     (B)  may possess or actually possesses a qualified
  annuity interest within the meaning of 26 C.F.R. Section
  25.2702-3(b), or a successor provision;
               (7)  the settlor is authorized to receive income or
  principal from the trust, so long as the authorized distribution is
  subject to the discretion of another person; or
               (8)  the settlor is authorized to use real or personal
  property owned by the trust.
         (c)  Except as provided by this subsection, this section may
  not be construed to prohibit the settlor of a self-settled asset
  protection trust from holding any power under the trust, whether or
  not the settlor is a cotrustee, including the power to remove and
  replace a trustee, direct trust investments, or execute other
  management powers. The settlor may not hold a power to make
  distributions to himself or herself without the consent of another
  person.
         (d)  A self-settled asset protection trust is created under
  this subchapter if by the terms of the writing creating the trust
  the settlor manifests an intention to create a self-settled asset
  protection trust. No specific language is required for the creation
  of a self-settled asset protection trust under this subchapter.
         Sec. 112.153.  SETTLOR POWERS.  (a)  The settlor of a
  self-settled asset protection trust has only those powers and
  rights that are conferred on the settlor by the trust instrument.
         (b)  An agreement or understanding, express or implied,
  between the settlor and the trustee that attempts to grant or permit
  the retention of greater rights or authority than is stated in the
  trust instrument is void.
         Sec. 112.154.  BENEFICIARIES. (a) The beneficiary of a
  self-settled asset protection trust must be named or clearly
  referred to in the trust instrument.
         (b)  A spouse, former spouse, child, or dependent of the
  settlor is not a beneficiary of the self-settled asset protection
  trust unless named or clearly referred to as a beneficiary in the
  trust instrument.
         Sec. 112.155.  PROVISIONS FOR SUPPORT. (a) Provision for a
  beneficiary in a self-settled asset protection trust shall be for
  the support, education, maintenance, and benefit of the beneficiary
  without reference to or limitation by the beneficiary's needs,
  station in life, or mode of life, or the needs of any other person,
  whether dependent upon the beneficiary or not.
         (b)  The validity of a self-settled asset protection trust
  does not depend on the beneficiary's character, capacity,
  incapacity, competency, or incompetency.
         (c)  Provision for a beneficiary extends to all income from
  the trust estate devoted for that purpose by the settlor of the
  trust, without exception or deduction, except for:
               (1)  costs or fees regularly earned, paid, or incurred
  by the trustee for administration of or protection of the trust
  estate;
               (2)  taxes on the costs or fees regularly earned, paid,
  or incurred by the trustee for administration of or protection of
  the trust estate; or
               (3)  taxes on the interest of the beneficiary.
         Sec. 112.156.  DISCRETION OF TRUSTEE. (a)  If the settlor of
  a self-settled asset protection trust provides discretion to the
  trustee of the trust with respect to one of the following matters,
  that discretion is absolute:
               (1)  the sum to be applied for or paid to a beneficiary;
               (2)  the application or payment of sums for or to a
  beneficiary; 
               (3)  the amount of trust income to be applied for or
  paid to a beneficiary; or
               (4)  payment of all or any part of the income to any one
  or more of the beneficiaries.
         (b)  The trustee has absolute discretion as described under
  Subsection (a) regardless of whether:
               (1)  the trust provides for the accumulation of income;
  or
               (2)  a provision for the accumulation of income relates
  to real or personal property.
         (c)  The discretion of a trustee under this section may not
  be interfered with for any uncertainty or on any pretext or for any
  consideration of the needs, station in life, or mode of life of a
  beneficiary.
         (d)  The giving of discretion described by this section to a
  trustee does not invalidate a self-settled asset protection trust.
         Sec. 112.157.  RESTRAINTS ON ALIENATION. (a) A self-settled
  asset protection trust restrains and prohibits the assignment,
  alienation, acceleration, and anticipation of any interest of a
  beneficiary by the voluntary or involuntary act of the beneficiary,
  by operation of law, by any process, or otherwise.
         (b)  The trust estate, or the corpus or capital of the trust
  estate, of a self-settled asset protection trust may not be
  assigned, alienated, diminished, or impaired by any alienation,
  transfer, or seizure that would cut off or diminish payments,
  rents, profits, earnings, or income of the trust estate that would
  otherwise be available for the benefit of a beneficiary.
         (c)  Mandatory or discretionary payments by a trustee of a
  self-settled asset protection trust to a beneficiary may be made
  only to or for the benefit of the beneficiary and may not be made:
               (1)  by acceleration or anticipation; 
               (2)  to any assignee of the beneficiary; or 
               (3)  on the basis of any written or oral order given by
  the beneficiary.
         (d)  Subsection (c) applies to an assignment or order
  regardless of whether the assignment or order:
               (1)  is the voluntary contractual act of the
  beneficiary;
               (2)  is made pursuant to or by virtue of any legal
  process in judgment, execution, attachment, garnishment,
  bankruptcy, or otherwise; or 
               (3)  is made in connection with any contract, tort, or
  duty.
         (e)  A beneficiary of a self-settled asset protection trust
  may not order the disposition of the trust income, regardless of
  whether the order:
               (1)  is voluntary or involuntary; or
               (2)  is made on the order or direction of a bankruptcy
  court or other court. 
         (f)  An interest of a beneficiary of a self-settled asset
  protection trust is not subject to any process of attachment issued
  against the beneficiary.
         (g)  An interest of a beneficiary of a self-settled asset
  protection trust may not be taken in execution under any legal
  process directed against a beneficiary, a trustee, the trust
  estate, or the trust income.
         (h)  The trustee of a self-settled asset protection trust
  shall apply the entire trust estate and trust income solely for the
  benefit of a beneficiary, free, clear, and discharged of any
  obligations of the beneficiary and from any responsibility for that
  application.
         (i)  The trustee of a self-settled asset protection trust
  shall disregard and defeat any assignment or other act, voluntary
  or involuntary, that is contrary to this subchapter.
         Sec. 112.158.  NO LEGAL ESTATE OF BENEFICIARY IN CORPUS. A
  beneficiary of a self-settled asset protection trust has no legal
  estate in the corpus of the trust estate unless under the terms of
  the trust:
               (1)  the beneficiary or a person deriving title from
  the beneficiary is entitled to conveyance of the corpus of the trust
  estate immediately, after a term of years, or after a life; and
               (2)  during that term or life, if applicable, the
  beneficiary is not entitled to receive income from the corpus of the
  trust estate.
         Sec. 112.159.  ACCUMULATION OF INCOME. (a) An accumulation
  of the income from the trust property of a self-settled asset
  protection trust may be directed in the trust instrument for the
  benefit of one or more beneficiaries, beginning within the time
  permitted for the vesting of future interests and not to extend
  beyond the period limiting the time within which the absolute power
  of alienation of property may be suspended. 
         (b)  A direction of the trust income made by the trust
  instrument that is for a longer term than permitted by law is void
  only as to the time in excess of the time permitted by law, without
  regard to whether the direction is severable from other provisions
  in the trust instrument.
         (c)  If a direction of accumulated trust income is invalid
  under Subsection (b), the accumulated income may be paid and
  distributed to the next succeeding beneficiary in interest.
         Sec. 112.160.  LIMITATION ON ACTIONS. (a)  A person who is a
  settlor's creditor when a transfer is made to a self-settled asset
  protection trust may not bring an action with respect to the
  transfer unless the action is commenced on or before the later of:
               (1)  the second anniversary of the date on which the
  transfer was made; or
               (2)  the 180th day after the date on which the creditor
  discovers or reasonably should have discovered the transfer.
         (b)  A person who becomes a settlor's creditor after a
  transfer is made to a self-settled asset protection trust may not
  bring an action with respect to the transfer unless the action is
  commenced on or before the second anniversary of the date on which
  the transfer was made.
         (c)  For purposes of Subsection (a), a person is considered
  to have discovered a transfer at the time a public record is made of
  the transfer, including:
               (1)  a recording of the conveyance of real property in
  the deed records of the county in which the property is located;
               (2)  a recording of a bill of sale or other transfer
  instrument relating to the transfer of personal property:
                     (A)  in the county where the transferor
  principally resides, if the transferor is an individual resident of
  this state; or
                     (B)  in the county in this state where the
  trustee's principal residence or place of business is located; or
               (3)  the filing of a financing statement under Chapter
  9, Business & Commerce Code.
         (d)  A settlor's creditor may not bring an action with
  respect to transfer of property to a self-settled asset protection
  trust unless the creditor can prove by clear and convincing
  evidence that the transfer of property was a fraudulent transfer
  under Chapter 24, Business & Commerce Code, or that the transfer
  violates a legal obligation owed to the creditor under a contract or
  a valid court order that is legally enforceable by the creditor. In
  the absence of such clear and convincing proof, the property
  transferred is not subject to the claims of the creditor. Proof by
  one creditor that a transfer of property was fraudulent or wrongful
  does not constitute proof as to any other creditor, and proof of a
  fraudulent or wrongful transfer of property as to one creditor does
  not invalidate any other transfer of property.
         (e)  For purposes of Subsections (a) and (b), if property
  transferred to a self-settled asset protection trust is
  subsequently conveyed to the settlor or other trust beneficiary for
  the purpose of obtaining a loan secured by a mortgage or deed of
  trust on the property and then reconveyed to the trust, the
  conveyance from and reconveyance to the trust shall be disregarded
  and the property is considered to have been transferred to the trust
  on the date of the original transfer to the trust. The mortgage or
  deed of trust on the property is enforceable against the trust.
         (f)  A person may not bring an action against an advisor to
  the settlor or trustee of a self-settled asset protection trust
  unless the person can prove by clear and convincing evidence that
  the advisor knowingly and in bad faith acted in violation of the law
  of this state, and that the person suffered damages caused by the
  advisor's action. For purposes of this subsection, "advisor" means
  a person who gives advice relating to, who is involved in the
  creation of, transfer of property to, or administration of, or who
  participates in the preparation of accountings, tax returns, or
  other reports relating to a self-settled asset protection trust.
  The term includes an accountant, attorney, or investment advisor.
         (g)  A person other than a beneficiary or settlor of a
  self-settled asset protection trust may not bring an action against
  a trustee of the trust unless the person can prove by clear and
  convincing evidence that the trustee knowingly and in bad faith
  acted in violation of the law of this state, and that the person
  suffered damages caused by the trustee's action. For purposes of
  this subsection, "trustee" includes a cotrustee and predecessor
  trustee.
         (h)  If more than one transfer is made to a self-settled
  asset protection trust:
               (1)  for purposes of Subsections (a) and (b), each
  subsequent transfer to the trust shall be disregarded for the
  purpose of determining whether a person may bring an action with
  respect to a previous transfer to the trust; and
               (2)  any distribution to a beneficiary from the trust
  is considered to have been made from the most recent transfer made
  to the trust.
         Sec. 112.161.  EFFECT OF TRANSFER TO SECOND TRUST.  For
  purposes of this subchapter, if a trustee of a self-settled asset
  protection trust exercises the trustee's discretion or authority to
  distribute trust income or principal to or for the settlor of the
  trust by appointing the property of the original trust in favor of a
  second trust for the benefit of the settlor as provided by
  Subchapter D:
               (1)  the second trust is considered to be a
  self-settled asset protection trust under this subchapter so long
  as it satisfies the requirements of this subchapter other than the
  self-settlement requirement; and
               (2)  if considered a self-settled asset protection
  trust under Subdivision (1), property transferred to the second
  trust is considered for purposes of Sections 112.160(a) and (b) to
  have been transferred on the date the settlor of the original
  self-settled asset protection trust transferred the property into
  that trust, regardless of the fact that the property has been
  transferred to a second trust.
         Sec. 112.162.  TRUST ADMINISTERED UNDER LAW OF ANOTHER STATE
  OR FOREIGN JURISDICTION.  (a)  A trust the domicile of which is
  changed to this state is considered a self-settled asset protection
  trust under this subchapter if the requirements of this section are
  satisfied simultaneously with, or immediately after, the change of
  domicile to this state. For purposes of Sections 112.160(a) and
  (b), if the domicile of a self-settled asset protection trust is
  changed to this state from a jurisdiction having laws substantially
  similar to this subchapter, a transfer of assets to the trust before
  the change in domicile to this state is considered to have occurred:
               (1)  on the date the assets were transferred to the
  trust if, at the time of the transfer and at all times after the
  transfer, the laws governing the trust were substantially similar
  to this subchapter; or
               (2)  if Subdivision (1) does not apply, on the earliest
  date on which the trust was subjected, without interruption, to
  laws substantially similar to this subchapter.
         (b)  Unless the trust instrument expressly provides
  otherwise, this subtitle governs the construction, operation, and
  enforcement in this state of a self-settled asset protection trust
  created in or outside this state if:
               (1)  any of the trust assets are in this state;
               (2)  the trust affects personal property and the
  declared domicile of the creator of the trust is in this state; or
               (3)  at least one trustee serving under Section
  112.152(a)(2) has the power to maintain records and prepare income
  tax returns for the trust and at least part of the trust
  administration is performed in this state.
         SECTION 3.  (a)  Except as provided by this section, the
  change in law made by this Act applies only to a transfer of
  property on or after the effective date of this Act to a
  self-settled asset protection trust that satisfies the
  requirements of Subchapter F, Chapter 112, Property Code, as added
  by this Act.
         (b)  For purposes of Subchapter F, Chapter 112, Property
  Code, as added by this Act, property transferred before the
  effective date of this Act to a trust that on or after the effective
  date of this Act satisfies the requirements of that subchapter is
  considered transferred to the trust on the earliest date on or after
  the effective date of this Act on which the trust terms satisfy the
  requirements of that subchapter.
         (c)  With respect to a trust the domicile of which is changed
  to this state on or after the effective date of this Act, Subchapter
  F, Chapter 112, Property Code, as added by this Act, applies with
  respect to transfers made to the trust before, on, or after the
  effective date of this Act.
         SECTION 4.  This Act takes effect September 1, 2023.