Bill Text: TX HB4376 | 2023-2024 | 88th Legislature | Engrossed

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Bill Title: Relating to self-settled asset protection trusts.

Spectrum: Partisan Bill (Republican 1-0)

Status: (Engrossed - Dead) 2023-05-15 - Referred to State Affairs [HB4376 Detail]

Download: Texas-2023-HB4376-Engrossed.html

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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.
(j) Notwithstanding any other provision of this subchapter,
a self-settled asset protection trust does not prevent a person
entitled to receive payments from the settlor of the trust under the
terms of an order for child support from:
(1) obtaining a remedy provided by Title 5, Family
Code, for the enforcement or collection of the court-ordered child
support obligation of the settlor; and
(2) satisfying the claim for child support payments
from the assets of the trust.
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.