Bill Text: TX SB617 | 2017-2018 | 85th Legislature | Comm Sub

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Relating to trusts.

Spectrum: Bipartisan Bill

Status: (Passed) 2017-05-22 - Effective on 9/1/17 [SB617 Detail]

Download: Texas-2017-SB617-Comm_Sub.html

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By: Rodríguez S.B. No. 617
(Wray)

A BILL TO BE ENTITLED
AN ACT
relating to trusts.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 111.0035(b), Property Code, is amended
to read as follows:
(b) The terms of a trust prevail over any provision of this
subtitle, except that the terms of a trust may not limit:
(1) the requirements imposed under Section 112.031;
(2) the applicability of Section 114.007 to an
exculpation term of a trust;
(3) the periods of limitation for commencing a
judicial proceeding regarding a trust;
(4) a trustee's duty:
(A) with regard to an irrevocable trust, to
respond to a demand for accounting made under Section 113.151 if the
demand is from a beneficiary who, at the time of the demand:
(i) is entitled or permitted to receive
distributions from the trust; or
(ii) would receive a distribution from the
trust if the trust terminated at the time of the demand; and
(B) to act in good faith and in accordance with
the purposes of the trust;
(5) the power of a court, in the interest of justice,
to take action or exercise jurisdiction, including the power to:
(A) modify, reform, or terminate a trust or take
other action under Section 112.054;
(B) remove a trustee under Section 113.082;
(C) exercise jurisdiction under Section 115.001;
(D) require, dispense with, modify, or terminate
a trustee's bond; or
(E) adjust or deny a trustee's compensation if
the trustee commits a breach of trust; or
(6) the applicability of Section 112.038.
SECTION 2. Section 112.035(e), Property Code, is amended to
read as follows:
(e) A beneficiary of the trust may not be considered a
settlor merely because of a lapse, waiver, or release of:
(1) a power described by Subsection (f); or
(2) the beneficiary's right to withdraw a part of the
trust property to the extent that the value of the property affected
by the lapse, waiver, or release in any calendar year does not
exceed the greater of [the amount specified in]:
(A) the amount specified in Section 2041(b)(2) or
2514(e), Internal Revenue Code of 1986; or
(B) the amount specified in Section 2503(b),
Internal Revenue Code of 1986, with respect to the contributions by
each donor.
SECTION 3. Section 112.038, Property Code, is amended to
read as follows:
Sec. 112.038. FORFEITURE CLAUSE. (a) A provision in a
trust that would cause a forfeiture of or void an interest for
bringing any court action, including contesting a trust, is
enforceable unless in a court action determining whether the
forfeiture clause should be enforced, the person who brought the
action contrary to the forfeiture clause establishes by a
preponderance of the evidence that:
(1) just cause existed for bringing the action; and
(2) the action was brought and maintained in good
faith.
(b) This section is not intended to and does not repeal any
law, recognizing that forfeiture clauses generally will not be
construed to prevent a beneficiary from seeking to compel a
fiduciary to perform the fiduciary's duties, seeking redress
against a fiduciary for a breach of the fiduciary's duties, or
seeking a judicial construction of a will or trust.
SECTION 4. The heading to Section 112.054, Property Code,
is amended to read as follows:
Sec. 112.054. JUDICIAL MODIFICATION, REFORMATION, OR
TERMINATION OF TRUSTS.
SECTION 5. Section 112.054, Property Code, is amended by
amending Subsections (a), (b), and (c) and adding Subsections
(b-1), (e), and (f) to read as follows:
(a) On the petition of a trustee or a beneficiary, a court
may order that the trustee be changed, that the terms of the trust
be modified, that the trustee be directed or permitted to do acts
that are not authorized or that are forbidden by the terms of the
trust, that the trustee be prohibited from performing acts required
by the terms of the trust, or that the trust be terminated in whole
or in part, if:
(1) the purposes of the trust have been fulfilled or
have become illegal or impossible to fulfill;
(2) because of circumstances not known to or
anticipated by the settlor, the order will further the purposes of
the trust;
(3) modification of administrative, nondispositive
terms of the trust is necessary or appropriate to prevent waste or
[avoid] impairment of the trust's administration;
(4) the order is necessary or appropriate to achieve
the settlor's tax objectives or to qualify a distributee for
governmental benefits and is not contrary to the settlor's
intentions; or
(5) subject to Subsection (d):
(A) continuance of the trust is not necessary to
achieve any material purpose of the trust; or
(B) the order is not inconsistent with a material
purpose of the trust.
(b) The court shall exercise its discretion to order a
modification or termination under Subsection (a) or reformation
under Subsection (b-1) in the manner that conforms as nearly as
possible to the probable intention of the settlor. The court shall
consider spendthrift provisions as a factor in making its decision
whether to modify, [or] terminate, or reform, but the court is not
precluded from exercising its discretion to modify, [or] terminate,
or reform solely because the trust is a spendthrift trust.
(b-1) On the petition of a trustee or a beneficiary, a court
may order that the terms of the trust be reformed if:
(1) reformation of administrative, nondispositive
terms of the trust is necessary or appropriate to prevent waste or
impairment of the trust's administration;
(2) reformation is necessary or appropriate to achieve
the settlor's tax objectives or to qualify a distributee for
governmental benefits and is not contrary to the settlor's
intentions; or
(3) reformation is necessary to correct a scrivener's
error in the governing document, even if unambiguous, to conform
the terms to the settlor's intent.
(c) The court may direct that an order described by
Subsection (a)(4) or (b-1) has retroactive effect.
(e) An order described by Subsection (b-1)(3) may be issued
only if the settlor's intent is established by clear and convincing
evidence.
(f) Subsection (b-1) is not intended to state the exclusive
basis for reformation of trusts, and the bases for reformation of
trusts in equity or common law are not affected by this section.
SECTION 6. Section 112.058(a)(2), Property Code, is amended
to read as follows:
(2) "Community trust" means a community trust as
described by 26 C.F.R. Section 1.170A-9 (2008) [1.170A-9(e)(11)
(1999)], including subsequent amendments.
SECTION 7. Sections 112.071(5), (6), and (7), Property
Code, are amended to read as follows:
(5) "Full discretion" means a [the] power to
distribute principal to or for the benefit of one or more of the
beneficiaries of a trust that is not a trust with limited discretion
[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].
(6) "Limited discretion" means:
(A) a power to distribute principal according to
mandatory distribution provisions under which the trustee has no
discretion; or
(B) a [limited or modified] power to distribute
principal to or for the benefit of one or more beneficiaries of a
trust that is limited by an ascertainable standard, including the
health, education, support, or maintenance of the beneficiary.
(7) "Presumptive remainder beneficiary," with respect
to a particular date, means a beneficiary of a trust on that date
who, in the absence of notice to the trustee of the exercise of the
power of appointment and assuming that any other 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 current beneficiaries
[currently eligible to receive income or principal from the trust]
ended on that date without causing the trust to terminate.
SECTION 8. Section 112.072(a), Property Code, is amended to
read as follows:
(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 than one, or all of the current
beneficiaries of the first trust [who are eligible to receive
income or principal from the trust] and for the benefit of one, [or]
more than one, or all of the successor or presumptive remainder
beneficiaries of the first trust [who are eligible to receive
income or principal from the trust].
SECTION 9. Section 112.074, Property Code, is amended by
amending Subsection (c) and adding Subsections (e-1) and (e-2) to
read as follows:
(c) Except as provided by Subsection (e-1), in [In] addition
to the notice required under Subsection (a), the authorized trustee
shall give written notice of the trustee's decision to the attorney
general if:
(1) a charity is entitled to notice;
(2) a charity entitled to notice is no longer in
existence;
(3) the trustee has the authority to distribute trust
assets to one or more charities that are not named in the trust
instrument; or
(4) the trustee has the authority to make
distributions for a charitable purpose described in the trust
instrument, but no charity is named as a beneficiary for that
purpose.
(e-1) The trustee is not required to give notice to the
attorney general under Subsection (c) if the attorney general
waives that requirement in writing.
(e-2) For purposes of Subsection (e)(3), a beneficiary is
considered to have waived the requirement that notice be given
under this section if a person to whom notice is required to be
given with respect to that beneficiary under Subsection (d) waives
the requirement that notice be given under this section.
SECTION 10. Section 112.078, Property Code, is amended by
adding Subsection (f) to read as follows:
(f) This section does not limit a beneficiary's right to
bring an action against a trustee for a breach of trust.
SECTION 11. Section 112.085, Property Code, is amended to
read as follows:
Sec. 112.085. 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) [materially impair the rights of any beneficiary
of the trust;
[(3)] materially limit a trustee's fiduciary duty:
(A) under the terms of the trust; or
(B) in a manner that would be prohibited [as
described] by Section 111.0035;
(3) [(4)] decrease or indemnify against a trustee's
liability;
(4) add a provision exonerating [or exonerate] a
trustee from liability for failure to exercise reasonable care,
diligence, and prudence;
(5) 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
(6) 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.
SECTION 12. Section 113.018, Property Code, is amended to
read as follows:
Sec. 113.018. EMPLOYMENT AND APPOINTMENT OF AGENTS. (a) A
trustee may employ attorneys, accountants, agents, including
investment agents, and brokers reasonably necessary in the
administration of the trust estate.
(b) Without limiting the trustee's discretion under
Subsection (a), a trustee may grant an agent powers with respect to
property of the trust to act for the trustee in any lawful manner
for purposes of real property transactions.
(c) A trustee acting under Subsection (b) may delegate any
or all of the duties and powers to:
(1) execute and deliver any legal instruments relating
to the sale and conveyance of the property, including affidavits,
notices, disclosures, waivers, or designations or general or
special warranty deeds binding the trustee with vendor's liens
retained or disclaimed, as applicable, or transferred to a
third-party lender;
(2) accept notes, deeds of trust, or other legal
instruments;
(3) approve closing statements authorizing deductions
from the sale price;
(4) receive trustee's net sales proceeds by check
payable to the trustee;
(5) indemnify and hold harmless any third party who
accepts and acts under a power of attorney with respect to the sale;
(6) take any action, including signing any document,
necessary or appropriate to sell the property and accomplish the
delegated powers;
(7) contract to purchase the property for any price on
any terms;
(8) execute, deliver, or accept any legal instruments
relating to the purchase of the property or to any financing of the
purchase, including deeds, notes, deeds of trust, guaranties, or
closing statements;
(9) approve closing statements authorizing payment of
prorations and expenses;
(10) pay the trustee's net purchase price from funds
provided by the trustee;
(11) indemnify and hold harmless any third party who
accepts and acts under a power of attorney with respect to the
purchase; or
(12) take any action, including signing any document,
necessary or appropriate to purchase the property and accomplish
the delegated powers.
(d) A trustee who delegates a power under Subsection (b) is
liable to the beneficiaries or to the trust for an action of the
agent to whom the power was delegated.
(e) A delegation by the trustee under Subsection (b) must be
documented in a written instrument acknowledged by the trustee
before an officer authorized under the law of this state or another
state to take acknowledgments to deeds of conveyance and administer
oaths. A signature on a delegation by a trustee for purposes of
this subsection is presumed to be genuine if the trustee
acknowledges the signature in accordance with Chapter 121, Civil
Practice and Remedies Code.
(f) A delegation to an agent under Subsection (b) terminates
six months from the date of the acknowledgment of the written
delegation unless terminated earlier by:
(1) the death or incapacity of the trustee;
(2) the resignation or removal of the trustee; or
(3) a date specified in the written delegation.
(g) A person who in good faith accepts a delegation under
Subsection (b) without actual knowledge that the delegation is
void, invalid, or terminated, that the purported agent's authority
is void, invalid, or terminated, or that the agent is exceeding or
improperly exercising the agent's authority may rely on the
delegation as if:
(1) the delegation were genuine, valid, and still in
effect;
(2) the agent's authority were genuine, valid, and
still in effect; and
(3) the agent had not exceeded and had properly
exercised the authority.
(h) A trustee may delegate powers under Subsection (b) if
the governing instrument does not affirmatively permit the trustee
to hire agents or expressly prohibit the trustee from hiring
agents.
SECTION 13. Sections 115.002(b-1) and (b-2), Property Code,
are amended to read as follows:
(b-1) If there are multiple [noncorporate] trustees none of
whom is a corporate trustee and the trustees maintain a principal
office in this state, an action shall be brought in the county in
which:
(1) the situs of administration of the trust is
maintained or has been maintained at any time during the four-year
period preceding the date the action is filed; or
(2) the trustees maintain the principal office.
(b-2) If there are multiple [noncorporate] trustees none of
whom is a corporate trustee and the trustees do not maintain a
principal office in this state, an action shall be brought in the
county in which:
(1) the situs of administration of the trust is
maintained or has been maintained at any time during the four-year
period preceding the date the action is filed; or
(2) any trustee resides or has resided at any time
during the four-year period preceding the date the action is filed.
SECTION 14. Section 163.011, Property Code, is amended to
read as follows:
Sec. 163.011. APPLICABILITY OF OTHER PARTS OF CODE.
Chapters 116 and 117 do [Subtitle B, Title 9 (the Texas Trust Code),
does] not apply to any institutional fund subject to this chapter.
SECTION 15. Section 240.002, Property Code, is amended by
amending Subdivision (1) and adding Subdivision (1-a) to read as
follows:
(1) "Charity" means a charitable entity or a
charitable trust, as those terms are defined by Section 123.001.
(1-a) "Current beneficiary" and "presumptive remainder
beneficiary" have the meanings assigned by Section 112.071.
SECTION 16. Section 240.0081, Property Code, is amended by
amending Subsection (c) and adding Subsections (e-1) and (e-2) to
read as follows:
(c) Except as provided by Subsection (e-1), in [In] addition
to the notice required under Subsection (a), the trustee shall give
written notice of the trustee's disclaimer to the attorney general
if:
(1) a charity is entitled to notice;
(2) a charity entitled to notice is no longer in
existence;
(3) the trustee has the authority to distribute trust
assets to one or more charities that are not named in the trust
instrument; or
(4) the trustee has the authority to make
distributions for a charitable purpose described in the trust
instrument, but no charity is named as a beneficiary for that
purpose.
(e-1) The trustee is not required to give notice to the
attorney general under Subsection (c) if the attorney general
waives that requirement in writing.
(e-2) For purposes of Subsection (e)(3), a beneficiary is
considered to have waived the requirement that notice be given
under this section if a person to whom notice is required to be
given with respect to that beneficiary under Subsection (d) waives
the requirement that notice be given under this section.
SECTION 17. (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 on or created on or
after September 1, 2017.
(b) For a trust existing on September 1, 2017, 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, 2017.
SECTION 18. This Act takes effect September 1, 2017.