81R4692 UM-F
By: Hartnett H.B. No. 2368
A BILL TO BE ENTITLED
AN ACT
relating to trusts.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 1104.021(a), Insurance Code, is amended
to read as follows:
(a) An individual may make a trust agreement providing that
the proceeds of a life insurance policy insuring the individual be
made payable to a trustee named as beneficiary in the policy. The
validity of a trust agreement or declaration of trust that is
designated as [designates] a beneficiary of a life insurance policy
is not affected by whether any corpus of the trust exists in
addition to the right of the trustee to receive insurance proceeds.
SECTION 2. Sections 112.010(c) and (c-1), Property Code,
are amended to read as follows:
(c) Except as provided by Subsection (c-1) [of this
section], the following persons may disclaim an interest in a trust
created in any manner other than by will:
(1) a beneficiary, including a beneficiary of a
spendthrift trust;
(2) the personal representative of an incompetent,
deceased, unborn or unascertained, or minor beneficiary, with court
approval by the court having jurisdiction over the personal
representative; and
(3) the independent executor or independent
administrator of a deceased beneficiary, without court approval.
(c-1) A person authorized to disclaim an interest in a trust
under Subsection (c) [of this section] may not disclaim the
interest if the person in the person's [his] capacity as
beneficiary, personal representative, [or] independent executor,
or independent administrator has either exercised dominion and
control over the interest or accepted any benefits from the trust.
SECTION 3. Subchapter A, Chapter 113, Property Code, is
amended by adding Section 113.029 to read as follows:
Sec. 113.029. DISCRETIONARY POWERS; TAX SAVINGS. (a)
Notwithstanding the breadth of discretion granted to a trustee in
the terms of the trust, including the use of terms such as
"absolute," "sole," or "uncontrolled," the trustee shall exercise a
discretionary power in good faith and in accordance with the terms
and purposes of the trust and the interests of the beneficiaries.
(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 of a trust that confers on the trustee a
power to make discretionary distributions to or for the trustee's
personal benefit may exercise the power only in accordance with an
ascertainable standard relating to the trustee'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.
(c) A power the exercise of which is limited or prohibited
by Subsection (b) may be exercised by a majority of the remaining
trustees whose exercise of the power is not limited or prohibited by
Subsection (b). If the power of all trustees is limited or
prohibited by Subsection (b), the court may appoint a special
fiduciary with authority to exercise the power.
(d) Subsection (b) does not apply to:
(1) a power held by the settlor's spouse who is the
trustee of a trust for which a marital deduction, as defined by
Section 2056(b)(5) or 2523(e), Internal Revenue Code of 1986, was
previously allowed;
(2) any trust during any period that the trust may be
revoked or amended by its settlor; or
(3) a trust if contributions to the trust qualify for
the annual exclusion under Section 2503(c), Internal Revenue Code
of 1986.
SECTION 4. Section 114.003, Property Code, is amended to
read as follows:
Sec. 114.003. POWERS TO DIRECT. (a) In this section,
"investment decision" means, with respect to any investment, the
retention, purchase, sale, exchange, tender, or other transaction
affecting the ownership of the investment or rights in the
investment, and an adviser with authority with respect to
investment decisions is an investment adviser.
(b) Where one or more persons are given authority by the
terms of a trust to direct the modification or termination of the
trust, or to direct, consent to, or disapprove of a trustee's actual
or proposed investment decision, distribution decision, or other
decision of the trustee, those persons shall be considered to be
advisers. Unless an adviser is also a beneficiary of the trust or
the terms of the trust provide otherwise, an adviser shall be
considered to be a fiduciary when exercising that authority. An
adviser must act in good faith with regard to the purposes of the
trust and the interests of the beneficiaries. Unless the terms of
the trust provide that the adviser need not act as a fiduciary, the
adviser is liable for any loss that results from a breach of the
adviser's fiduciary duty.
(c) The terms of a trust may give an adviser [a trustee or
other person] a power to direct the modification or termination of
the trust, or to consent to or disapprove a trustee's actual or
proposed investment decision, distribution decision, or other
decision of the trustee. Except as provided by Section 111.0035,
this section does not prohibit the settlor, by the terms of the
trust, from expressly:
(1) relieving the adviser from a duty or restriction
imposed by this subtitle or by common law; or
(2) directing or permitting the adviser to act or
refrain from acting if the directed or permitted act or failure to
act would otherwise violate a duty or restriction imposed by this
subtitle or by common law.
(d) [(b)] If the terms of a trust give an adviser [a person]
the power to direct certain actions of the trustee, the trustee
shall act in accordance with the adviser's [person's] direction
and, except in cases of wilful misconduct or gross negligence on the
part of the trustee, the trustee is not liable for any loss
resulting directly or indirectly from those actions unless[:
[(1)] the direction is manifestly contrary to the
terms of the trust[; or
[(2) the trustee knows the direction would constitute
a serious breach of a fiduciary duty that the person holding the
power to direct owes to the beneficiaries of the trust].
(e) Whenever the terms of a trust provide that a trustee is
to follow the direction of an adviser with respect to an investment
decision, distribution decision, or other decision of the trustee,
then, except to the extent that the terms of a trust provide
otherwise, the trustee does not have a duty to:
(1) monitor the conduct of the adviser;
(2) provide advice to the adviser;
(3) consult with the adviser; or
(4) communicate with, warn, or apprise any beneficiary
or third party concerning instances in which the trustee would or
might have exercised the trustee's own discretion in a manner
different from the manner directed by the adviser.
(f) Absent clear and convincing evidence to the contrary,
the actions of the trustee pertaining to matters within the scope of
the adviser's authority, including confirming that the adviser's
directions have been carried out, and recording and reporting
actions taken at the adviser's direction, are presumed to be
administrative actions taken by the trustee solely to allow the
trustee to perform those duties assigned to the trustee under the
terms of the trust. The trustee's administrative actions are not
considered to constitute an undertaking by the trustee to monitor
the adviser or otherwise participate in actions within the scope of
the adviser's authority.
[(c) A person, other than a beneficiary, who holds a power
to direct is presumptively a fiduciary required to act in good faith
with regard to the purposes of the trust and the interests of the
beneficiaries. The holder of a power to direct is liable for any
loss that results from a breach of the person's fiduciary duty.]
SECTION 5. Section 115.013(d), Property Code, is amended to
read as follows:
(d) Notice under Section 115.015 [115.014 of this Act] shall
be given either to a person who will be bound by the judgment or to
one who can bind that person under this section, and notice may be
given to both. Notice may be given to unborn or unascertained
persons who are not represented under Subdivision (1) or (2) of
Subsection (c) by giving notice to all known persons whose
interests in the proceedings are substantially identical to those
of the unborn or unascertained persons.
SECTION 6. The heading to Section 115.014, Property Code,
is amended to read as follows:
Sec. 115.014. GUARDIAN OR ATTORNEY AD LITEM.
SECTION 7. Section 115.014, Property Code, is amended by
amending Subsection (b) and adding Subsections (d) and (e) to read
as follows:
(b) At any point in a proceeding a court may appoint an
attorney ad litem to represent any interest that the court
considers necessary, including an attorney [A court shall appoint a
guardian] ad litem to defend an action under Section 114.083 [of
this Act] for a beneficiary of the trust who is a minor or who has
been adjudged incompetent.
(d) A guardian ad litem is entitled to reasonable
compensation for services in the amount set by the court to be taxed
as costs in the proceeding.
(e) An attorney ad litem is entitled to reasonable
compensation for services in the amount set by the court in the
manner provided by Section 114.064.
SECTION 8. Section 116.006(d), Property Code, is amended to
read as follows:
(d) If the trustee of a trust reasonably believes that one
or more beneficiaries of such trust will object to the manner in
which the trustee intends to exercise or not exercise a
discretionary power conferred by Section 116.005 [of this chapter],
the trustee may petition the court having jurisdiction over the
trust, and the court shall determine whether the proposed exercise
or nonexercise by the trustee of such discretionary power will
result in an abuse of the trustee's discretion. The trustee shall
state in such petition the basis for its belief that a beneficiary
would object. The failure or refusal of a beneficiary to sign a
waiver or release is not reasonable grounds for a trustee to believe
the beneficiary will object. The court may appoint one or more
guardians ad litem or attorneys ad litem pursuant to Section
115.014 [of this subtitle]. If the petition describes the proposed
exercise or nonexercise of the power and contains sufficient
information to inform the beneficiaries of the reasons for the
proposal, the facts upon which the trustee relies, and an
explanation of how the income and remainder beneficiaries will be
affected by the proposed exercise or nonexercise of the power, a
beneficiary who challenges the proposed exercise or nonexercise has
the burden of establishing that it will result in an abuse of
discretion. The trustee shall advance from the trust principal all
costs incident to the judicial determination, including the
reasonable attorney's fees and costs of the trustee, any
beneficiary or beneficiaries who are parties to the action and who
retain counsel, [and] any guardian ad litem, and any attorney ad
litem. At the conclusion of the proceeding, the court may award
costs and reasonable and necessary attorney's fees as provided in
Section 114.064 [of this subtitle], including, if the court
considers it appropriate, awarding part or all of such costs
against the trust principal or income, awarding part or all of such
costs against one or more beneficiaries or such beneficiary's or
beneficiaries' share of the trust, or awarding part or all of such
costs against the trustee in the trustee's individual capacity, if
the court determines that the trustee's exercise or nonexercise of
discretionary power would have resulted in an abuse of discretion
or that the trustee did not have reasonable grounds for believing
one or more beneficiaries would object to the proposed exercise or
nonexercise of the discretionary power.
SECTION 9. Section 116.172(a), Property Code, is amended by
amending Subdivision (2) and adding Subdivision (3) to read as
follows:
(2) "Payment" means a payment that a trustee may
receive over a fixed number of years or during the life of one or
more individuals because of services rendered or property
transferred to the payer in exchange for future payments. The term
includes a payment made in money or property from the payer's
general assets or from a separate fund created by the payer[,
including a private or commercial annuity, an individual retirement
account, and a pension, profit-sharing, stock-bonus, or
stock-ownership plan].
(3) "Separate fund" includes a private or commercial
annuity, an individual retirement account, and a pension,
profit-sharing, stock-bonus, or stock-ownership plan.
SECTION 10. Section 116.172, Property Code, is amended by
amending Subsection (h) and adding Subsections (i), (j), and (k) to
read as follows:
(h) Subsections (j) and (k) apply and Subsections (b) and
(c) do not apply in determining the allocation of a payment made
from a separate fund to:
(1) a trust to which an election to qualify for a
marital deduction under Section 2056(b)(7), Internal Revenue Code
of 1986, has been made; or
(2) a trust that qualifies for the marital deduction
under Section 2056(b)(5), Internal Revenue Code of 1986 [If, to
obtain an estate tax marital deduction for a trust, a trustee must
allocate more of a payment to income than provided for by this
section, the trustee shall allocate to income the additional amount
necessary to obtain the marital deduction].
(i) Subsections (h), (j), and (k) do not apply if and to the
extent that a series of payments would, without the application of
Subsection (h), qualify for the marital deduction under Section
2056(b)(7)(C), Internal Revenue Code of 1986.
(j) The trustee shall determine the internal income of the
separate fund for the accounting period as if the separate fund were
a trust subject to this code. On request of the surviving spouse,
the trustee shall demand of the person administering the separate
fund that this internal income be distributed to the trust. The
trustee shall allocate a payment from the separate fund to income to
the extent of the internal income of the separate fund, and the
balance to the principal. On request of the surviving spouse, the
trustee shall allocate principal to income to the extent the
internal income of the separate fund exceeds payments made to the
trust during the accounting period from the separate fund.
(k) If the trustee cannot determine the internal income of
the separate fund but can determine the value of the separate fund,
the internal income of the separate fund shall be four percent of
the fund's value, according to the most recent statement of value
preceding the beginning of the accounting period. If the trustee
can determine neither the internal income of the separate fund nor
the fund's value, the internal income of the fund shall be the
product of the interest rate and the present value of the expected
future payments, as determined under Section 7520, Internal Revenue
Code of 1986, for the month preceding the accounting period for
which the computation is made.
SECTION 11. (a) The changes in law made by Section 113.029,
Property Code, as added by this Act, apply only to a trust that is
created or becomes irrevocable on or after September 1, 2009.
(b) Except as otherwise expressly provided by the will, the
terms of the trust, or this Act, the changes in law made by this Act
apply to:
(1) a trust existing or created on or after September
1, 2009;
(2) the estate of a decedent who dies before September
1, 2009, if the probate or administration of the estate is pending
as of September 1, 2009; and
(3) the estate of a decedent who dies on or after
September 1, 2009.
(c) For a trust existing on September 1, 2009, 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, 2009.
SECTION 12. This Act takes effect September 1, 2009.