84R6541 AJA-D
By: Burton S.B. No. 500
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 Section 112.0351, 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. Subchapter B, Chapter 112, Property Code, is
amended by adding Section 112.0351 to read as follows:
Sec. 112.0351. SELF-SETTLED ASSET PROTECTION TRUST. (a)
If a spendthrift trust of which the settlor is a beneficiary
satisfies the requirements of Subsection (b):
(1) the trust is considered a self-settled asset
protection trust; and
(2) except as provided by this section, 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.
(b) A spendthrift trust of which the settlor is a
beneficiary may be considered a self-settled asset protection trust
under this section 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.
(c) 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.
(d) 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.
(e) 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. 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.
(f) 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.
(g) 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.
(h) For purposes of Subsection (f), a person is considered
to have discovered a transfer at the time a public record is made of
the transfer, including a recording of the conveyance of real
property in the deed records of the county in which the property is
located or the filing of a financing statement under Chapter 9,
Business & Commerce Code.
(i) 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.
(j) For purposes of Subsections (f) and (g), 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.
(k) If more than one transfer is made to a self-settled
asset protection trust:
(1) for purposes of Subsections (f) and (g), 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.
(l) For purposes of this section, 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 section so long as
it satisfies the requirements of this section 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 Subsections (f) and (g) 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.
(m) A trust the domicile of which is changed to this state is
considered a self-settled asset protection trust under this section
if the requirements of this section are satisfied simultaneously
with, or immediately after, the change of domicile to this state.
For purposes of Subsections (f) and (g), if the domicile of a
self-settled asset protection trust is changed to this state from a
jurisdiction having laws substantially similar to this section, 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 section; 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 section.
(n) 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 Subsection
(b)(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 Section 112.0351, Property Code, as added by this
Act.
(b) For purposes of Section 112.0351, 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 section 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 section.
(c) With respect to a trust the domicile of which is changed
to this state on or after the effective date of this Act, Section
112.0351, 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, 2015.