Texas Senate Bill SB309

Texas 2019 - 86th Regular

Caption

Relating to the fiduciary status of a directed trust advisor.

Impact

The enactment of SB309 means that more parties involved in trust management will be recognized as fiduciaries, thereby holding them to higher standards of care and accountability. For current and future trust agreements, this change promotes clearer obligations for advisors, which could influence how trusts are managed and the legal implications of their actions. Notably, the bill specifies that the fiduciary obligations apply to trusts established on or after September 1, 2019, while preserving the previous legal standards for actions taken before this date. This transition seeks to balance the interests of trustees and beneficiaries effectively.

Summary

Senate Bill 309 aims to clarify the fiduciary status of directed trust advisors under Texas law. The bill amends Section 114.0031 of the Property Code to define that individuals who have the authority to direct a trustee’s investment or distribution decisions are generally considered advisors and, consequently, fiduciaries. This imposes a fiduciary responsibility on them unless the trust document explicitly states otherwise, as long as the conditions protecting the advisor from significant conflicts of interests are met. This amendment is intended to mitigate uncertainties surrounding the responsibilities and liabilities of trust advisors in their advisory roles.

Contention

One notable aspect of SB309 is its provision that allows trust terms to define an advisor's capacity as nonfiduciary under certain conditions, primarily concerning their power to appoint or remove themself as an advisor or trustee. This exception is designed to comply with the Internal Revenue Code concerning grantor trust rules, yet may raise concerns about potential abuse of this provision. Stakeholders might argue for stricter regulations to close loopholes that could allow advisors to act outside their fiduciary duties under the guise of nonfiduciary roles.