Texas 2023 - 88th Regular

Texas House Bill HB4376 Compare Versions

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1	1	By: VanDeaver H.B. No. 4376
2	2
3	3
4	4	A BILL TO BE ENTITLED
5	5	AN ACT
6	6	relating to self-settled asset protection trusts.
7	7	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
8	8	SECTION 1. Section 112.035(d), Property Code, is amended to
9	9	read as follows:
10	10	(d) Except as provided by Subchapter F, if [If] the settlor
11	11	is also a beneficiary of the trust, a provision restraining the
12	12	voluntary or involuntary transfer of the settlor's beneficial
13	13	interest does not prevent the settlor's creditors from satisfying
14	14	claims from the settlor's interest in the trust estate. A settlor is
15	15	not considered a beneficiary of a trust solely because:
16	16	(1) a trustee who is not the settlor is authorized
17	17	under the trust instrument to pay or reimburse the settlor for, or
18	18	pay directly to the taxing authorities, any tax on trust income or
19	19	principal that is payable by the settlor under the law imposing the
20	20	tax; or
21	21	(2) the settlor's interest in the trust was created by
22	22	the exercise of a power of appointment by a third party.
23	23	SECTION 2. Chapter 112, Property Code, is amended by adding
24	24	Subchapter F to read as follows:
25	25	SUBCHAPTER F. SELF-SETTLED ASSET PROTECTION TRUST
26	26	Sec. 112.151. SELF-SETTLED ASSET PROTECTION TRUST. If a
27	27	spendthrift trust of which the settlor is a beneficiary satisfies
28	28	the requirements of Section 112.152:
29	29	(1) the trust is considered a self-settled asset
30	30	protection trust; and
31	31	(2) except as provided by this subchapter, a restraint
32	32	by the trust of the voluntary or involuntary transfer of the
33	33	settlor's beneficial interest in the trust prevents the settlor's
34	34	creditors from satisfying claims from that interest.
35	35	Sec. 112.152. CREATION. (a) A spendthrift trust of which
36	36	the settlor is a beneficiary may be considered a self-settled asset
37	37	protection trust under this subchapter only if:
38	38	(1) the trust:
39	39	(A) is created in a writing signed by the
40	40	settlor;
41	41	(B) is irrevocable;
42	42	(C) does not require that any part of the income
43	43	or principal of the trust be distributed to the settlor; and
44	44	(D) is not intended to hinder, delay, or defraud
45	45	known creditors; and
46	46	(2) at least one trustee of the trust is:
47	47	(A) an individual who resides in and is domiciled
48	48	in this state;
49	49	(B) a trust company that:
50	50	(i) is organized under federal law or under
51	51	the laws of this state or another state; and
52	52	(ii) maintains an office in this state for
53	53	the transaction of business; or
54	54	(C) a financial institution, as defined by
55	55	Section 201.101, Finance Code, that:
56	56	(i) is organized under federal law or under
57	57	the laws of this state or another state;
58	58	(ii) maintains an office in this state for
59	59	the transaction of business; and
60	60	(iii) has and exercises trust powers.
61	61	(b) A spendthrift trust may be considered a self-settled
62	62	asset protection trust even if under the trust terms:
63	63	(1) the settlor may prevent a distribution from the
64	64	trust;
65	65	(2) the settlor holds a special lifetime or
66	66	testamentary power of appointment, so long as that power cannot be
67	67	exercised in favor of the settlor, the settlor's estate, a creditor
68	68	of the settlor, or a creditor of the settlor's estate;
69	69	(3) the settlor is a beneficiary of a trust that
70	70	qualifies as a charitable remainder trust under 26 U.S.C. Section
71	71	664, or a successor provision, even if the settlor has the right to
72	72	release all or part of the settlor's retained interest in that trust
73	73	in favor of one or more of the remainder beneficiaries of the trust;
74	74	(4) the settlor is authorized or entitled to receive a
75	75	percentage of the value of the trust each year as specified in the
76	76	trust instrument, whether of the initial value of the trust assets
77	77	or their value determined from time to time as provided by the trust
78	78	instrument, so long as the authorized annual distribution may not
79	79	exceed:
80	80	(A) the amount that may be considered income
81	81	under 26 U.S.C. Section 643(b); or
82	82	(B) with respect to benefits from any qualified
83	83	retirement plan or any eligible deferred compensation plan, the
84	84	minimum required distribution as defined by 26 U.S.C. Section
85	85	4974(b);
86	86	(5) the settlor is authorized or entitled to receive
87	87	income or principal from:
88	88	(A) a grantor retained annuity trust paying out a
89	89	qualified annuity interest within the meaning of 26 C.F.R. Section
90	90	25.2702-3(b); or
91	91	(B) a grantor retained unitrust paying out a
92	92	qualified unitrust interest within the meaning of 26 C.F.R. Section
93	93	25.2702-3(c);
94	94	(6) the settlor:
95	95	(A) is authorized or entitled to use real
96	96	property held under a qualified personal residence trust as
97	97	described in 26 C.F.R. Section 25.2702-5(c), or a successor
98	98	provision; or
99	99	(B) may possess or actually possesses a qualified
100	100	annuity interest within the meaning of 26 C.F.R. Section
101	101	25.2702-3(b), or a successor provision;
102	102	(7) the settlor is authorized to receive income or
103	103	principal from the trust, so long as the authorized distribution is
104	104	subject to the discretion of another person; or
105	105	(8) the settlor is authorized to use real or personal
106	106	property owned by the trust.
107	107	(c) Except as provided by this subsection, this section may
108	108	not be construed to prohibit the settlor of a self-settled asset
109	109	protection trust from holding any power under the trust, whether or
110	110	not the settlor is a cotrustee, including the power to remove and
111	111	replace a trustee, direct trust investments, or execute other
112	112	management powers. The settlor may not hold a power to make
113	113	distributions to himself or herself without the consent of another
114	114	person.
115	115	(d) A self-settled asset protection trust is created under
116	116	this subchapter if by the terms of the writing creating the trust
117	117	the settlor manifests an intention to create a self-settled asset
118	118	protection trust. No specific language is required for the creation
119	119	of a self-settled asset protection trust under this subchapter.
120	120	Sec. 112.153. SETTLOR POWERS. (a) The settlor of a
121	121	self-settled asset protection trust has only those powers and
122	122	rights that are conferred on the settlor by the trust instrument.
123	123	(b) An agreement or understanding, express or implied,
124	124	between the settlor and the trustee that attempts to grant or permit
125	125	the retention of greater rights or authority than is stated in the
126	126	trust instrument is void.
127	127	Sec. 112.154. BENEFICIARIES. (a) The beneficiary of a
128	128	self-settled asset protection trust must be named or clearly
129	129	referred to in the trust instrument.
130	130	(b) A spouse, former spouse, child, or dependent of the
131	131	settlor is not a beneficiary of the self-settled asset protection
132	132	trust unless named or clearly referred to as a beneficiary in the
133	133	trust instrument.
134	134	Sec. 112.155. PROVISIONS FOR SUPPORT. (a) Provision for a
135	135	beneficiary in a self-settled asset protection trust shall be for
136	136	the support, education, maintenance, and benefit of the beneficiary
137	137	without reference to or limitation by the beneficiary's needs,
138	138	station in life, or mode of life, or the needs of any other person,
139	139	whether dependent upon the beneficiary or not.
140	140	(b) The validity of a self-settled asset protection trust
141	141	does not depend on the beneficiary's character, capacity,
142	142	incapacity, competency, or incompetency.
143	143	(c) Provision for a beneficiary extends to all income from
144	144	the trust estate devoted for that purpose by the settlor of the
145	145	trust, without exception or deduction, except for:
146	146	(1) costs or fees regularly earned, paid, or incurred
147	147	by the trustee for administration of or protection of the trust
148	148	estate;
149	149	(2) taxes on the costs or fees regularly earned, paid,
150	150	or incurred by the trustee for administration of or protection of
151	151	the trust estate; or
152	152	(3) taxes on the interest of the beneficiary.
153	153	Sec. 112.156. DISCRETION OF TRUSTEE. (a) If the settlor of
154	154	a self-settled asset protection trust provides discretion to the
155	155	trustee of the trust with respect to one of the following matters,
156	156	that discretion is absolute:
157	157	(1) the sum to be applied for or paid to a beneficiary;
158	158	(2) the application or payment of sums for or to a
159	159	beneficiary;
160	160	(3) the amount of trust income to be applied for or
161	161	paid to a beneficiary; or
162	162	(4) payment of all or any part of the income to any one
163	163	or more of the beneficiaries.
164	164	(b) The trustee has absolute discretion as described under
165	165	Subsection (a) regardless of whether:
166	166	(1) the trust provides for the accumulation of income;
167	167	or
168	168	(2) a provision for the accumulation of income relates
169	169	to real or personal property.
170	170	(c) The discretion of a trustee under this section may not
171	171	be interfered with for any uncertainty or on any pretext or for any
172	172	consideration of the needs, station in life, or mode of life of a
173	173	beneficiary.
174	174	(d) The giving of discretion described by this section to a
175	175	trustee does not invalidate a self-settled asset protection trust.
176	176	Sec. 112.157. RESTRAINTS ON ALIENATION. (a) A self-settled
177	177	asset protection trust restrains and prohibits the assignment,
178	178	alienation, acceleration, and anticipation of any interest of a
179	179	beneficiary by the voluntary or involuntary act of the beneficiary,
180	180	by operation of law, by any process, or otherwise.
181	181	(b) The trust estate, or the corpus or capital of the trust
182	182	estate, of a self-settled asset protection trust may not be
183	183	assigned, alienated, diminished, or impaired by any alienation,
184	184	transfer, or seizure that would cut off or diminish payments,
185	185	rents, profits, earnings, or income of the trust estate that would
186	186	otherwise be available for the benefit of a beneficiary.
187	187	(c) Mandatory or discretionary payments by a trustee of a
188	188	self-settled asset protection trust to a beneficiary may be made
189	189	only to or for the benefit of the beneficiary and may not be made:
190	190	(1) by acceleration or anticipation;
191	191	(2) to any assignee of the beneficiary; or
192	192	(3) on the basis of any written or oral order given by
193	193	the beneficiary.
194	194	(d) Subsection (c) applies to an assignment or order
195	195	regardless of whether the assignment or order:
196	196	(1) is the voluntary contractual act of the
197	197	beneficiary;
198	198	(2) is made pursuant to or by virtue of any legal
199	199	process in judgment, execution, attachment, garnishment,
200	200	bankruptcy, or otherwise; or
201	201	(3) is made in connection with any contract, tort, or
202	202	duty.
203	203	(e) A beneficiary of a self-settled asset protection trust
204	204	may not order the disposition of the trust income, regardless of
205	205	whether the order:
206	206	(1) is voluntary or involuntary; or
207	207	(2) is made on the order or direction of a bankruptcy
208	208	court or other court.
209	209	(f) An interest of a beneficiary of a self-settled asset
210	210	protection trust is not subject to any process of attachment issued
211	211	against the beneficiary.
212	212	(g) An interest of a beneficiary of a self-settled asset
213	213	protection trust may not be taken in execution under any legal
214	214	process directed against a beneficiary, a trustee, the trust
215	215	estate, or the trust income.
216	216	(h) The trustee of a self-settled asset protection trust
217	217	shall apply the entire trust estate and trust income solely for the
218	218	benefit of a beneficiary, free, clear, and discharged of any
219	219	obligations of the beneficiary and from any responsibility for that
220	220	application.
221	221	(i) The trustee of a self-settled asset protection trust
222	222	shall disregard and defeat any assignment or other act, voluntary
223	223	or involuntary, that is contrary to this subchapter.
224	224	(j) Notwithstanding any other provision of this subchapter,
225	225	a self-settled asset protection trust does not prevent a person
226	226	entitled to receive payments from the settlor of the trust under the
227	227	terms of an order for child support from:
228	228	(1) obtaining a remedy provided by Title 5, Family
229	229	Code, for the enforcement or collection of the court-ordered child
230	230	support obligation of the settlor; and
231	231	(2) satisfying the claim for child support payments
232	232	from the assets of the trust.
233	233	Sec. 112.158. NO LEGAL ESTATE OF BENEFICIARY IN CORPUS. A
234	234	beneficiary of a self-settled asset protection trust has no legal
235	235	estate in the corpus of the trust estate unless under the terms of
236	236	the trust:
237	237	(1) the beneficiary or a person deriving title from
238	238	the beneficiary is entitled to conveyance of the corpus of the trust
239	239	estate immediately, after a term of years, or after a life; and
240	240	(2) during that term or life, if applicable, the
241	241	beneficiary is not entitled to receive income from the corpus of the
242	242	trust estate.
243	243	Sec. 112.159. ACCUMULATION OF INCOME. (a) An accumulation
244	244	of the income from the trust property of a self-settled asset
245	245	protection trust may be directed in the trust instrument for the
246	246	benefit of one or more beneficiaries, beginning within the time
247	247	permitted for the vesting of future interests and not to extend
248	248	beyond the period limiting the time within which the absolute power
249	249	of alienation of property may be suspended.
250	250	(b) A direction of the trust income made by the trust
251	251	instrument that is for a longer term than permitted by law is void
252	252	only as to the time in excess of the time permitted by law, without
253	253	regard to whether the direction is severable from other provisions
254	254	in the trust instrument.
255	255	(c) If a direction of accumulated trust income is invalid
256	256	under Subsection (b), the accumulated income may be paid and
257	257	distributed to the next succeeding beneficiary in interest.
258	258	Sec. 112.160. LIMITATION ON ACTIONS. (a) A person who is a
259	259	settlor's creditor when a transfer is made to a self-settled asset
260	260	protection trust may not bring an action with respect to the
261	261	transfer unless the action is commenced on or before the later of:
262	262	(1) the second anniversary of the date on which the
263	263	transfer was made; or
264	264	(2) the 180th day after the date on which the creditor
265	265	discovers or reasonably should have discovered the transfer.
266	266	(b) A person who becomes a settlor's creditor after a
267	267	transfer is made to a self-settled asset protection trust may not
268	268	bring an action with respect to the transfer unless the action is
269	269	commenced on or before the second anniversary of the date on which
270	270	the transfer was made.
271	271	(c) For purposes of Subsection (a), a person is considered
272	272	to have discovered a transfer at the time a public record is made of
273	273	the transfer, including:
274	274	(1) a recording of the conveyance of real property in
275	275	the deed records of the county in which the property is located;
276	276	(2) a recording of a bill of sale or other transfer
277	277	instrument relating to the transfer of personal property:
278	278	(A) in the county where the transferor
279	279	principally resides, if the transferor is an individual resident of
280	280	this state; or
281	281	(B) in the county in this state where the
282	282	trustee's principal residence or place of business is located; or
283	283	(3) the filing of a financing statement under Chapter
284	284	9, Business & Commerce Code.
285	285	(d) A settlor's creditor may not bring an action with
286	286	respect to transfer of property to a self-settled asset protection
287	287	trust unless the creditor can prove by clear and convincing
288	288	evidence that the transfer of property was a fraudulent transfer
289	289	under Chapter 24, Business & Commerce Code, or that the transfer
290	290	violates a legal obligation owed to the creditor under a contract or
291	291	a valid court order that is legally enforceable by the creditor. In
292	292	the absence of such clear and convincing proof, the property
293	293	transferred is not subject to the claims of the creditor. Proof by
294	294	one creditor that a transfer of property was fraudulent or wrongful
295	295	does not constitute proof as to any other creditor, and proof of a
296	296	fraudulent or wrongful transfer of property as to one creditor does
297	297	not invalidate any other transfer of property.
298	298	(e) For purposes of Subsections (a) and (b), if property
299	299	transferred to a self-settled asset protection trust is
300	300	subsequently conveyed to the settlor or other trust beneficiary for
301	301	the purpose of obtaining a loan secured by a mortgage or deed of
302	302	trust on the property and then reconveyed to the trust, the
303	303	conveyance from and reconveyance to the trust shall be disregarded
304	304	and the property is considered to have been transferred to the trust
305	305	on the date of the original transfer to the trust. The mortgage or
306	306	deed of trust on the property is enforceable against the trust.
307	307	(f) A person may not bring an action against an advisor to
308	308	the settlor or trustee of a self-settled asset protection trust
309	309	unless the person can prove by clear and convincing evidence that
310	310	the advisor knowingly and in bad faith acted in violation of the law
311	311	of this state, and that the person suffered damages caused by the
312	312	advisor's action. For purposes of this subsection, "advisor" means
313	313	a person who gives advice relating to, who is involved in the
314	314	creation of, transfer of property to, or administration of, or who
315	315	participates in the preparation of accountings, tax returns, or
316	316	other reports relating to a self-settled asset protection trust.
317	317	The term includes an accountant, attorney, or investment advisor.
318	318	(g) A person other than a beneficiary or settlor of a
319	319	self-settled asset protection trust may not bring an action against
320	320	a trustee of the trust unless the person can prove by clear and
321	321	convincing evidence that the trustee knowingly and in bad faith
322	322	acted in violation of the law of this state, and that the person
323	323	suffered damages caused by the trustee's action. For purposes of
324	324	this subsection, "trustee" includes a cotrustee and predecessor
325	325	trustee.
326	326	(h) If more than one transfer is made to a self-settled
327	327	asset protection trust:
328	328	(1) for purposes of Subsections (a) and (b), each
329	329	subsequent transfer to the trust shall be disregarded for the
330	330	purpose of determining whether a person may bring an action with
331	331	respect to a previous transfer to the trust; and
332	332	(2) any distribution to a beneficiary from the trust
333	333	is considered to have been made from the most recent transfer made
334	334	to the trust.
335	335	Sec. 112.161. EFFECT OF TRANSFER TO SECOND TRUST. For
336	336	purposes of this subchapter, if a trustee of a self-settled asset
337	337	protection trust exercises the trustee's discretion or authority to
338	338	distribute trust income or principal to or for the settlor of the
339	339	trust by appointing the property of the original trust in favor of a
340	340	second trust for the benefit of the settlor as provided by
341	341	Subchapter D:
342	342	(1) the second trust is considered to be a
343	343	self-settled asset protection trust under this subchapter so long
344	344	as it satisfies the requirements of this subchapter other than the
345	345	self-settlement requirement; and
346	346	(2) if considered a self-settled asset protection
347	347	trust under Subdivision (1), property transferred to the second
348	348	trust is considered for purposes of Sections 112.160(a) and (b) to
349	349	have been transferred on the date the settlor of the original
350	350	self-settled asset protection trust transferred the property into
351	351	that trust, regardless of the fact that the property has been
352	352	transferred to a second trust.
353	353	Sec. 112.162. TRUST ADMINISTERED UNDER LAW OF ANOTHER STATE
354	354	OR FOREIGN JURISDICTION. (a) A trust the domicile of which is
355	355	changed to this state is considered a self-settled asset protection
356	356	trust under this subchapter if the requirements of this section are
357	357	satisfied simultaneously with, or immediately after, the change of
358	358	domicile to this state. For purposes of Sections 112.160(a) and
359	359	(b), if the domicile of a self-settled asset protection trust is
360	360	changed to this state from a jurisdiction having laws substantially
361	361	similar to this subchapter, a transfer of assets to the trust before
362	362	the change in domicile to this state is considered to have occurred:
363	363	(1) on the date the assets were transferred to the
364	364	trust if, at the time of the transfer and at all times after the
365	365	transfer, the laws governing the trust were substantially similar
366	366	to this subchapter; or
367	367	(2) if Subdivision (1) does not apply, on the earliest
368	368	date on which the trust was subjected, without interruption, to
369	369	laws substantially similar to this subchapter.
370	370	(b) Unless the trust instrument expressly provides
371	371	otherwise, this subtitle governs the construction, operation, and
372	372	enforcement in this state of a self-settled asset protection trust
373	373	created in or outside this state if:
374	374	(1) any of the trust assets are in this state;
375	375	(2) the trust affects personal property and the
376	376	declared domicile of the creator of the trust is in this state; or
377	377	(3) at least one trustee serving under Section
378	378	112.152(a)(2) has the power to maintain records and prepare income
379	379	tax returns for the trust and at least part of the trust
380	380	administration is performed in this state.
381	381	SECTION 3. (a) Except as provided by this section, the
382	382	change in law made by this Act applies only to a transfer of
383	383	property on or after the effective date of this Act to a
384	384	self-settled asset protection trust that satisfies the
385	385	requirements of Subchapter F, Chapter 112, Property Code, as added
386	386	by this Act.
387	387	(b) For purposes of Subchapter F, Chapter 112, Property
388	388	Code, as added by this Act, property transferred before the
389	389	effective date of this Act to a trust that on or after the effective
390	390	date of this Act satisfies the requirements of that subchapter is
391	391	considered transferred to the trust on the earliest date on or after
392	392	the effective date of this Act on which the trust terms satisfy the
393	393	requirements of that subchapter.
394	394	(c) With respect to a trust the domicile of which is changed
395	395	to this state on or after the effective date of this Act, Subchapter
396	396	F, Chapter 112, Property Code, as added by this Act, applies with
397	397	respect to transfers made to the trust before, on, or after the
398	398	effective date of this Act.
399	399	SECTION 4. This Act takes effect September 1, 2023.