Texas 2025 - 89th Regular

Texas House Bill HB4058 Compare Versions

Only one version of the bill is available at this time.

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1	1	By: VanDeaver H.B. No. 4058
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6	6	A BILL TO BE ENTITLED
7	7	AN ACT
8	8	relating to self-settled asset protection trusts.
9	9	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
10	10	SECTION 1. Section 112.035(d), Property Code, is amended to
11	11	read as follows:
12	12	(d) Except as provided by Subchapter F, if [If] the settlor
13	13	is also a beneficiary of the trust, a provision restraining the
14	14	voluntary or involuntary transfer of the settlor's beneficial
15	15	interest does not prevent the settlor's creditors from satisfying
16	16	claims from the settlor's interest in the trust estate. A settlor
17	17	is not considered a beneficiary of a trust solely because:
18	18	(1) a trustee who is not the settlor is authorized
19	19	under the trust instrument to pay or reimburse the settlor for, or
20	20	pay directly to the taxing authorities, any tax on trust income or
21	21	principal that is payable by the settlor under the law imposing the
22	22	tax; or
23	23	(2) the settlor's interest in the trust was created by
24	24	the exercise of a power of appointment by a third party.
25	25	SECTION 2. Chapter 112, Property Code, is amended by adding
26	26	Subchapter F to read as follows:
27	27	SUBCHAPTER F. SELF-SETTLED ASSET PROTECTION TRUST
28	28	Sec. 112.151. SELF-SETTLED ASSET PROTECTION TRUST. If a
29	29	spendthrift trust of which the settlor is a beneficiary satisfies
30	30	the requirements of Section 112.152:
31	31	(1) the trust is considered a self-settled asset
32	32	protection trust; and
33	33	(2) except as provided by this subchapter, a restraint
34	34	by the trust of the voluntary or involuntary transfer of the
35	35	settlor's beneficial interest in the trust prevents the settlor's
36	36	creditors from satisfying claims from that interest.
37	37	Sec. 112.152. CREATION. (a) A spendthrift trust of which
38	38	the settlor is a beneficiary may be considered a self-settled asset
39	39	protection trust under this subchapter only if:
40	40	(1) the trust:
41	41	(A) is created in a writing signed by the
42	42	settlor;
43	43	(B) is irrevocable;
44	44	(C) does not require that any part of the income
45	45	or principal of the trust be distributed to the settlor; and
46	46	(D) is not intended to hinder, delay, or defraud
47	47	known creditors; and
48	48	(2) at least one trustee of the trust is:
49	49	(A) an individual who resides in and is domiciled
50	50	in this state;
51	51	(B) a trust company that:
52	52	(i) is organized under federal law or under
53	53	the laws of this state or another state; and
54	54	(ii) maintains an office in this state for
55	55	the transaction of business; or
56	56	(C) a financial institution, as defined by
57	57	Section 201.101, Finance Code, that:
58	58	(i) is organized under federal law or under
59	59	the laws of this state or another state;
60	60	(ii) maintains an office in this state for
61	61	the transaction of business; and
62	62	(iii) has and exercises trust powers.
63	63	(b) A spendthrift trust may be considered a self-settled
64	64	asset protection trust even if under the trust terms:
65	65	(1) the settlor may prevent a distribution from the
66	66	trust;
67	67	(2) the settlor holds a special lifetime or
68	68	testamentary power of appointment, so long as that power cannot be
69	69	exercised in favor of the settlor, the settlor's estate, a creditor
70	70	of the settlor, or a creditor of the settlor's estate;
71	71	(3) the settlor is a beneficiary of a trust that
72	72	qualifies as a charitable remainder trust under 26 U.S.C. Section
73	73	664, or a successor provision, even if the settlor has the right to
74	74	release all or part of the settlor's retained interest in that trust
75	75	in favor of one or more of the remainder beneficiaries of the trust;
76	76	(4) the settlor is authorized or entitled to receive a
77	77	percentage of the value of the trust each year as specified in the
78	78	trust instrument, whether of the initial value of the trust assets
79	79	or their value determined from time to time as provided by the trust
80	80	instrument, so long as the authorized annual distribution may not
81	81	exceed:
82	82	(A) the amount that may be considered income
83	83	under 26 U.S.C. Section 643(b); or
84	84	(B) with respect to benefits from any qualified
85	85	retirement plan or any eligible deferred compensation plan, the
86	86	minimum required distribution as defined by 26 U.S.C. Section
87	87	4974(b);
88	88	(5) the settlor is authorized or entitled to receive
89	89	income or principal from:
90	90	(A) a grantor retained annuity trust paying out a
91	91	qualified annuity interest within the meaning of 26 C.F.R. Section
92	92	25.2702-3(b); or
93	93	(B) a grantor retained unitrust paying out a
94	94	qualified unitrust interest within the meaning of 26 C.F.R. Section
95	95	25.2702-3(c);
96	96	(6) the settlor:
97	97	(A) is authorized or entitled to use real
98	98	property held under a qualified personal residence trust as
99	99	described in 26 C.F.R. Section 25.2702-5(c), or a successor
100	100	provision; or
101	101	(B) may possess or actually possesses a qualified
102	102	annuity interest within the meaning of 26 C.F.R. Section
103	103	25.2702-3(b), or a successor provision;
104	104	(7) the settlor is authorized to receive income or
105	105	principal from the trust, so long as the authorized distribution is
106	106	subject to the discretion of another person; or
107	107	(8) the settlor is authorized to use real or personal
108	108	property owned by the trust.
109	109	(c) Except as provided by this subsection, this section may
110	110	not be construed to prohibit the settlor of a self-settled asset
111	111	protection trust from holding any power under the trust, whether or
112	112	not the settlor is a cotrustee, including the power to remove and
113	113	replace a trustee, direct trust investments, or execute other
114	114	management powers. The settlor may not hold a power to make
115	115	distributions to himself or herself without the consent of another
116	116	person.
117	117	(d) A self-settled asset protection trust is created under
118	118	this subchapter if by the terms of the writing creating the trust
119	119	the settlor manifests an intention to create a self-settled asset
120	120	protection trust. No specific language is required for the
121	121	creation of a self-settled asset protection trust under this
122	122	subchapter.
123	123	Sec. 112.153. SETTLOR POWERS. (a) The settlor of a
124	124	selfsettled asset protection trust has only those powers and rights
125	125	that are conferred on the settlor by the trust instrument.
126	126	(b) An agreement or understanding, express or implied,
127	127	between the settlor and the trustee that attempts to grant or permit
128	128	the retention of greater rights or authority than is stated in the
129	129	trust instrument is void.
130	130	Sec. 112.154. BENEFICIARIES. (a) The beneficiary of a
131	131	selfsettled asset protection trust must be named or clearly
132	132	referred to in the trust instrument.
133	133	(b) A spouse, former spouse, child, or dependent of the
134	134	settlor is not a beneficiary of the self-settled asset protection
135	135	trust unless named or clearly referred to as a beneficiary in the
136	136	trust instrument.
137	137	Sec. 112.155. PROVISIONS FOR SUPPORT. (a) Provision for a
138	138	beneficiary in a self-settled asset protection trust shall be for
139	139	the support, education, maintenance, and benefit of the beneficiary
140	140	without reference to or limitation by the beneficiary's needs,
141	141	station in life, or mode of life, or the needs of any other person,
142	142	whether dependent upon the beneficiary or not.
143	143	(b) The validity of a self-settled asset protection trust
144	144	does not depend on the beneficiary's character, capacity,
145	145	incapacity, competency, or incompetency.
146	146	(c) Provision for a beneficiary extends to all income from
147	147	the trust estate devoted for that purpose by the settlor of the
148	148	trust, without exception or deduction, except for:
149	149	(1) costs or fees regularly earned, paid, or incurred
150	150	by the trustee for administration of or protection of the trust
151	151	estate;
152	152	(2) taxes on the costs or fees regularly earned, paid,
153	153	or incurred by the trustee for administration of or protection of
154	154	the trust estate; or
155	155	(3) taxes on the interest of the beneficiary.
156	156	Sec. 112.156. DISCRETION OF TRUSTEE. (a) If the settlor of
157	157	a self-settled asset protection trust provides discretion to the
158	158	trustee of the trust with respect to one of the following matters,
159	159	that discretion is absolute:
160	160	(1) the sum to be applied for or paid to a beneficiary;
161	161	(2) the application or payment of sums for or to a
162	162	beneficiary;
163	163	(3) the amount of trust income to be applied for or
164	164	paid to a beneficiary; or
165	165	(4) payment of all or any part of the income to any one
166	166	or more of the beneficiaries.
167	167	(b) The trustee has absolute discretion as described under
168	168	Subsection (a) regardless of whether:
169	169	(1) the trust provides for the accumulation of income;
170	170	or
171	171	(2) a provision for the accumulation of income relates
172	172	to real or personal property.
173	173	(c) The discretion of a trustee under this section may not
174	174	be interfered with for any uncertainty or on any pretext or for any
175	175	consideration of the needs, station in life, or mode of life of a
176	176	beneficiary.
177	177	(d) The giving of discretion described by this section to a
178	178	trustee does not invalidate a self-settled asset protection trust.
179	179	Sec. 112.157. RESTRAINTS ON ALIENATION. (a) A
180	180	self-settled asset protection trust restrains and prohibits the
181	181	assignment, alienation, acceleration, and anticipation of any
182	182	interest of a beneficiary by the voluntary or involuntary act of the
183	183	beneficiary, by operation of law, by any process, or otherwise.
184	184	(b) The trust estate, or the corpus or capital of the trust
185	185	estate, of a self-settled asset protection trust may not be
186	186	assigned, alienated, diminished, or impaired by any alienation,
187	187	transfer, or seizure that would cut off or diminish payments,
188	188	rents, profits, earnings, or income of the trust estate that would
189	189	otherwise be available for the benefit of a beneficiary.
190	190	(c) Mandatory or discretionary payments by a trustee of a
191	191	self-settled asset protection trust to a beneficiary may be made
192	192	only to or for the benefit of the beneficiary and may not be made:
193	193	(1) by acceleration or anticipation;
194	194	(2) to any assignee of the beneficiary; or
195	195	(3) on the basis of any written or oral order given by
196	196	the beneficiary.
197	197	(d) Subsection (c) applies to an assignment or order
198	198	regardless of whether the assignment or order:
199	199	(1) is the voluntary contractual act of the
200	200	beneficiary;
201	201	(2) is made pursuant to or by virtue of any legal
202	202	process in judgment, execution, attachment, garnishment,
203	203	bankruptcy, or otherwise; or
204	204	(3) is made in connection with any contract, tort, or
205	205	duty.
206	206	(e) A beneficiary of a self-settled asset protection trust
207	207	may not order the disposition of the trust income, regardless of
208	208	whether the order:
209	209	(1) is voluntary or involuntary; or
210	210	(2) is made on the order or direction of a bankruptcy
211	211	court or other court.
212	212	(f) An interest of a beneficiary of a self-settled asset
213	213	protection trust is not subject to any process of attachment issued
214	214	against the beneficiary.
215	215	(g) An interest of a beneficiary of a self-settled asset
216	216	protection trust may not be taken in execution under any legal
217	217	process directed against a beneficiary, a trustee, the trust
218	218	estate, or the trust income.
219	219	(h) The trustee of a self-settled asset protection trust
220	220	shall apply the entire trust estate and trust income solely for the
221	221	benefit of a beneficiary, free, clear, and discharged of any
222	222	obligations of the beneficiary and from any responsibility for that
223	223	application.
224	224	(i) The trustee of a self-settled asset protection trust
225	225	shall disregard and defeat any assignment or other act, voluntary
226	226	or involuntary, that is contrary to this subchapter.
227	227	(j) an asset transferred to a self-settled protection trust
228	228	under this subchapter is not protected from remedies available
229	229	under Title V, Family Code, for the enforcement or collection of a
230	230	court-ordered child support obligation of the beneficiary if at the
231	231	time of the transfer of the asset the beneficiary is in arrears on
232	232	said court-ordered child support obligation by more than 30 days
233	233	and to the extent of the obligation in arrears.
234	234	Sec. 112.158. NO LEGAL ESTATE OF BENEFICIARY IN CORPUS. A
235	235	beneficiary of a self-settled asset protection trust has no legal
236	236	estate in the corpus of the trust estate unless under the terms of
237	237	the trust:
238	238	(1) the beneficiary or a person deriving title from
239	239	the beneficiary is entitled to conveyance of the corpus of the trust
240	240	estate immediately, after a term of years, or after a life; and
241	241	(2) during that term or life, if applicable, the
242	242	beneficiary is not entitled to receive income from the corpus of the
243	243	trust estate.
244	244	Sec. 112.159. ACCUMULATION OF INCOME. (a) An accumulation
245	245	of the income from the trust property of a self-settled asset
246	246	protection trust may be directed in the trust instrument for the
247	247	benefit of one or more beneficiaries, beginning within the time
248	248	permitted for the vesting of future interests and not to extend
249	249	beyond the period limiting the time within which the absolute power
250	250	of alienation of property may be suspended.
251	251	Sec. 112.160. LIMITATION ON ACTIONS. (a) A person who is a
252	252	settlor's creditor when a transfer is made to a self-settled asset
253	253	protection trust may not bring an action with respect to the
254	254	transfer unless the action is commenced on or before the later of:
255	255	(1) the second anniversary of the date on which the
256	256	transfer was made; or
257	257	(2) the 180th day after the date on which the creditor
258	258	discovers or reasonably should have discovered the transfer.
259	259	(b) A person who becomes a settlor's creditor after a
260	260	transfer is made to a self-settled asset protection trust may not
261	261	bring an action with respect to the transfer unless the action is
262	262	commenced on or before the second anniversary of the date on which
263	263	the transfer was made.
264	264	(c) For purposes of Subsection (a), a person is considered
265	265	to have discovered a transfer at the time a public record is made of
266	266	the transfer, including:
267	267	(1) a recording of the conveyance of real property in
268	268	the deed records of the county in which the property is located;
269	269	(2) a recording of a bill of sale or other transfer
270	270	instrument relating to the transfer of personal property:
271	271	(A) in the county where the transferor
272	272	principally resides, if the transferor is an individual resident of
273	273	this state; or
274	274	(B) in the county in this state where the
275	275	trustee's principal residence or place of business is located; or
276	276	(3) the filing of a financing statement under Chapter
277	277	9, Business & Commerce Code.
278	278	(d) A settlor's creditor may not bring an action with
279	279	respect to transfer of property to a self-settled asset protection
280	280	trust unless the creditor can prove by clear and convincing
281	281	evidence that the transfer of property was a fraudulent transfer
282	282	under Chapter 24, Business & Commerce Code, or that the transfer
283	283	violates a legal obligation owed to the creditor under a contract or
284	284	a valid court order that is legally enforceable by the creditor. In
285	285	the absence of such clear and convincing proof, the property
286	286	transferred is not subject to the claims of the creditor. Proof by
287	287	one creditor that a transfer of property was fraudulent or wrongful
288	288	does not constitute proof as to any other creditor, and proof of a
289	289	fraudulent or wrongful transfer of property as to one creditor does
290	290	not invalidate any other transfer of property.
291	291	(e) Notwithstanding any other provision of this subchapter,
292	292	if community property, as defined by Texas Family Code 3.002, is
293	293	transferred by only one spouse to a self-settled asset protection
294	294	trust created under this subchapter a claim related to the
295	295	fraudulent transfer of community assets by the non-joining spouse
296	296	is not limited as set forth in this section. A party seeking to
297	297	invoke this subsection has the burden of proving the applicability
298	298	of this subsection. The standard of proof legally required to
299	299	establish matters referred to in relation to a fraudulent transfer
300	300	of community property is not altered by this subsection.
301	301	(f) For purposes of Subsections (a) and (b), if property
302	302	transferred to a self-settled asset protection trust is
303	303	subsequently conveyed to the settlor or other trust beneficiary for
304	304	the purpose of obtaining a loan secured by a mortgage or deed of
305	305	trust on the property and then reconveyed to the trust, the
306	306	conveyance from and reconveyance to the trust shall be disregarded
307	307	and the property is considered to have been transferred to the trust
308	308	on the date of the original transfer to the trust. The mortgage or
309	309	deed of trust on the property is enforceable against the trust.
310	310	(g) A person may not bring an action against an advisor to
311	311	the settlor or trustee of a self-settled asset protection trust
312	312	unless the person can prove by clear and convincing evidence that
313	313	the advisor knowingly and in bad faith acted in violation of the law
314	314	of this state, and that the person suffered damages caused by the
315	315	advisor's action. For purposes of this subsection, "advisor" means
316	316	a person who gives advice relating to, who is involved in the
317	317	creation of, transfer of property to, or administration of, or who
318	318	participates in the preparation of accountings, tax returns, or
319	319	other reports relating to a self-settled asset protection trust.
320	320	The term includes an accountant, attorney, or investment advisor.
321	321	(h) A person other than a beneficiary or settlor of a
322	322	selfsettled asset protection trust may not bring an action against
323	323	a trustee of the trust unless the person can prove by clear and
324	324	convincing evidence that the trustee knowingly and in bad faith
325	325	acted in violation of the law of this state, and that the person
326	326	suffered damages caused by the trustee's action. For purposes of
327	327	this subsection, "trustee" includes a cotrustee and predecessor
328	328	trustee.
329	329	(i) If more than one transfer is made to a self-settled
330	330	asset protection trust:
331	331	(1) for purposes of Subsections (a) and (b), each
332	332	subsequent transfer to the trust shall be disregarded for the
333	333	purpose of determining whether a person may bring an action with
334	334	respect to a previous transfer to the trust; and
335	335	(2) any distribution to a beneficiary from the trust
336	336	is considered to have been made from the most recent transfer made
337	337	to the trust.
338	338	Sec. 112.161. EFFECT OF TRANSFER TO SECOND TRUST. For
339	339	purposes of this subchapter, if a trustee of a self-settled asset
340	340	protection trust exercises the trustee's discretion or authority to
341	341	distribute trust income or principal to or for the settlor of the
342	342	trust by appointing the property of the original trust in favor of a
343	343	second trust for the benefit of the settlor as provided by
344	344	Subchapter D:
345	345	(1) the second trust is considered to be a
346	346	self-settled asset protection trust under this subchapter so long
347	347	as it satisfies the requirements of this subchapter other than the
348	348	selfsettlement requirement; and
349	349	(2) if considered a self-settled asset protection
350	350	trust under Subdivision (1), property transferred to the second
351	351	trust is considered for purposes of Sections 112.160(a) and (b) to
352	352	have been transferred on the date the settlor of the original
353	353	selfsettled asset protection trust transferred the property into
354	354	that trust, regardless of the fact that the property has been
355	355	transferred to a second trust.
356	356	Sec. 112.162. TRUST ADMINISTERED UNDER LAW OF ANOTHER STATE
357	357	OR FOREIGN JURISDICTION. (a) A trust the domicile of which is
358	358	changed to this state is considered a self-settled asset protection
359	359	trust under this subchapter if the requirements of this section are
360	360	satisfied simultaneously with, or immediately after, the change of
361	361	domicile to this state. For purposes of Sections 112.160(a) and
362	362	(b), if the domicile of a self-settled asset protection trust is
363	363	changed to this state from a jurisdiction having laws substantially
364	364	similar to this subchapter, a transfer of assets to the trust before
365	365	the change in domicile to this state is considered to have occurred:
366	366	(1) on the date the assets were transferred to the
367	367	trust if, at the time of the transfer and at all times after the
368	368	transfer, the laws governing the trust were substantially similar
369	369	to this subchapter; or
370	370	(2) if Subdivision (1) does not apply, on the earliest
371	371	date on which the trust was subjected, without interruption, to
372	372	laws substantially similar to this subchapter.
373	373	(b) Unless the trust instrument expressly provides
374	374	otherwise, this subtitle governs the construction, operation, and
375	375	enforcement in this state of a self-settled asset protection trust
376	376	created in or outside this state if:
377	377	(1) any of the trust assets are in this state;
378	378	(2) the trust affects personal property and the
379	379	declared domicile of the creator of the trust is in this state; or
380	380	(3) at least one trustee serving under Section
381	381	112.152(a)(2) has the power to maintain records and prepare income
382	382	tax returns for the trust and at least part of the trust
383	383	administration is performed in this state.
384	384	Sec. 112.163. PERPETUITIES. (a) A self-settled asset
385	385	protection trust may not continue for a period longer than that
386	386	allowed under Texas Trust Code Section 112.036.
387	387	SECTION 3. (a) Except as provided by this section, the
388	388	change in law made by this Act applies only to a transfer of
389	389	property on or after the effective date of this Act to a selfsettled
390	390	asset protection trust that satisfies the requirements of
391	391	Subchapter F, Chapter 112, Property Code, as added by this Act.
392	392	(b) For purposes of Subchapter F, Chapter 112, Property
393	393	Code, as added by this Act, property transferred before the
394	394	effective date of this Act to a trust that on or after the effective
395	395	date of this Act satisfies the requirements of that subchapter is
396	396	considered transferred to the trust on the earliest date on or after
397	397	the effective date of this Act on which the trust terms satisfy the
398	398	requirements of that subchapter.
399	399	(c) With respect to a trust the domicile of which is changed
400	400	to this state on or after the effective date of this Act, Subchapter
401	401	F, Chapter 112, Property Code, as added by this Act, applies with
402	402	respect to transfers made to the trust before, on, or after the
403	403	effective date of this Act.
404	404	SECTION 4. This Act takes effect September 1, 2025.