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  H.B. No. 564
 
 
 
 
AN ACT
  relating to the administration and operation of certain trusts and
  other property interests held for the benefit of another.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 187.005(b), Finance Code, is amended to
  read as follows:
         (b)  Unless another law specifies governing law [and except
  as provided in Subsection (c)], if a trust or its subject matter
  bears a reasonable relation to this state and also to another state
  or a foreign country, a trust institution and its affected client
  may agree that the law of this state or of the other state or country
  governs their rights and duties, including the law of a state or a
  foreign country where the affected client resides or where the
  trust institution has its principal office.
         SECTION 2.  Section 111.0035, Property Code, is amended by
  amending Subsection (b) and adding Subsection (c) to read as
  follows:
         (b)  The terms of a trust prevail over any provision of this
  subtitle, except that the terms of a trust may not limit:
               (1)  the requirements imposed under Section 112.031;
               (2)  [the duties and liabilities of and restrictions
  placed on a corporate trustee under Section 113.052 or 113.053;
               [(3)]  the applicability of Section 114.007 to an
  exculpation term of a trust;
               (3) [(4)]  the periods of limitation for commencing a
  judicial proceeding regarding a trust;
               (4) [(5)]  a trustee's duty:
                     (A)  with regard to an irrevocable trust, to
  respond to a demand for accounting made under Section 113.151 if the
  demand is from a beneficiary who, at the time of the demand:
                           (i)  is entitled or permitted to receive
  distributions from the trust; or
                           (ii)  would receive a distribution from the
  trust if the trust terminated at the time of the demand; and
                     (B)  to act in good faith and in accordance with
  the purposes of the trust; [and
                     [(C)     under Section 113.060 to a beneficiary
  described by Paragraph (A) that is 25 years of age or older;] or
               (5) [(6)]  the power of a court, in the interest of
  justice, to take action or exercise jurisdiction, including the
  power to:
                     (A)  modify or terminate a trust or take other
  action under Section 112.054;
                     (B)  remove a trustee under Section 113.082;
                     (C)  exercise jurisdiction under Section 115.001;
                     (D)  require, dispense with, modify, or terminate
  a trustee's bond; or
                     (E)  adjust or deny a trustee's compensation if
  the trustee commits a breach of trust.
         (c)  The terms of a trust may not limit any common-law duty to
  keep a beneficiary of an irrevocable trust who is 25 years of age or
  older informed at any time during which the beneficiary:
               (1)  is entitled or permitted to receive distributions
  from the trust; or
               (2)  would receive a distribution from the trust if the
  trust were terminated.
         SECTION 3.  Sections 111.004(10) and (18), Property Code,
  are amended to read as follows:
               (10)  "Person" means:
                     (A)  an individual;
                     (B)  [,] a corporation;
                     (C)  a limited liability company;
                     (D)  [,] a partnership;
                     (E)  a joint venture;
                     (F)  [,] an association;
                     (G)  [,] a joint-stock company;
                     (H)  [,] a business trust;
                     (I)  [,] an unincorporated organization;
                     (J)  [, or] two or more persons having a joint or
  common interest, including an individual or a corporation acting as
  a personal representative or in any other fiduciary capacity;
                     (K)  a government;
                     (L)  a governmental subdivision, agency, or
  instrumentality;
                     (M)  a public corporation; or
                     (N)  any other legal or commercial entity.
               (18)  "Trustee" means the person holding the property
  in trust, including an original, additional, or successor trustee,
  whether or not the person is appointed or confirmed by a court.
         SECTION 4.  Section 112.035(d), Property Code, is amended to
  read as follows:
         (d)  If the settlor is also a beneficiary of the trust, a
  provision restraining the voluntary or involuntary transfer of the
  settlor's [his] beneficial interest does not prevent the settlor's
  [his] creditors from satisfying claims from the settlor's [his]
  interest in the trust estate. A settlor is not considered a
  beneficiary of a trust solely because 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.
         SECTION 5.  Subchapter C, Chapter 112, Property Code, is
  amended by adding Section 112.059 to read as follows:
         Sec. 112.059.  TERMINATION OF UNECONOMIC TRUST. (a)  After
  notice to beneficiaries who are distributees or permissible
  distributees of trust income or principal or who would be
  distributees or permissible distributees if the interests of the
  distributees or the trust were to terminate and no powers of
  appointment were exercised, the trustee of a trust consisting of
  trust property having a total value of less than $50,000 may
  terminate the trust if the trustee concludes after considering the
  purpose of the trust and the nature of the trust assets that the
  value of the trust property is insufficient to justify the
  continued cost of administration.
         (b)  On termination of a trust under this section, the
  trustee shall distribute the trust property in a manner consistent
  with the purposes of the trust.
         (c)  A trustee may not exercise a power described by
  Subsection (a) if the trustee's possession of the power would cause
  the assets of the trust to be included in the trustee's estate for
  federal estate tax purposes.
         (d)  This section does not apply to an easement for
  conservation or preservation.
         SECTION 6.  Sections 113.058(b) and (d), Property Code, are
  amended to read as follows:
         (b)  Unless [a court orders otherwise or] the instrument
  creating the trust provides otherwise, a noncorporate trustee must
  give bond:
               (1)  payable to the trust estate of the trust, the
  registry of the court, or each person interested in the trust, as
  their interests may appear; and
               (2)  conditioned on the faithful performance of the
  trustee's duties.
         (d)  Any interested person may bring an action to increase or
  decrease the amount of a bond, require a bond, or [to] substitute or
  add sureties.  Notwithstanding Subsection (b), for cause shown, a
  court may require a bond even if the instrument creating the trust
  provides otherwise.
         SECTION 7.  Section 113.085(a), Property Code, is amended to
  read as follows:
         (a)  Cotrustees [that are unable to reach a unanimous
  decision] may act by majority decision.
         SECTION 8.  Section 114.005(a), Property Code, is amended to
  read as follows:
         (a)  A beneficiary who has full legal capacity and is acting
  on full information may relieve a trustee from any duty,
  responsibility, restriction, or liability as to the beneficiary
  that would otherwise be imposed on the trustee by this subtitle,
  including liability for past violations[, except as to the duties,
  restrictions, and liabilities imposed on corporate trustees by
  Section 113.052 or 113.053 of this subtitle].
         SECTION 9.  Section 114.081, Property Code, is amended to
  read as follows:
         Sec. 114.081.  PROTECTION OF PERSON DEALING WITH [PAYMENT OF
  MONEY TO] TRUSTEE.  (a)  A person who deals with a trustee [actually
  and] in good faith and for fair value actually received by the trust
  is not liable to the trustee or the beneficiaries of the trust if
  the trustee has exceeded the trustee's authority in dealing with
  the person [pays to a trustee money that the trustee is authorized
  to receive is not responsible for the proper application of the
  money according to the trust].
         (b)  A person other than a beneficiary is not required to
  inquire into the extent of the trustee's powers or the propriety of
  the exercise of those powers if the person:
               (1)  deals with the trustee in good faith; and
               (2)  obtains:
                     (A)  a certification of trust described by Section
  114.086; or
                     (B)  a copy of the trust instrument.
         (c)  A person who in good faith delivers money or other
  assets to a trustee is not required to ensure the proper application
  of the money or other assets.
         (d)  A person other than a beneficiary who in good faith
  assists a former trustee, or who in good faith and for value deals
  with a former trustee, without knowledge that the trusteeship has
  terminated, is protected from liability as if the former trustee
  were still a trustee.
         (e)  Comparable protective provisions of other laws relating
  to commercial transactions or transfer of securities by fiduciaries
  prevail over the protection provided by this section [A right or
  title derived from the trustee in consideration of the monetary
  payment under Subsection (a) of this section may not be impeached or
  questioned because of the trustee's misapplication of the money].
         SECTION 10.  Subchapter D, Chapter 114, Property Code, is
  amended by adding Section 114.086 to read as follows:
         Sec. 114.086. CERTIFICATION OF TRUST. (a) As an
  alternative to providing a copy of the trust instrument to a person
  other than a beneficiary, the trustee may provide to the person a
  certification of trust containing the following information:
               (1)  a statement that the trust exists and the date the
  trust instrument was executed;
               (2)  the identity of the settlor;
               (3)  the identity and mailing address of the currently
  acting trustee;
               (4)  one or more powers of the trustee or a statement
  that the trust powers include at least all the powers granted a
  trustee by Subchapter A, Chapter 113;
               (5)  the revocability or irrevocability of the trust
  and the identity of any person holding a power to revoke the trust;
               (6)  the authority of cotrustees to sign or otherwise
  authenticate and whether all or less than all of the cotrustees are
  required in order to exercise powers of the trustee; and
               (7)  the manner in which title to trust property should
  be taken.
         (b)  A certification of trust may be signed or otherwise
  authenticated by any trustee.
         (c)  A certification of trust must state that the trust has
  not been revoked, modified, or amended in any manner that would
  cause the representations contained in the certification to be
  incorrect.
         (d)  A certification of trust:
               (1)  is not required to contain the dispositive terms
  of a trust; and
               (2)  may contain information in addition to the
  information required by Subsection (a).
         (e)  A recipient of a certification of trust may require the
  trustee to furnish copies of the excerpts from the original trust
  instrument and later amendments to the trust instrument that
  designate the trustee and confer on the trustee the power to act in
  the pending transaction.
         (f)  A person who acts in reliance on a certification of
  trust without knowledge that the representations contained in the
  certification are incorrect is not liable to any person for the
  action and may assume without inquiry the existence of the facts
  contained in the certification.
         (g)  If a person has actual knowledge that the trustee is
  acting outside the scope of the trust, and the actual knowledge was
  acquired by the person before the person entered into the
  transaction with the trustee or made a binding commitment to enter
  into the transaction, the transaction is not enforceable against
  the trust.
         (h)  A person who in good faith enters into a transaction
  relying on a certification of trust may enforce the transaction
  against the trust property as if the representations contained in
  the certification are correct. This section does not create an
  implication that a person is liable for acting in reliance on a
  certification of trust that fails to contain all the information
  required by Subsection (a). A person's failure to demand a
  certification of trust does not:
               (1)  affect the protection provided to the person by
  Section 114.081; or
               (2)  create an inference as to whether the person has
  acted in good faith.
         (i)  A person making a demand for the trust instrument in
  addition to a certification of trust or excerpts as described by
  Subsection (e) is liable for damages if the court determines that
  the person did not act in good faith in making the demand.
         (j)  This section does not limit the right of a person to
  obtain a copy of the trust instrument in a judicial proceeding
  concerning the trust.
         (k)  This section does not limit the rights of a beneficiary
  of the trust against the trustee.
         SECTION 11.  Section 115.001, Property Code, is amended by
  amending Subsections (a) and (d) and adding Subsection (a-1) to
  read as follows:
         (a)  Except as provided by Subsection (d) of this section, a
  district court has original and exclusive jurisdiction over all
  proceedings by or against a trustee and all proceedings concerning
  trusts, including proceedings to:
               (1)  construe a trust instrument;
               (2)  determine the law applicable to a trust
  instrument;
               (3)  appoint or remove a trustee;
               (4)  determine the powers, responsibilities, duties,
  and liability of a trustee;
               (5)  ascertain beneficiaries;
               (6)  make determinations of fact affecting the
  administration, distribution, or duration of a trust;
               (7)  determine a question arising in the administration
  or distribution of a trust;
               (8)  relieve a trustee from any or all of the duties,
  limitations, and restrictions otherwise existing under the terms of
  the trust instrument or of this subtitle;
               (9)  require an accounting by a trustee, review trustee
  fees, and settle interim or final accounts; and
               (10)  surcharge a trustee.
         (a-1)  The list of proceedings described by Subsection (a)
  over which a district court has exclusive and original jurisdiction
  is not exhaustive.  A district court has exclusive and original
  jurisdiction over a proceeding by or against a trustee or a
  proceeding concerning a trust under Subsection (a) whether or not
  the proceeding is listed in Subsection (a).
         (d)  The jurisdiction of the district court [over
  proceedings concerning trusts] is exclusive except for
  jurisdiction conferred by law on:
               (1)  a statutory probate court;
               (2) [,]  a court that creates a trust under Section
  867, Texas Probate Code;
               (3) [, or]  a court that creates a trust under Section
  142.005;
               (4)  a justice court under Chapter 27, Government Code;
  or
               (5)  a small claims court under Chapter 28, Government
  Code.
         SECTION 12.  Sections 116.002(9) and (13), Property Code,
  are amended to read as follows:
               (9)  "Person" has the meaning assigned by Section
  111.004 [means an individual, corporation, business trust, estate,
  trust, partnership, limited liability company, association, joint
  venture, government; governmental subdivision, agency, or
  instrumentality; public corporation, or any other legal or
  commercial entity].
               (13)  "Trustee" has the meaning assigned by Section
  111.004 [includes an original, additional, or successor trustee,
  whether or not appointed or confirmed by a court].
         SECTION 13.  Sections 116.172(c) and (e), Property Code, are
  amended to read as follows:
         (c)  If no part of a payment is characterized as interest, a
  dividend, or an equivalent payment, and all or part of the payment
  is required to be made, a trustee shall allocate to income the part
  of the payment that does not exceed an amount equal to:
               (1)  four percent of the fair market value of the future
  payment asset on the date specified in Subsection (d); less
               (2)  the total amount that the trustee has allocated to
  income for all previous payments received from the future payment
  asset during the same accounting period in which the payment is
  received [made].
         (e)  For each accounting period [year] a [future] payment
  [asset] is received [made], the amount determined under Subsection
  (c)(1) [(c)] must be prorated on a daily basis unless the
  determination of the fair market value of a future payment asset is
  made under Subsection (d)(2) and is for an accounting period of 365
  days or more.
         SECTION 14.  Section 116.174(a), Property Code, is amended
  to read as follows:
         (a)  To the extent that a trustee accounts for receipts from
  an interest in minerals or other natural resources pursuant to this
  section, the trustee shall allocate them as follows:
               (1)  If received as [nominal] delay rental or [nominal]
  annual rent on a lease, a receipt must be allocated to income.
               (2)  If received from a production payment, a receipt
  must be allocated to income if and to the extent that the agreement
  creating the production payment provides a factor for interest or
  its equivalent. The balance must be allocated to principal.
               (3)  If [an amount] received as a royalty, shut-in-well
  payment, take-or-pay payment, or bonus, [or delay rental is more
  than nominal,] the trustee shall allocate the receipt equitably.
               (4)  If an amount is received from a working interest or
  any other interest not provided for in Subdivision (1), (2), or (3),
  the trustee must allocate the receipt equitably.
         SECTION 15.  Section 123.003(a), Property Code, is amended
  to read as follows:
         (a)  Any party initiating a proceeding involving a
  charitable trust shall give notice of the proceeding to the
  attorney general by sending to the attorney general, by registered
  or certified mail, a true copy of the petition or other instrument
  initiating the proceeding involving a charitable trust within 30
  days of the filing of such petition or other instrument, but no less
  than 25 days prior to a hearing in such a proceeding. This
  subsection does not apply to a proceeding that[:
               [(1)] is initiated by an application that exclusively
  seeks the admission of a will to probate, regardless of whether the
  application seeks the appointment of a personal representative, if
  the application:
               (1)  is uncontested; and [or]
               (2)  is not subject to [a proceeding under] Section 83,
  Texas Probate Code.
         SECTION 16.  Section 141.002, Property Code, is amended by
  amending Subdivision (2) and adding Subdivision (12-a) to read as
  follows:
               (2)  "Benefit plan" means a [an employer's plan for the
  benefit of an employee or partner or an individual] retirement
  plan, including an interest described by Sections 111.004(19)-(23)
  [account].
               (12-a)  "Qualified minor's trust" means a trust to
  which a gift is considered a present interest under Section
  2503(c), Internal Revenue Code of 1986.
         SECTION 17.  Section 141.004(a), Property Code, is amended
  to read as follows:
         (a)  A person having the right to designate the recipient of
  property transferable on the occurrence of a future event may
  revocably nominate a custodian to receive the property for a minor
  beneficiary on the occurrence of that event by naming the custodian
  followed in substance by the words: "as custodian for     (name of
  minor)     under the Texas Uniform Transfers to Minors Act." The
  nomination may name one or more persons as substitute custodians to
  whom the property must be transferred, in the order named, if the
  first nominated custodian dies before the transfer or is unable,
  declines, or is ineligible to serve. The nomination may be made in
  a will, a trust, a deed, an instrument exercising a power of
  appointment, or in a writing designating a beneficiary of
  contractual rights, including the right to receive payments from a
  benefit plan, that is registered with or delivered to the payor,
  issuer, or other obligor of the contractual rights.
         SECTION 18.  Sections 141.008(a) and (c), Property Code, are
  amended to read as follows:
         (a)  Subject to Subsections (b) and (c), a person who is not
  subject to Section 141.006 or 141.007 and who holds property,
  including a benefit plan of a minor who does not have a guardian, or
  who owes a liquidated debt to a minor who does not have a guardian
  may make an irrevocable transfer to a custodian for the benefit of
  the minor under Section 141.010.
         (c)  If a custodian has not been nominated under Section
  141.004, or all persons nominated as custodian die before the
  transfer or are unable, decline, or are ineligible to serve, a
  transfer under this section may be made to an adult member of the
  minor's family or to a trust company unless the property exceeds
  $15,000 [$10,000] in value.
         SECTION 19.  Section 141.015, Property Code, is amended by
  adding Subsection (b-1) to read as follows:
         (b-1)  A custodian may, without a court order, transfer all
  or part of the custodial property to a qualified minor's trust. A
  transfer of property under this subsection terminates the
  custodianship to the extent of the property transferred.
         SECTION 20.  Section 142.005, Property Code, is amended by
  amending Subsections (a), (b), and (g) and adding Subsections (k)
  through (o) to read as follows:
         (a)  Any [In a suit in which a minor who has no legal guardian
  or an incapacitated person is represented by a next friend or an
  appointed guardian ad litem, any] court of record with jurisdiction
  to hear a [the] suit involving a beneficiary may, on application [by
  the next friend or the guardian ad litem] and on a finding that the
  creation of a trust would be in the best interests of the
  beneficiary [minor or incapacitated person], enter a decree in the
  record directing the clerk to deliver any funds accruing to the
  beneficiary [minor or incapacitated person] under the judgment to a
  financial institution, except as provided by Subsections (m) and
  (n) [trust company or a state or national bank having trust powers
  in this state].
         (b)  The decree shall provide for the creation of a trust for
  the management of the funds for the benefit of the beneficiary
  [minor or incapacitated person] and for terms, conditions, and
  limitations of the trust, as determined by the court, that are not
  in conflict with the following mandatory provisions:
               (1)  The beneficiary shall be [the minor or
  incapacitated person is] the sole beneficiary of the trust.[;]
               (2)  The [the] trustee may disburse amounts of the
  trust's principal, income, or both as the trustee in the trustee's 
  [his] sole discretion determines to be reasonably necessary for the
  health, education, support, or maintenance of the beneficiary. The
  trustee may conclusively presume that medicine or treatments
  approved by a licensed physician are appropriate for the health of
  the beneficiary.[;]
               (3)  The [the] income of the trust not disbursed under
  Subdivision (2) shall be [is] added to the principal of the
  trust.[;]
               (4)  If [if] the beneficiary is a minor, the trust shall
  terminate [terminates] on the death of the beneficiary, on the
  beneficiary's attaining an age stated in the trust, or on the 25th
  birthday of the beneficiary, whichever occurs first, or if the
  beneficiary is an incapacitated person, the trust shall terminate
  [terminates] on the death of the beneficiary or when the
  beneficiary regains capacity.[;]
               (5)  A [the] trustee that is a financial institution
  shall serve [serves] without bond.[; and]
               (6)  The [the] trustee shall receive [receives]
  reasonable compensation paid from trust's income, principal, or
  both on application to and approval of the court.
               (7)  The first page of the trust instrument shall
  contain the following notice:
  NOTICE: THE BENEFICIARY AND CERTAIN PERSONS INTERESTED IN THE
  WELFARE OF THE BENEFICIARY MAY HAVE REMEDIES UNDER SECTION 114.008
  OR 142.005, PROPERTY CODE.
         (g)  Notwithstanding any other provision of this chapter, if
  the court finds that it would be in the best interests of the
  beneficiary [minor or incapacitated person] for whom a trust is
  established [created] under this section, the court may omit or
  modify any terms required by Subsection (b) if the court determines
  that the omission or modification is necessary or appropriate to
  allow the beneficiary to be eligible to receive public benefits or
  assistance under a state or federal program. This section does not
  require a distribution from a trust if the distribution is
  discretionary under the terms of the trust [may contain provisions
  determined by the court to be necessary to establish a special needs
  trust as specified under 42 U.S.C. Section 1396p(d)(4)(A)].
         (k)  In addition to ordering other appropriate remedies and
  grounds, the court may appoint a guardian ad litem to investigate
  and report to the court whether the trustee should be removed for
  failing or refusing to make distributions for the health,
  education, support, or maintenance of the beneficiary required
  under the terms of the trust if the court is petitioned by:
               (1)  a parent of the beneficiary;
               (2)  a next friend of the beneficiary;
               (3)  a guardian of the beneficiary;
               (4)  a conservator of the beneficiary;
               (5)  a guardian ad litem for the beneficiary; or
               (6)  an attorney ad litem for the beneficiary.
         (l)  A person listed in Subsection (k) shall be reimbursed
  from the trust for reasonable attorney's fees, not to exceed
  $1,000, incurred in bringing the petition.
         (m)  If the value of the trust's principal is $50,000 or
  less, the court may appoint a person other than a financial
  institution to serve as trustee of the trust only if the court finds
  the appointment is in the beneficiary's best interests.
         (n)  If the value of the trust's principal is more than
  $50,000, the court may appoint a person other than a financial
  institution to serve as trustee of the trust only if the court finds
  that:
               (1)  no financial institution is willing to serve as
  trustee; and
               (2)  the appointment is in the beneficiary's best
  interests.
         (o)  In this section:
               (1)  "Beneficiary" means:
                     (A)  a minor or incapacitated person who:
                           (i)  has no legal guardian; and
                           (ii)  is represented by a next friend or an
  appointed guardian ad litem; or
                     (B)  a person with a physical disability.
               (2)  "Financial institution" means a financial
  institution, as defined by Section 201.101, Finance Code, that has
  trust powers, exists, and does business under the laws of this or
  another state or the United States.
         SECTION 21.  Section 187.005(c), Finance Code, and Section
  113.060, Property Code, are repealed.
         SECTION 22.  The enactment of Section 113.060, Property
  Code, by Chapter 148, Acts of the 79th Legislature, Regular
  Session, 2005, was not intended to repeal any common-law duty to
  keep a beneficiary of a trust informed, and the repeal by this Act
  of Section 113.060, Property Code, does not repeal any common-law
  duty to keep a beneficiary informed. The common-law duty to keep a
  beneficiary informed that existed immediately before January 1,
  2006, is continued in effect.
         SECTION 23.  Except as otherwise provided by the terms of a
  trust, the changes in law made by this Act apply to a trust existing
  or created on or after the effective date of this Act.
         SECTION 24.  (a)  Except as provided by Subsection (b) of
  this section, this Act takes effect September 1, 2007.
         (b)  Section 111.0035, Property Code, as amended by this Act,
  and the repeal by this Act of Section 113.060, Property Code, take
  effect immediately if this Act receives a vote of two-thirds of all
  the members elected to each house, as provided by Section 39,
  Article III, Texas Constitution.  If this Act does not receive the
  vote necessary for immediate effect, Section 111.0035, Property
  Code, as amended by this Act, and the repeal by this Act of Section
  113.060, Property Code, take effect September 1, 2007.
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
 
         I certify that H.B. No. 564 was passed by the House on March
  15, 2007, by the following vote:  Yeas 146, Nays 0, 2 present, not
  voting; and that the House concurred in Senate amendments to H.B.
  No. 564 on May 16, 2007, by the following vote:  Yeas 143, Nays 0, 3
  present, not voting.
 
  ______________________________
  Chief Clerk of the House   
 
         I certify that H.B. No. 564 was passed by the Senate, with
  amendments, on May 11, 2007, by the following vote:  Yeas 31, Nays
  0.
 
  ______________________________
  Secretary of the Senate   
  APPROVED: __________________
                  Date       
   
           __________________
                Governor