By: Elkins (Senate Sponsor - Creighton) H.B. No. 1948
         (In the Senate - Received from the House April 24, 2017;
  May 1, 2017, read first time and referred to Committee on Business &
  Commerce; May 21, 2017, reported favorably by the following vote:  
  Yeas 7, Nays 1; May 21, 2017, sent to printer.)
Click here to see the committee vote
 
 
A BILL TO BE ENTITLED
 
AN ACT
 
  relating to the administration and operation of certain trusts
  created to provide for the general care and maintenance of
  perpetual care cemeteries.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Chapter 712, Health and Safety Code, is amended
  by adding Subchapter B-1 to read as follows:
  SUBCHAPTER B-1. DISTRIBUTIONS FROM FUND
         Sec. 712.0351.  DEFINITIONS. In this subchapter:
               (1)  "Net income fund" means a fund from which
  permissible distributions are calculated based on the net income
  method.
               (2)  "Net income method" means calculation of
  permissible annual distributions by the trustee as equal to the
  annual net income of the fund.
               (3)  "Total return fund" means a fund from which
  permissible distributions are calculated based on the total return
  method.
               (4)  "Total return method" means the calculation of
  permissible annual distributions by the trustee as equal to the
  average fair market value of the assets in the fund, determined
  under Section 712.0353, multiplied by the total return percentage.
               (5)  "Total return percentage" means the annual
  percentage selected by the trustee in accordance with Section
  712.0354.
         Sec. 712.0352.  MODIFICATION OF DISTRIBUTION METHOD. (a)
  Except as otherwise provided by this subchapter, the trustee of a
  fund shall use the net income method to determine permissible
  distributions from the fund to the corporation.
         (b)  A corporation on concurrence of the corporation's
  trustee may modify the terms of the trust instrument governing the
  fund to require the trustee to use the total return method in
  determining permissible distributions to the corporation. To
  convert a net income fund to a total return fund, at least 60 days
  before the effective date of the conversion, which must be the first
  day of the fund's next fiscal year, the corporation shall submit
  written documentation to the commissioner in support of the
  conversion that includes:
               (1)  a copy of the trust instrument governing the fund
  and any proposed amendments to the instrument necessary to
  authorize the conversion;
               (2)  the trustee's estimates of the current fair market
  value and the average fair market value of the fund as of the
  effective date of the conversion, as determined under Section
  712.0353, and actions by the trustee to finalize the trustee's
  determination of both current and average fair market value of the
  fund and to advise the corporation and the commissioner as soon as
  reasonably possible after the effective date;
               (3)  a description of the method the trustee used or
  will use to determine the fair market value of any unique and
  hard-to-value asset in the fund, and identification and explanation
  of any asset the trustee excluded or will exclude from the average
  fair market value calculation;
               (4)  the total return percentage selected by the
  trustee under Section 712.0354, and the reasons for the selection;
               (5)  a copy of the written investment policy for the
  fund as modified to support use of the total return method; and
               (6)  any additional information required by rules
  adopted under this chapter.
         (c)  A corporation that converts the corporation's fund to a
  total return fund under this section may elect to reconvert the fund
  to a net income fund and modify the terms of the trust instrument
  governing the fund to require the trustee to calculate permissible
  distributions under the net income method. To reconvert a total
  return fund to a net income fund, the corporation must submit
  written documentation to the commissioner in support of the
  reconversion before the proposed effective date of the
  reconversion, that includes:
               (1)  a copy of the trust instrument governing the fund
  and any proposed amendments to the instrument necessary to
  authorize the reconversion;
               (2)  the proposed effective date of the reconversion,
  provided that the effective date must be the first day of the fund's
  next fiscal year unless the total distributions received or to be
  received from the fund in the current fiscal year would not exceed
  the distributions permissible for a net income fund at the
  beginning of the current fiscal year; and
               (3)  any additional information required by rules
  adopted under this chapter.
         (d)  The trustee of a net income fund or a total return fund
  shall make distributions to the corporation, annually or in more
  frequent installments agreed to by the trustee and the corporation,
  to be used by the corporation in the manner required by Section
  712.025.
         Sec. 712.0353.  DETERMINATION OF FAIR MARKET VALUE. (a) The
  trustee of a total return fund, or of a net income fund seeking to
  convert to a total return fund, shall determine for the
  corporation, in the trustee's sole discretion and in accordance
  with this section, the average fair market value of the fund at the
  beginning of each fiscal year.
         (b)  The trustee shall derive the average fair market value
  of the fund at least annually by averaging the fair market value of
  fund assets, determined on an asset-by-asset basis, as of the
  beginning of the current fiscal year and in each of the two previous
  years, or for the entire term of the trust with less than two
  previous years, using the valuation date or averages of valuation
  dates as the trustee considers appropriate. The trustee shall
  exclude from the fair market value calculation any asset described
  in Section 712.030(b) and any asset for which the trustee is not
  able to reasonably ascertain a fair market value. In determining
  the average fair market value, the trustee shall adjust the fair
  market value for each year used in the calculation as follows:
               (1)  for assets added to the fund during the years used
  to determine the average, the trustee shall add the amount of each
  addition to all years in which the addition is not included; and
               (2)  for assets withdrawn from the fund during the
  years used to determine the average, other than in satisfaction of
  permissible distributions, the trustee shall subtract the amount of
  each withdrawal from all years in which the withdrawal is not
  included.
         (c)  Before the 31st day after the beginning of each fiscal
  year, the trustee of a total return fund shall send written notice
  to the commissioner and to the corporation of the trustee's
  determination of the current fair market value of the fund as of the
  beginning of the current fiscal year and the average fair market
  value of the fund for determining permissible distributions for the
  fiscal year, with identification and explanation of any asset
  excluded from the determination. If the trustee alters the
  methodology of determining fair market value in a manner that
  changes the fair market value of the fund during a fiscal year, the
  trustee shall send written notice to the commissioner and to the
  corporation of the revised current and average fair market value of
  the fund and the reason for the revision before the first
  distribution is made based on the revised average fair market
  value.
         (d)  This section does not alter or otherwise affect a
  fiduciary duty under other law to evaluate and monitor the fair
  market value of assets held in trust.
         Sec. 712.0354.  DETERMINATION OF TOTAL RETURN PERCENTAGE.
  (a) Consistent with the prudent investor rule, the trustee in the
  exercise of the trustee's sole discretion shall select the total
  return percentage to be used in determining permissible
  distributions from a total return trust at least annually, in an
  amount that represents a reasonable current return from the fund in
  light of the investment policy currently applicable to the fund,
  provided that the total return percentage does not exceed five
  percent.
         (b)  Before the 31st day after the beginning of each fiscal
  year, the trustee of a total return fund shall send written notice
  to the commissioner and to the corporation of the trustee's
  determination of the total return percentage to be applied in the
  fiscal year.  If the trustee alters the total return percentage
  during a fiscal year, the trustee shall send written notice to the
  commissioner and to the corporation of the revised total return
  percentage and the reason for the revision before the first
  distribution is made based on the new total return percentage.
         Sec. 712.0355.  REGULATORY LIMITS ON DISTRIBUTIONS. (a)
  After notice and an opportunity for hearing, the commissioner by
  order may convert a total return fund to a net income fund, limit or
  prohibit distributions from the fund, or both, if:
               (1)  the current fair market value of the fund at the
  beginning of a fiscal year is less than the original principal of
  the fund, consisting of the sum of all required deposits into the
  fund under this chapter, including deposits required by Sections
  712.004 and 712.028;
               (2)  the average fair market value of the fund declines
  by 10 percent or more over a two-year period; or
               (3)  the trustee or other fiduciary of the fund
  responsible for investment policy has demonstrated a lack of
  sufficient knowledge and expertise or has failed to ensure that an
  investment policy is in place to support the use of the total return
  method of calculating distributions in a manner consistent with
  achieving the purposes of the fund as provided by Section
  712.021(f).
         (b)  The commissioner may decline to impose corrective
  measures under Subsection (a) if the commissioner finds that:
               (1)  the cause of the adverse trend in the fair market
  value of the fund is due to one or more unusual or temporary factors
  not within the control of the corporation or trustee of the
  corporation's fund and could not have been reasonably anticipated;
               (2)  the current, written investment policy of the
  fund, in light of anticipated distributions from the fund, is
  reasonably designed to protect the fund from further declines in
  fair market value; and
               (3)  the exception appears to be both necessary and
  appropriate for the continued protection and perpetual existence of
  the fund.
         Sec. 712.0356.  RULES.  The Finance Commission of Texas may
  adopt rules to implement and clarify this subchapter.
         Sec. 712.0357.  NATURE OF TOTAL RETURN DISTRIBUTIONS. (a) A
  distribution from a total return fund is considered a distribution
  of all income of the fund that reasonably apportions the total
  return of the fund, and may not be considered a fundamental
  departure from applicable state law.
         (b)  Unless the trust instrument provides otherwise, the
  trustee of a total return fund shall treat a distribution as first
  being made from the following sources in order of priority:
               (1)  from net accounting income;
               (2)  from ordinary accounting income not allocable to
  net accounting income;
               (3)  from net realized short-term capital gains;
               (4)  from net realized long-term capital gains; and
               (5)  from the principal of the fund.
         SECTION 2.  Section 712.00395(h), Health and Safety Code, is
  amended to read as follows:
         (h)  An order approving the surrender of a certificate of
  authority must impose four conditions that are not subject to
  objection.  Failure to satisfy any of these conditions constitutes
  a violation of the commissioner's order, and the certificate holder
  is subject to an enforcement action under this chapter.  The order
  approving the surrender must:
               (1)  require the perpetual care fund to remain in an
  irrevocable trust, with the permissible distributions [income] to
  be used for perpetual care of the cemetery in general and for those
  plots that were purchased before the certificate was surrendered;
               (2)  require that the cemetery remove any signage or
  other announcement stating that the cemetery is a perpetual care
  cemetery;
               (3)  require each contract and other evidence of
  ownership entered into after the date of the order to clearly state
  that the cemetery is not regulated by the Texas Department of
  Banking and may not use the term "perpetual care cemetery"; and
               (4)  state the location of cemetery records and require
  the cemetery to:
                     (A)  retain existing records regarding the
  perpetual care fund for five years after the date of the order; and
                     (B)  continue to comply with all recordkeeping
  requirements of Chapter 711.
         SECTION 3.  Sections 712.021(b) and (g), Health and Safety
  Code, are amended to read as follows:
         (b)  Except as otherwise provided by this chapter [Section
  712.0255], the principal of the fund may not be reduced
  voluntarily, and it must remain inviolable.  The trustee shall
  maintain the principal of the fund separate from all operating
  funds of the corporation.
         (g)  The trustors of two or more perpetual care trust funds
  may establish a common trust fund in which deposits required by this
  chapter are made, provided that separate records of fund assets
  [principal and income] are maintained for each perpetual care
  cemetery for the benefit of which the common trust fund is
  established[, and further provided that the income attributable to
  each perpetual care cemetery is used only for the perpetual care of
  that cemetery].
         SECTION 4.  Section 712.025, Health and Safety Code, is
  amended to read as follows:
         Sec. 712.025.  USE OF FUND DISTRIBUTIONS [INCOME]. Fund
  distributions [income] may be used only to provide the perpetual
  care described by the instrument that established the fund,
  including the general care and maintenance of the property entitled
  to perpetual care in the perpetual care cemetery.
         SECTION 5.  Section 712.0255(a), Health and Safety Code, is
  amended to read as follows:
         (a)  The commissioner may petition a court to modify or
  terminate a fund under Section 112.054, Property Code.  In addition
  to the grounds described by that section, the commissioner may
  petition a court under that section if the permissible
  distributions [income] from the fund are [is] inadequate to
  maintain, repair, and care for the perpetual care cemetery and
  another source for providing additional contributions to the fund
  is unavailable.
         SECTION 6.  Section 712.026, Health and Safety Code, is
  amended by amending Subsections (a) and (c) and adding Subsection
  (d) to read as follows:
         (a)  If the directors of a corporation do not generally care
  for and maintain the corporation's perpetual care cemetery, the
  district court of the county in which the perpetual care cemetery is
  located may:
               (1)  by injunction compel the directors to expend the
  permissible distributions from [net income of] the corporation's
  fund as required by this chapter; or
               (2)  appoint a receiver to take charge of the fund and
  expend the permissible distributions from [net income of] the fund
  as required by this chapter.
         (c)  In a suit for relief under this section, court costs and
  attorney's fees shall be awarded:
               (1)  to the directors of the corporation, if it is found
  that the directors are substantially expending the permissible
  distributions from [available net income of] the fund as required
  by this subchapter; or
               (2)  to the plot owners initiating the suit, if it is
  found that the directors are not substantially expending the
  permissible distributions from [available net income of] the fund
  as required by this subchapter.
         (d)  Fund assets may not be used to pay court costs and
  attorney's fees awarded under Subsection (c).
         SECTION 7.  Section 712.030, Health and Safety Code, is
  amended to read as follows:
         Sec. 712.030.  USE OF GIFT FOR SPECIAL CARE OF PLOT IN
  PERPETUAL CARE CEMETERY. (a)  A trustee may take and hold property
  transferred to the trustee in trust in order to apply the principal,
  proceeds, or income of the property for any purpose consistent with
  the terms of the trust and the purpose of a corporation's perpetual
  care cemetery, including:
               (1)  the improvement or embellishment of any part of
  the perpetual care cemetery;
               (2)  the erection, renewal, repair, or preservation of
  a monument, fence, building, or other structure in the perpetual
  care cemetery;
               (3)  planting or cultivating plants in or around the
  perpetual care cemetery; or
               (4)  taking special care of or embellishing a plot,
  section, or building in the perpetual care cemetery.
         (b)  Except as provided by this subsection, the assets of a
  trust established under this section are not considered assets of
  the fund.  If a gift in trust is specifically intended to serve the
  same general purpose as the fund, the trust may be merged with the
  fund.
         SECTION 8.  Section 712.044(a), Health and Safety Code, is
  amended to read as follows:
         (a)  The commissioner may examine on a periodic basis as the
  commissioner reasonably considers necessary or appropriate to
  protect the interest of plot owners and efficiently administer and
  enforce this chapter:
               (1)  the books and records of a corporation relating to
  its fund, including deposits to or withdrawals from the fund,
  income of the fund, and uses and expenditures of distributions from
  the fund [that income];
               (2)  the books and records of a corporation relating to
  sales of undeveloped mausoleum spaces and any preconstruction trust
  established by the corporation as provided by Section 712.063,
  including deposits to or withdrawals from the preconstruction
  trust, income of the preconstruction trust, and uses and
  expenditures of principal and income of the preconstruction trust;
  and
               (3)  the consumer complaint files of a corporation
  relating to the fund, sales of undeveloped mausoleum spaces, a
  preconstruction trust, or to discharge of the corporation's
  perpetual care responsibilities, minutes of the corporation's
  board of directors, cemetery dedication statements and plat maps,
  and mausoleum and lawn crypt construction contracts and
  specifications.
         SECTION 9.  This Act takes effect September 1, 2017.
 
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