HB4058 - Relating to self-settled asset protection trusts.

      By: VanDeaver H.B. No. 4058       A BILL TO BE ENTITLED   AN ACT   relating to self-settled asset protection trusts.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  Section 112.035(d), Property Code, is amended to   read as follows:          (d)   Except as provided by Subchapter F, if [ If ] the settlor   is also a beneficiary of the trust, a provision restraining the   voluntary or involuntary transfer of the settlor's beneficial   interest does not prevent the settlor's creditors from satisfying   claims from the settlor's interest in the trust estate.  A settlor   is not considered a beneficiary of a trust solely because:                (1)  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; or                (2)  the settlor's interest in the trust was created by   the exercise of a power of appointment by a third party.          SECTION 2.  Chapter 112, Property Code, is amended by adding   Subchapter F to read as follows:   SUBCHAPTER F. SELF-SETTLED ASSET PROTECTION TRUST           Sec.   112.151.     SELF-SETTLED ASSET PROTECTION TRUST.   If a   spendthrift trust of which the settlor is a beneficiary satisfies   the requirements of Section 112.152:                 (1)     the trust is considered a self-settled asset   protection trust; and                 (2)     except as provided by this subchapter, a restraint   by the trust of the voluntary or involuntary transfer of the   settlor's beneficial interest in the trust prevents the settlor's   creditors from satisfying claims from that interest.           Sec.   112.152.     CREATION.   (a)   A spendthrift trust of which   the settlor is a beneficiary may be considered a self-settled asset   protection trust under this subchapter only if:                 (1)  the trust:                       (A)     is created in a writing signed by the   settlor;                       (B)  is irrevocable;                       (C)     does not require that any part of the income   or principal of the trust be distributed to the settlor; and                       (D)     is not intended to hinder, delay, or defraud   known creditors; and                 (2)  at least one trustee of the trust is:                       (A)     an individual who resides in and is domiciled   in this state;                       (B)  a trust company that:                             (i)    is organized under federal law or under   the laws of this state or another state; and                             (ii)    maintains an office in this state for   the transaction of business; or                       (C)     a financial institution, as defined by   Section 201.101, Finance Code, that:                             (i)    is organized under federal law or under   the laws of this state or another state;                             (ii)    maintains an office in this state for   the transaction of business; and                             (iii)    has and exercises trust powers.           (b)     A spendthrift trust may be considered a self-settled   asset protection trust even if under the trust terms:                 (1)     the settlor may prevent a distribution from the   trust;                 (2)     the settlor holds a special lifetime or   testamentary power of appointment, so long as that power cannot be   exercised in favor of the settlor, the settlor's estate, a creditor   of the settlor, or a creditor of the settlor's estate;                 (3)     the settlor is a beneficiary of a trust that   qualifies as a charitable remainder trust under 26 U.S.C. Section   664, or a successor provision, even if the settlor has the right to   release all or part of the settlor's retained interest in that trust   in favor of one or more of the remainder beneficiaries of the trust;                 (4)     the settlor is authorized or entitled to receive a   percentage of the value of the trust each year as specified in the   trust instrument, whether of the initial value of the trust assets   or their value determined from time to time as provided by the trust   instrument, so long as the authorized annual distribution may not   exceed:                       (A)     the amount that may be considered income   under 26 U.S.C. Section 643(b); or                       (B)     with respect to benefits from any qualified   retirement plan or any eligible deferred compensation plan, the   minimum required distribution as defined by 26 U.S.C. Section   4974(b);                 (5)     the settlor is authorized or entitled to receive   income or principal from:                       (A)     a grantor retained annuity trust paying out a   qualified annuity interest within the meaning of 26 C.F.R. Section   25.2702-3(b); or                       (B)     a grantor retained unitrust paying out a   qualified unitrust interest within the meaning of 26 C.F.R. Section   25.2702-3(c);                 (6)  the settlor:                       (A)     is authorized or entitled to use real   property held under a qualified personal residence trust as   described in 26 C.F.R. Section 25.2702-5(c), or a successor   provision; or                       (B)     may possess or actually possesses a qualified   annuity interest within the meaning of 26 C.F.R. Section   25.2702-3(b), or a successor provision;                 (7)     the settlor is authorized to receive income or   principal from the trust, so long as the authorized distribution is   subject to the discretion of another person; or                 (8)     the settlor is authorized to use real or personal   property owned by the trust.           (c)    Except as provided by this subsection, this section may   not be construed to prohibit the settlor of a self-settled asset   protection trust from holding any power under the trust, whether or   not the settlor is a cotrustee, including the power to remove and   replace a trustee, direct trust investments, or execute other   management powers.   The settlor may not hold a power to make   distributions to himself or herself without the consent of another   person.           (d)    A self-settled asset protection trust is created under   this subchapter if by the terms of the writing creating the trust   the settlor manifests an intention to create a self-settled asset   protection trust.   No specific language is required for the   creation   of a self-settled asset protection trust under this   subchapter.           Sec.   112.153.     SETTLOR POWERS.   (a)   The settlor of a   selfsettled asset protection trust has only those powers and rights   that are conferred on the settlor by the trust instrument.           (b)     An agreement or understanding, express or implied,   between the settlor and the trustee that attempts to grant or permit   the retention of greater rights or authority than is stated in the   trust instrument is void.           Sec.   112.154.     BENEFICIARIES.   (a)   The beneficiary of a   selfsettled asset protection trust must be named or clearly   referred to in the trust instrument.           (b)     A spouse, former spouse, child, or dependent of the   settlor is not a beneficiary of the self-settled asset protection   trust unless named or clearly referred to as a beneficiary in the   trust instrument.           Sec.   112.155.     PROVISIONS FOR SUPPORT. (a)   Provision for a   beneficiary in a self-settled asset protection trust shall be for   the support, education, maintenance, and benefit of the   beneficiary   without reference to or limitation by the beneficiary's needs,   station in life, or mode of life, or the needs of any other person,   whether dependent upon the beneficiary or not.           (b)    The validity of a self-settled asset protection trust   does not depend on the beneficiary's character, capacity,   incapacity, competency, or incompetency.           (c)    Provision for a beneficiary extends to all income from   the trust estate devoted for that purpose by the settlor of the   trust, without exception or deduction, except for:                 (1)    costs or fees regularly earned, paid, or incurred   by the trustee for administration of or protection of the trust   estate;                 (2)    taxes on the costs or fees regularly earned, paid,   or incurred by the trustee for administration of or protection of   the trust estate; or                 (3)    taxes on the interest of the beneficiary.           Sec.   112.156.     DISCRETION OF TRUSTEE. (a)   If the settlor of   a self-settled asset protection trust provides discretion to the   trustee of the trust with respect to one of the following matters,   that discretion is absolute:                 (1)    the sum to be applied for or paid to a beneficiary;                 (2)    the application or payment of sums for or to a   beneficiary;                 (3)    the amount of trust income to be applied for or   paid to a beneficiary; or                 (4)    payment of all or any part of the income to any one   or more of the beneficiaries.           (b)     The trustee has absolute discretion as described under   Subsection (a) regardless of whether:                 (1)     the trust provides for the accumulation of income;   or              [Text truncated for display. Full text available on Congress.gov.]