HBA-TYH H.B. 1553 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 1553 By: Craddick Financial Institutions 3/5/1999 Introduced BACKGROUND AND PURPOSE In the past, the existence of corporations was restricted to a specified period of years. However, current Texas law allows for perpetual corporations. Other states, such as Delaware, have enabled the formation of perpetual corporations to boost their economic prosperity. As a result, Delaware has become a magnet for the establishment of many businesses. H.B. 1553 seeks to similarly impact the trust and asset management industries in Texas by freeing Texas trusts from the Rule of Perpetuities and enabling farmers, businesses, and other asset holders to place their assets in perpetual trusts. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 112.035(d), Property Code, to provide that, except as provided by Section 112.037, a provision restraining the voluntary or involuntary transfer of a beneficiary's interest prevents, rather than does not prevent, a creditor existing when the trust is created, a person who subsequently becomes a creditor, or another person from satisfying claims out of the beneficiary's interest in the trust estate. Deletes the precondition that the settlor is also a beneficiary of the trust. Makes conforming changes. SECTION 2. Amends Section 112.036, Property Code, by deleting original text regarding the rule against perpetuities and adding new text, as follows: Sec. 112.036. New title: SPENDTHRIFT TRUST AVOIDED IN CERTAIN CIRCUMSTANCES. (a) Authorizes a creditor existing when the trust is created, a person who subsequently becomes a creditor, or another person to satisfy a claim out of the beneficiary's interest in the trust if: (1) the transfer was intended in whole or in part to hinder, delay, or defraud a creditor or another person entitled to recover by law; (2) the trust instrument provides that the settlor may revoke or terminate all or part of the trust without the consent of a person who has a substantial beneficial interest in the trust and the person's interest would be adversely affected by the exercise of that power; (3) the trust instrument provides that all or part of the income or principal of the trust must be distributed to the settlor; or (4) at the time of the transfer, the settlor is in default by 30 days or more in making a payment due under a child support judgment or order. (b) Provides that for purposes of Subsection (a)(2), the power to veto a distribution from the trust, a testamentary special power or similar power, or the right to receive a distribution of income or corpus in the discretion of a person, including a trustee, other than the settlor, does not constitute the power to revoke or terminate all or part of the trust without the consent of a person who has a substantial beneficial interest in the trust. (c) Provides that the satisfaction of a claim under Subsection (a)(1), (2), (3), or (4) is limited to that part of the trust to which the subdivision applies. (d) Authorizes a person who is a creditor when the trust is created to bring an action under Subsection (a)(1) only if the person brings the action on or before the fourth anniversary of the date on which the transfer is made or on or before the first anniversary of the date the person should have known that the transfer was made, whichever is later. (e) Authorizes a person who becomes a creditor after the transfer is made to bring an action under Subsection (a)(1) only if the person brings the action on or before the fourth anniversary of the date on which the transfer is made SECTION 3. Amends Subchapter B, Chapter 112, Property Code, by adding Section 112.037, as follows: Sec. 112.037. CONFLICT OF LAWS PROVISION: SPENDTHRIFT TRUSTS. (a) Defines "bank," "qualified person," and "state trust company." (b) Provides that a provision in a trust instrument described by Section 112.035 (Spendthrift Trusts) that provides that the laws of this state govern the validity, construction, and administration of the trust is conclusive if: (1) some or all of the trust assets are deposited in this state and are administered by a qualified person; (2) at least one trustee is a qualified person who is designated as a trustee under the trust instrument or by a court having jurisdiction over the trust; (3) the administrative powers of the qualified person include maintaining records for the trust, exclusively or nonexclusively, and preparing or providing for the preparation of, exclusively or nonexclusively, an income tax return that must be filed by the trust; and (4) all or part of the administration occurs in this state. (c) Provides that for purposes of Subsection (b)(1), trust assets are deposited in this state if the assets are held in a checking account, time deposit, certificate of deposit, brokerage account, trust company fiduciary account, or other similar account or deposit that is located in this state. SECTION 4. Effective date: September 1, 1999. Makes application of this Act prospective. SECTION 5. Emergency clause.