VanDeaver Bill Lets Texans Shield Their Own Money From Creditors

The text as introduced · 3,540 words

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

(2) a provision for the accumulation of income relates

to real or personal property.

(c) The discretion of a trustee under this section may not

be interfered with for any uncertainty or on any pretext or for any

consideration of the needs, station in life, or mode of life of a

beneficiary.

(d) The giving of discretion described by this section to a

trustee does not invalidate a self-settled asset protection trust.

Sec. 112.157. RESTRAINTS ON ALIENATION. (a) A

self-settled asset protection trust restrains and prohibits the

assignment, alienation, acceleration, and anticipation of any

interest of a beneficiary by the voluntary or involuntary act of the

beneficiary, by operation of law, by any process, or otherwise.

(b) The trust estate, or the corpus or capital of the trust

estate, of a self-settled asset protection trust may not be

assigned, alienated, diminished, or impaired by any alienation,

transfer, or seizure that would cut off or diminish payments,

rents, profits, earnings, or income of the trust estate that would

otherwise be available for the benefit of a beneficiary.

(c) Mandatory or discretionary payments by a trustee of a

self-settled asset protection trust to a beneficiary may be made

only to or for the benefit of the beneficiary and may not be made:

(1) by acceleration or anticipation;

(2) to any assignee of the beneficiary; or

(3) on the basis of any written or oral order given by

the beneficiary.

(d) Subsection (c) applies to an assignment or order

regardless of whether the assignment or order:

(1) is the voluntary contractual act of the

beneficiary;

(2) is made pursuant to or by virtue of any legal

process in judgment, execution, attachment, garnishment,

bankruptcy, or otherwise; or

(3) is made in connection with any contract, tort, or

duty.

(e) A beneficiary of a self-settled asset protection trust

may not order the disposition of the trust income, regardless of

whether the order:

(1) is voluntary or involuntary; or

(2) is made on the order or direction of a bankruptcy

court or other court.

(f) An interest of a beneficiary of a self-settled asset

protection trust is not subject to any process of attachment issued

against the beneficiary.

(g) An interest of a beneficiary of a self-settled asset

protection trust may not be taken in execution under any legal

process directed against a beneficiary, a trustee, the trust

estate, or the trust income.

(h) The trustee of a self-settled asset protection trust

shall apply the entire trust estate and trust income solely for the

benefit of a beneficiary, free, clear, and discharged of any

obligations of the beneficiary and from any responsibility for that

application.

(i) The trustee of a self-settled asset protection trust

shall disregard and defeat any assignment or other act, voluntary

or involuntary, that is contrary to this subchapter.

(j) an asset transferred to a self-settled protection trust

under this subchapter is not protected from remedies available

under Title V, Family Code, for the enforcement or collection of a

court-ordered child support obligation of the beneficiary if at the

time of the transfer of the asset the beneficiary is in arrears on

said court-ordered child support obligation by more than 30 days

and to the extent of the obligation in arrears.

Sec. 112.158. NO LEGAL ESTATE OF BENEFICIARY IN CORPUS. A

beneficiary of a self-settled asset protection trust has no legal

estate in the corpus of the trust estate unless under the terms of

the trust:

(1) the beneficiary or a person deriving title from

the beneficiary is entitled to conveyance of the corpus of the trust

estate immediately, after a term of years, or after a life; and

(2) during that term or life, if applicable, the

beneficiary is not entitled to receive income from the corpus of the

trust estate.

Sec. 112.159. ACCUMULATION OF INCOME. (a) An accumulation

of the income from the trust property of a self-settled asset

protection trust may be directed in the trust instrument for the

benefit of one or more beneficiaries, beginning within the time

permitted for the vesting of future interests and not to extend

beyond the period limiting the time within which the absolute power

of alienation of property may be suspended.

Sec. 112.160. LIMITATION ON ACTIONS. (a) A person who is a

settlor's creditor when a transfer is made to a self-settled asset

protection trust may not bring an action with respect to the

transfer unless the action is commenced on or before the later of:

(1) the second anniversary of the date on which the

transfer was made; or

(2) the 180th day after the date on which the creditor

discovers or reasonably should have discovered the transfer.

(b) A person who becomes a settlor's creditor after a

transfer is made to a self-settled asset protection trust may not

bring an action with respect to the transfer unless the action is

commenced on or before the second anniversary of the date on which

the transfer was made.

(c) For purposes of Subsection (a), a person is considered

to have discovered a transfer at the time a public record is made of

the transfer, including:

(1) a recording of the conveyance of real property in

the deed records of the county in which the property is located;

(2) a recording of a bill of sale or other transfer

instrument relating to the transfer of personal property:

(A) in the county where the transferor

principally resides, if the transferor is an individual resident of

this state; or

(B) in the county in this state where the

trustee's principal residence or place of business is located; or

(3) the filing of a financing statement under Chapter

9, Business & Commerce Code.

(d) A settlor's creditor may not bring an action with

respect to transfer of property to a self-settled asset protection

trust unless the creditor can prove by clear and convincing

evidence that the transfer of property was a fraudulent transfer

under Chapter 24, Business & Commerce Code, or that the transfer

violates a legal obligation owed to the creditor under a contract or

a valid court order that is legally enforceable by the creditor. In

the absence of such clear and convincing proof, the property

transferred is not subject to the claims of the creditor. Proof by

one creditor that a transfer of property was fraudulent or wrongful

does not constitute proof as to any other creditor, and proof of a

fraudulent or wrongful transfer of property as to one creditor does

not invalidate any other transfer of property.

(e) Notwithstanding any other provision of this subchapter,

if community property, as defined by Texas Family Code 3.002, is

transferred by only one spouse to a self-settled asset protection

trust created under this subchapter a claim related to the

fraudulent transfer of community assets by the non-joining spouse

is not limited as set forth in this section. A party seeking to

invoke this subsection has the burden of proving the applicability

of this subsection. The standard of proof legally required to

establish matters referred to in relation to a fraudulent transfer

of community property is not altered by this subsection.

(f) For purposes of Subsections (a) and (b), if property

transferred to a self-settled asset protection trust is

subsequently conveyed to the settlor or other trust beneficiary for

the purpose of obtaining a loan secured by a mortgage or deed of

trust on the property and then reconveyed to the trust, the

conveyance from and reconveyance to the trust shall be disregarded

and the property is considered to have been transferred to the trust

on the date of the original transfer to the trust. The mortgage or

deed of trust on the property is enforceable against the trust.

(g) A person may not bring an action against an advisor to

the settlor or trustee of a self-settled asset protection trust

unless the person can prove by clear and convincing evidence that

the advisor knowingly and in bad faith acted in violation of the law

of this state, and that the person suffered damages caused by the

advisor's action. For purposes of this subsection, "advisor" means

a person who gives advice relating to, who is involved in the

creation of, transfer of property to, or administration of, or who

participates in the preparation of accountings, tax returns, or

other reports relating to a self-settled asset protection trust.

The term includes an accountant, attorney, or investment advisor.

(h) A person other than a beneficiary or settlor of a

selfsettled asset protection trust may not bring an action against

a trustee of the trust unless the person can prove by clear and

convincing evidence that the trustee knowingly and in bad faith

acted in violation of the law of this state, and that the person

suffered damages caused by the trustee's action. For purposes of

this subsection, "trustee" includes a cotrustee and predecessor

trustee.

(i) If more than one transfer is made to a self-settled

asset protection trust:

(1) for purposes of Subsections (a) and (b), each

subsequent transfer to the trust shall be disregarded for the

purpose of determining whether a person may bring an action with

respect to a previous transfer to the trust; and

(2) any distribution to a beneficiary from the trust

is considered to have been made from the most recent transfer made

to the trust.

Sec. 112.161. EFFECT OF TRANSFER TO SECOND TRUST. For

purposes of this subchapter, if a trustee of a self-settled asset

protection trust exercises the trustee's discretion or authority to

distribute trust income or principal to or for the settlor of the

trust by appointing the property of the original trust in favor of a

second trust for the benefit of the settlor as provided by

Subchapter D:

(1) the second trust is considered to be a

self-settled asset protection trust under this subchapter so long

as it satisfies the requirements of this subchapter other than the

selfsettlement requirement; and

(2) if considered a self-settled asset protection

trust under Subdivision (1), property transferred to the second

trust is considered for purposes of Sections 112.160(a) and (b) to

have been transferred on the date the settlor of the original

selfsettled asset protection trust transferred the property into

that trust, regardless of the fact that the property has been

transferred to a second trust.

Sec. 112.162. TRUST ADMINISTERED UNDER LAW OF ANOTHER STATE

OR FOREIGN JURISDICTION. (a) A trust the domicile of which is

changed to this state is considered a self-settled asset protection

trust under this subchapter if the requirements of this section are

satisfied simultaneously with, or immediately after, the change of

domicile to this state. For purposes of Sections 112.160(a) and

(b), if the domicile of a self-settled asset protection trust is

changed to this state from a jurisdiction having laws substantially

similar to this subchapter, a transfer of assets to the trust before

the change in domicile to this state is considered to have occurred:

(1) on the date the assets were transferred to the

trust if, at the time of the transfer and at all times after the

transfer, the laws governing the trust were substantially similar

to this subchapter; or

(2) if Subdivision (1) does not apply, on the earliest

date on which the trust was subjected, without interruption, to

laws substantially similar to this subchapter.

(b) Unless the trust instrument expressly provides

otherwise, this subtitle governs the construction, operation, and

enforcement in this state of a self-settled asset protection trust

created in or outside this state if:

(1) any of the trust assets are in this state;

(2) the trust affects personal property and the

declared domicile of the creator of the trust is in this state; or

(3) at least one trustee serving under Section

112.152(a)(2) has the power to maintain records and prepare income

tax returns for the trust and at least part of the trust

administration is performed in this state.

Sec. 112.163. PERPETUITIES. (a) A self-settled asset

protection trust may not continue for a period longer than that

allowed under Texas Trust Code Section 112.036.

SECTION 3. (a) Except as provided by this section, the

change in law made by this Act applies only to a transfer of

property on or after the effective date of this Act to a selfsettled

asset protection trust that satisfies the requirements of

Subchapter F, Chapter 112, Property Code, as added by this Act.

(b) For purposes of Subchapter F, Chapter 112, Property

Code, as added by this Act, property transferred before the

effective date of this Act to a trust that on or after the effective

date of this Act satisfies the requirements of that subchapter is

considered transferred to the trust on the earliest date on or after

the effective date of this Act on which the trust terms satisfy the

requirements of that subchapter.

(c) With respect to a trust the domicile of which is changed

to this state on or after the effective date of this Act, Subchapter

F, Chapter 112, Property Code, as added by this Act, applies with

respect to transfers made to the trust before, on, or after the

effective date of this Act.

SECTION 4. This Act takes effect September 1, 2025.