This is part 2 in a 3-part series.
Trusts received more than their share of attention in the 2023 Texas legislative session. Here is a quick summary of some noteworthy changes.
Homestead Exemptions and Revocable Trusts
A lot of people with revocable trusts want to place all their assets, including their homestead, into their trust. They also, of course, want to keep their valuable homestead exemptions. They can do both, but only if the trust has the right, Texas-specific language. However, the tax code and the property code require different language, and that often trips up drafters. The new law harmonizes the differences. Now the revised property code section requires the trust to provide that the settlor/beneficiary has the right to occupy the property at no cost or rent free and without charge. If your homestead is in a trust, it is probably time to review the language.
Noncharitable Trust without Ascertainable Beneficiary
Some people want a trust set up to accomplish a particular purpose, such as continuing a business, preserving a collection, or maintaining a family compound. Unfortunately, there was not an easy way to do that under Texas law, which required every trust to have a named beneficiary. That just changed. Let’s all give a big hearty welcome to a new kind of trust: the “Noncharitable Trust without Ascertainable Beneficiary.” This wonderful instrument allows you to set up a trust for a specific purpose without naming a beneficiary. Instead, the trust names a “trust enforcer” to make sure the trust is used to meet the specific purpose for which it was organized. We expect good things from this new purpose trust.
Restatement of Trusts
The next change addressed some confusion that arose in the third edition of the Restatement of Trusts, a handy little work that offers guidance to trustees, lawyers, and judges. The 3rd Restatement changed, somewhat dramatically, the guidance about what property in the trust was subject to the claims of creditors. This upset a lot of people. The Texas bill clarified that Texas rejects the 3rd Restatement on this issue. The result is that more trust property is protected from creditors.
New Decanting Law
Decanting is a handy little tool used to change trust terms. Briefly, when you decant, then you move assets from an old trust into a brand-new trust. The problem was that the new trust came with a new name and tax ID number. That meant the trustee had to spend a lot of extra time changing the name and tax ID on accounts and assets from the old trust to the new trust. The new law made a simple but effective fix by providing that the new trust could use the old trust’s name and tax ID.
Naming Trust Assets
The last big change came on another technicality that had caused big problems. It has to do with naming assets that belong in a trust. A trust can only act through its trustee. Suppose the Trust is called The Smith Family Trust, and the trustee is Joe Smith. The title to property should not be held as “the Smith Family Trust,” because the trust cannot act on its own. Instead, the title should be “Joe Smith, Trustee of the Smith Family Trust.” Some people had argued, successfully, that a conveyance of property to just a trust’s name is void. The new law addresses that problem by making it clear that a conveyance made to a trust should be considered a conveyance to the trustee of the trust.
Hammerle Finley Can Help
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Attorney Virginia Hammerle has practiced litigation and estate planning for 40 years. She is founder and managing attorney for Hammerle Finley Law Firm.
Read part 1 of the series: New 2023 Laws for Texas
