PROPERTY CODE
CHAPTER 112. CREATION, VALIDITY, MODIFICATION, AND TERMINATION OF
TRUSTS
SUBCHAPTER A. CREATION
§ 112.001. METHODS OF CREATING TRUST. A trust may be
created by:
(1) a property owner's declaration that the owner
holds the property as trustee for another person;
(2) a property owner's inter vivos transfer of the
property to another person as trustee for the transferor or a third
person;
(3) a property owner's testamentary transfer to
another person as trustee for a third person;
(4) an appointment under a power of appointment to
another person as trustee for the donee of the power or for a third
person; or
(5) a promise to another person whose rights under the
promise are to be held in trust for a third person.
Amended by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2,
eff. Jan. 1, 1984.
§ 112.002. INTENTION TO CREATE TRUST. A trust is
created only if the settlor manifests an intention to create a
trust.
Amended by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2,
eff. Jan. 1, 1984.
§ 112.003. CONSIDERATION. Consideration is not
required for the creation of a trust. A promise to create a trust in
the future is enforceable only if the requirements for an
enforceable contract are present.
Amended by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2,
eff. Jan. 1, 1984.
§ 112.004. STATUTE OF FRAUDS. A trust in either real or
personal property is enforceable only if there is written evidence
of the trust's terms bearing the signature of the settlor or the
settlor's authorized agent. A trust consisting of personal
property, however, is enforceable if created by:
(1) a transfer of the trust property to a trustee who
is neither settlor nor beneficiary if the transferor expresses
simultaneously with or prior to the transfer the intention to
create a trust; or
(2) a declaration in writing by the owner of property
that the owner holds the property as trustee for another person or
for the owner and another person as a beneficiary.
Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2, eff.
Jan. 1, 1984.
§ 112.005. TRUST PROPERTY. A trust cannot be created
unless there is trust property.
Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2, eff.
Jan. 1, 1984.
§ 112.006. ADDITIONS TO TRUST PROPERTY. Property may be
added to an existing trust from any source in any manner unless the
addition is prohibited by the terms of the trust or the property is
unacceptable to the trustee.
Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2, eff.
Jan. 1, 1984.
§ 112.007. CAPACITY OF SETTLOR. A person has the same
capacity to create a trust by declaration, inter vivos or
testamentary transfer, or appointment that the person has to
transfer, will, or appoint free of trust.
Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2, eff.
Jan. 1, 1984.
§ 112.008. CAPACITY OF TRUSTEE. (a) The trustee must
have the legal capacity to take, hold, and transfer the trust
property. If the trustee is a corporation, it must have the power
to act as a trustee in this state.
(b) Except as provided by Section 112.034, the fact that the
person named as trustee is also a beneficiary does not disqualify
the person from acting as trustee if he is otherwise qualified.
(c) The settlor of a trust may be the trustee of the trust.
Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2, eff.
Jan. 1, 1984.
§ 112.009. ACCEPTANCE BY TRUSTEE. (a) The signature
of the person named as trustee on the writing evidencing the trust
or on a separate written acceptance is conclusive evidence that the
person accepted the trust. A person named as trustee who exercises
power or performs duties under the trust is presumed to have
accepted the trust.
(b) A person named as trustee who does not accept the trust
incurs no liability with respect to the trust.
(c) If the person named as the original trustee does not
accept the trust or if the person is dead or does not have capacity
to act as trustee, the person named as the alternate trustee under
the terms of the trust or the person selected as alternate trustee
according to a method prescribed in the terms of the trust may
accept the trust. If a trustee is not named or if there is no
alternate trustee designated or selected in the manner prescribed
in the terms of the trust, the court shall appoint a trustee on a
petition of any interested person.
Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2, eff.
Jan. 1, 1984.
§ 112.010. ACCEPTANCE OR DISCLAIMER BY OR ON BEHALF OF
BENEFICIARY. (a) Acceptance by a beneficiary of an interest in a
trust is presumed.
(b) If a trust is created by will, a beneficiary may
disclaim an interest in the manner and with the effect for which
provision is made in the applicable probate law.
(c) Except as provided by Subsection (c-1) of this section,
the following persons may disclaim an interest in a trust created in
any manner other than by will:
(1) a beneficiary, including a beneficiary of a
spendthrift trust;
(2) the personal representative of an incompetent,
deceased, unborn or unascertained, or minor beneficiary, with court
approval by the court having jurisdiction over the personal
representative; and
(3) the independent executor of a deceased
beneficiary, without court approval.
(c-1) A person authorized to disclaim an interest in a trust
under Subsection (c) of this section may not disclaim the interest
if the person in his capacity as beneficiary, personal
representative, or independent executor has either exercised
dominion and control over the interest or accepted any benefits
from the trust.
(c-2) A person authorized to disclaim an interest in a trust
under Subsection (c) of this section may disclaim an interest in
whole or in part by:
(1) evidencing his irrevocable and unqualified
refusal to accept the interest by written memorandum, acknowledged
before a notary public or other person authorized to take
acknowledgments of conveyances of real estate; and
(2) delivering the memorandum to the trustee or, if
there is not a trustee, to the transferor of the interest or his
legal representative not later than the date that is nine months
after the later of:
(A) the day on which the transfer creating the
interest in the beneficiary is made;
(B) the day on which the beneficiary attains age
21; or
(C) in the case of a future interest, the date of
the event that causes the taker of the interest to be finally
ascertained and the interest to be indefeasibly vested.
(d) A disclaimer under this section is effective as of the
date of the transfer of the interest involved and relates back for
all purposes to the date of the transfer and is not subject to the
claims of any creditor of the disclaimant. Unless the terms of the
trust provide otherwise, the interest that is the subject of the
disclaimer passes as if the person disclaiming had predeceased the
transfer and a future interest that would otherwise take effect in
possession or enjoyment after the termination of the estate or
interest that is disclaimed takes effect as if the disclaiming
beneficiary had predeceased the transfer. A disclaimer under this
section is irrevocable.
(e) Failure to comply with this section makes a disclaimer
ineffective except as an assignment of the interest to those who
would have received the interest being disclaimed had the person
attempting the disclaimer died prior to the transferor of the
interest.
Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2, eff.
Jan. 1, 1984. Amended by Acts 1987, 70th Leg., ch. 467, § 3, eff.
Sept. 1, 1987; Acts 1993, 73rd Leg., ch. 846, § 3, eff. Sept. 1,
1993.
SUBCHAPTER B. VALIDITY
§ 112.031. TRUST PURPOSES. A trust may be created for
any purpose that is not illegal. The terms of the trust may not
require the trustee to commit a criminal or tortious act or an act
that is contrary to public policy.
Amended by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2,
eff. Jan. 1, 1984.
§ 112.032. ACTIVE AND PASSIVE TRUSTS; STATUTE OF
USES. (a) Except as provided by Subsection (b), title to real
property held in trust vests directly in the beneficiary if the
trustee has neither a power nor a duty related to the administration
of the trust.
(b) The title of a trustee in real property is not divested
if the trustee's title is not merely nominal but is subject to a
power or duty in relation to the property.
Amended by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2,
eff. Jan. 1, 1984.
§ 112.033. RESERVATION OF INTERESTS AND POWERS BY
SETTLOR. If during the life of the settlor an interest in a trust
or the trust property is created in a beneficiary other than the
settlor, the disposition is not invalid as an attempted
testamentary disposition merely because the settlor reserves or
retains, either in himself or another person who is not the trustee,
any or all of the other interests in or powers over the trust or
trust property, such as:
(1) a beneficial life interest for himself;
(2) the power to revoke, modify, or terminate the
trust in whole or in part;
(3) the power to designate the person to whom or on
whose behalf the income or principal is to be paid or applied;
(4) the power to control the administration of the
trust in whole or in part;
(5) the right to exercise a power or option over
property in the trust or over interests made payable to the trust
under an employee benefit plan, life insurance policy, or
otherwise; or
(6) the power to add property or cause additional
employee benefits, life insurance, or other interests to be made
payable to the trust at any time.
Amended by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2,
eff. Jan. 1, 1984.
§ 112.034. MERGER. (a) If a settlor transfers both the
legal title and all equitable interests in property to the same
person or retains both the legal title and all equitable interests
in property in himself as both the sole trustee and the sole
beneficiary, a trust is not created and the transferee holds the
property as his own. This subtitle does not invalidate a trust
account validly created and in effect under Chapter XI, Texas
Probate Code.
(b) Except as provided by Subsection (c) of this section, a
trust terminates if the legal title to the trust property and all
equitable interests in the trust become united in one person.
(c) The title to trust property and all equitable interests
in the trust property may not become united in a beneficiary, other
than the settlor, whose interest is protected under a spendthrift
trust, and in that case the court shall appoint a new trustee or
cotrustee to administer the trust for the benefit of the
beneficiary.
Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2, eff.
Jan. 1, 1984.
§ 112.035. SPENDTHRIFT TRUSTS. (a) A settlor may
provide in the terms of the trust that the interest of a beneficiary
in the income or in the principal or in both may not be voluntarily
or involuntarily transferred before payment or delivery of the
interest to the beneficiary by the trustee.
(b) A declaration in a trust instrument that the interest of
a beneficiary shall be held subject to a "spendthrift trust" is
sufficient to restrain voluntary or involuntary alienation of the
interest by a beneficiary to the maximum extent permitted by this
subtitle.
(c) A trust containing terms authorized under Subsection
(a) or (b) of this section may be referred to as a spendthrift
trust.
(d) If the settlor is also a beneficiary of the trust, a
provision restraining the voluntary or involuntary transfer of his
beneficial interest does not prevent his creditors from satisfying
claims from his interest in the trust estate.
(e) A beneficiary of the trust may not be considered a
settlor merely because of a lapse, waiver, or release of the
beneficiary's right to withdraw a part of the trust property if the
value of the property that could have been withdrawn by exercising
the right of withdrawal in any calendar year does not exceed at the
time of the lapse, waiver, or release the greater of the amount
specified in:
(1) Section 2041(b)(2) or 2514(e), Internal Revenue
Code of 1986; or
(2) Section 2503(b), Internal Revenue Code of 1986.
Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2, eff.
Jan. 1, 1984. Amended by Acts 1997, 75th Leg., ch. 109, § 1, eff.
Sept. 1, 1997.
§ 112.036. RULE AGAINST PERPETUITIES. The rule against
perpetuities applies to trusts other than charitable trusts.
Accordingly, an interest is not good unless it must vest, if at all,
not later than 21 years after some life in being at the time of the
creation of the interest, plus a period of gestation. Any interest
in a trust may, however, be reformed or construed to the extent and
as provided by Section 5.043.
Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2, eff.
Jan. 1, 1984. Amended by Acts 1984, 68th Leg., 2nd C.S., ch. 18,
§ 10, eff. Oct. 2, 1984.
SUBCHAPTER C. REVOCATION, MODIFICATION, AND TERMINATION OF TRUSTS
§ 112.051. REVOCATION, MODIFICATION, OR AMENDMENT BY
SETTLOR. (a) A settlor may revoke the trust unless it is
irrevocable by the express terms of the instrument creating it or of
an instrument modifying it.
(b) The settlor may modify or amend a trust that is
revocable, but the settlor may not enlarge the duties of the trustee
without the trustee's express consent.
(c) If the trust was created by a written instrument, a
revocation, modification, or amendment of the trust must be in
writing.
Amended by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2,
eff. Jan. 1, 1984.
§ 112.052. TERMINATION. A trust terminates if by its
terms the trust is to continue only until the expiration of a
certain period or until the happening of a certain event and the
period of time has elapsed or the event has occurred. If an event of
termination occurs, the trustee may continue to exercise the powers
of the trustee for the reasonable period of time required to wind up
the affairs of the trust and to make distribution of its assets to
the appropriate beneficiaries. The continued exercise of the
trustee's powers after an event of termination does not affect the
vested rights of beneficiaries of the trust.
Amended by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2,
eff. Jan. 1, 1984.
§ 112.053. DISPOSITION OF TRUST PROPERTY ON FAILURE OF
TRUST. The settlor may provide in the trust instrument how
property may or may not be disposed of in the event of failure,
termination, or revocation of the trust.
Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2, eff.
Jan. 1, 1984. Amended by Acts 1991, 72nd Leg., ch. 895, § 17,
eff. Sept. 1, 1991.
§ 112.054. JUDICIAL MODIFICATION OR TERMINATION OF
TRUSTS. (a) On the petition of a trustee or a beneficiary, a
court may order that the trustee be changed, that the terms of the
trust be modified, that the trustee be directed or permitted to do
acts that are not authorized or that are forbidden by the terms of
the trust, that the trustee be prohibited from performing acts
required by the terms of the trust, or that the trust be terminated
in whole or in part, if:
(1) the purposes of the trust have been fulfilled or
have become illegal or impossible to fulfill; or
(2) because of circumstances not known to or
anticipated by the settlor, compliance with the terms of the trust
would defeat or substantially impair the accomplishment of the
purposes of the trust.
(b) The court shall exercise its discretion to order a
modification or termination under Subsection (a) in the manner that
conforms as nearly as possible to the intention of the settlor. The
court shall consider spendthrift provisions as a factor in making
its decision whether to modify or terminate, but the court is not
precluded from exercising its discretion to modify or terminate
solely because the trust is a spendthrift trust.
Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2, eff.
Jan. 1, 1984. Amended by Acts 1985, 69th Leg., ch. 149, § 1, eff.
May 24, 1985.
§ 112.055. AMENDMENT OF CHARITABLE TRUSTS BY OPERATION
OF LAW. (a) Except as provided by Section 112.056 and Subsection
(b) of this section, the governing instrument of a trust that is a
private foundation under Section 509, Internal Revenue Code, as
amended, a nonexempt charitable trust that is treated as a private
foundation under Section 4947(a)(1), Internal Revenue Code, as
amended, or, to the extent that Section 508(e), Internal Revenue
Code, is applicable to it, a nonexempt split-interest trust under
Section 4947(a)(2), Internal Revenue Code, as amended, is
considered to contain provisions stating that the trust:
(1) shall make distributions at times and in a manner
as not to subject the trust to tax under Section 4942, Internal
Revenue Code;
(2) may not engage in an act of self-dealing that would
be subject to tax under Section 4941, Internal Revenue Code;
(3) may not retain excess business holdings that would
subject it to tax under Section 4943, Internal Revenue Code;
(4) may not make an investment that would subject it to
tax under Section 4944, Internal Revenue Code; and
(5) may not make a taxable expenditure that would
subject it to tax under Section 4945, Internal Revenue Code.
(b) If a trust was created before January 1, 1970, this
section applies to it only for its taxable years that begin on or
after January 1, 1972.
(c) This section applies regardless of any provision in a
trust's governing instrument and regardless of any other law of
this state, including the provisions of this title.
Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2, eff.
Jan. 1, 1984.
§ 112.056. PERMISSIVE AMENDMENT BY TRUSTEE OF CHARITABLE
TRUST. (a) If the settlor of a trust that is described under
Subsection (a) of Section 112.055 of this Act is living and
competent and consents, the trustee may, without judicial
proceedings, amend the trust to expressly include or exclude the
provisions required by Subsection (a) of Section 112.055 of this
Act.
(b) The amendment must be in writing, and it is effective
when a duplicate original is filed with the attorney general's
office.
Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, § 2, eff.
Jan. 1, 1984.
§ 112.057. DIVISION OF TRUSTS. (a) The trustee may,
unless expressly prohibited by the terms of the instrument
establishing the trust, divide a trust into two or more separate
trusts without a judicial proceeding if the trustee reasonably
determines that the division of the trust could result in a
significant decrease in current or future federal income, gift,
estate, generation-skipping transfer taxes, or any other tax
imposed on trust property. If the trustee divides the trust, the
terms of the separate trusts must be identical to the terms of the
original trust, but differing tax elections may be made for the
separate trusts. The trustee may make a division under this
subsection by:
(1) giving written notice of the division, not later
than the 30th day before the date of a division under this
subsection, to each beneficiary who might then be entitled to
receive distributions from the trust or may be entitled to receive
distributions from the trust once it is funded; and
(2) executing a written instrument, acknowledged
before a notary public or other person authorized to take
acknowledgements of conveyances of real estate stating that the
trust has been divided pursuant to this section and that the notice
requirements of this subsection have been satisfied.
(b) A trustee, in the written instrument dividing a trust,
shall allocate trust property among the separate trusts on a
fractional basis, by identifying the assets and liabilities passing
to each separate trust, or in any other reasonable manner. The
trustee shall allocate undesignated trust property received after
the trustee has divided the trust into separate trusts in the manner
provided by the written instrument dividing the trust or, in the
absence of a provision in the written instrument, in a manner
determined by the trustee.
(c) The trustee may, unless expressly prohibited by the
terms of the instrument establishing the trust, merge two or more
trusts having identical terms into a single trust if the trustee
reasonably determines that merging the trusts could result in a
significant decrease in current or future federal income, gift,
estate, generation-skipping transfer taxes, or any other tax
imposed on trust property. The trustee shall complete the trust
merger by:
(1) giving a written notice of the merger, not later
than the 30th day before the effective date of the merger, to each
beneficiary who might then be entitled to receive distributions
from the separate trusts being merged or to each beneficiary who
might be entitled to receive distributions from the separate trusts
once the trusts are funded; and
(2) executing a written instrument, acknowledged
before a notary public or other person authorized to take
acknowledgments of conveyances of real estate stating that the
trust has been merged pursuant to this section and that the notice
requirements of this subsection have been satisfied.
(d) The trustee may divide or merge a testamentary trust
after the will establishing the trust has been admitted to probate,
even if the trust will not be funded until a later date. The trustee
may divide or merge any other trust before it is funded if the
instrument establishing the trust is not revocable at the time of
the division or merger.
Added by Acts 1991, 72nd Leg., ch. 895, § 18, eff. Sept. 1, 1991.
§ 112.058. CONVERSION OF COMMUNITY TRUST TO NONPROFIT
CORPORATION. (a) In this section:
(1) "Assets" means the assets of the component trust
funds of a community trust.
(2) "Community trust" means a community trust as
described by 26 C.F.R. Section 1.170A-9(e)(11) (1999), including
subsequent amendments.
(b) A community trust with court approval may transfer the
assets of the trust to a nonprofit corporation and terminate the
trust as provided by this section.
(c) The community trust may transfer assets of the trust to
a nonprofit corporation only if the nonprofit corporation is
organized under the Texas Non-Profit Corporation Act (Article
1396-1.01 et seq., Vernon's Texas Civil Statutes) and organized for
the same purpose as the community trust. The charter of the
nonprofit corporation must describe the purpose of the corporation
and the proposed use of the assets transferred using language
substantially similar to the language used in the instrument
creating the community trust.
(d) To transfer the assets of and terminate a community
trust under this section, the governing body of the community trust
must:
(1) file a petition in a probate court, county court,
or district court requesting:
(A) the transfer of the assets of the trust to a
nonprofit corporation established for the purpose of receiving and
administering the assets of the trust; and
(B) the termination of the trust;
(2) send by first class mail to each trust settlor and
each trustee of each component trust of the community trust who can
be located by the exercise of reasonable diligence a copy of the
governing body's petition and a notice specifying the time and
place of the court-scheduled hearing on the petition; and
(3) publish once in a newspaper of general circulation
in the county in which the proceeding is pending a notice that reads
substantially similar to the following:
(NAME OF COMMUNITY TRUST) HAS FILED A PETITION IN (NAME OF
COURT) OF (NAME OF COUNTY), TEXAS, REQUESTING PERMISSION TO CONVERT
TO A NONPROFIT CORPORATION. IF PERMITTED TO CONVERT:
TO ALL INTERESTED PERSONS:
(1) THE (NAME OF COMMUNITY TRUST) WILL BE TERMINATED;
AND
(2) THE ASSETS OF THE TRUST WILL BE:
(A) TRANSFERRED TO A NONPROFIT CORPORATION WITH
THE SAME NAME AND CREATED FOR THE SAME PURPOSE AS THE (NAME OF
COMMUNITY TRUST); AND
(B) HELD AND ADMINISTERED BY THE CORPORATION AS
PROVIDED BY THE TEXAS NON-PROFIT CORPORATION ACT (ARTICLE 1396-1.01
ET SEQ., VERNON'S TEXAS CIVIL STATUTES).
(1) THE (NAME OF COMMUNITY TRUST) WILL BE TERMINATED;
AND
(2) THE ASSETS OF THE TRUST WILL BE:
(A) TRANSFERRED TO A NONPROFIT CORPORATION WITH
THE SAME NAME AND CREATED FOR THE SAME PURPOSE AS THE (NAME OF
COMMUNITY TRUST); AND
(B) HELD AND ADMINISTERED BY THE CORPORATION AS
PROVIDED BY THE TEXAS NON-PROFIT CORPORATION ACT (ARTICLE 1396-1.01
ET SEQ., VERNON'S TEXAS CIVIL STATUTES).
THE PURPOSE OF THE CONVERSION IS TO ACHIEVE SAVINGS AND USE
THE MONEY SAVED TO FURTHER THE PURPOSES FOR WHICH THE (NAME OF
COMMUNITY TRUST) WAS CREATED.
A HEARING ON THE PETITION IS SCHEDULED ON (DATE AND TIME) AT
(LOCATION OF COURT).
FOR ADDITIONAL INFORMATION, YOU MAY CONTACT THE GOVERNING
BODY OF THE (NAME OF COMMUNITY TRUST) AT (ADDRESS AND TELEPHONE
NUMBER) OR THE COURT.
(e) The court shall schedule a hearing on the petition to be
held after the 10th day after the date the notices required by
Subsection (d)(2) are deposited in the mail or the date the notice
required by Subsection (d)(3) is published, whichever is later.
The hearing must be held at the time and place stated in the notices
unless the court, for good cause, postpones the hearing. If the
hearing is postponed, a notice of the rescheduled hearing date and
time must be posted at the courthouse of the county in which the
proceeding is pending or at the place in or near the courthouse
where public notices are customarily posted.
(f) The court, on a request from the governing body of the
community trust, may by order require approval from the Internal
Revenue Service for an asset transfer under this section. If the
court orders approval from the Internal Revenue Service, the asset
transfer may occur on the date the governing body of the community
trust files a notice with the court indicating that the Internal
Revenue Service has approved the asset transfer. The notice
required by this subsection must be filed on or before the first
anniversary of the date the court's order approving the asset
transfer is signed. If the notice is not filed within the period
prescribed by this subsection, the court's order is dissolved.
(g) A court order transferring the assets of and terminating
a community trust must provide that the duties of each trustee of
each component trust fund of the community trust are terminated on
the date the assets are transferred. This subsection does not
affect the liability of a trustee for acts or omissions that
occurred before the duties of the trustee are terminated.
Added by Acts 1999, 76th Leg., ch. 1035, § 1, eff. Sept. 1, 1999.
