2021 Legislative Update
There was very little legislation affecting probate, guardianship and trust law enacted in 2021. This is because only one of the bills promoted by the Real Estate, Probate and Trust Law Section of the State Bar of Texas (“REPTL”) passed – the guardianship bill. This was not due to any lack of effort on REPTL’s part. Rather, its legislation and a lot of other legislation got caught up in turmoil during the session about other issues.
By far the most significant legislation in this area which passed is a bill increasing the perpetuities period for trusts to 300 years. This is discussed below.
1. The 300-Year Rule Against Perpetuities
1.1. The statutory change
HB 654 reorganizes Section 112.036 of the Trust Code. New subsection (c)(1) provides that an interest in a trust must vest “not later than 300 years after the effective date of the trust, if the effective date of the trust is on or after September 1, 2021.” The effective date is defined as the date the trust becomes irrevocable. Subsection (c)(2) provides that, if the effective date of the trust is before September 1, 2021, the old rule applies (interest must vest not later than 21 years after some life in being plus a period of gestation). However, subsection (d) provides that a pre-September 1, 2021, trust may be subject to the 300-year rule “if the trust instrument provides that an interest in the trust vests under the provisions of this section applicable to trusts on the date that the interest vests.”
New subsection (f) provides that “a settlor of a trust may not direct that a real property asset be retained or refuse that a real property asset may be sold for a period longer than 100 years.” This subsection was added to the bill late in the session and its purpose is unclear.
These provisions do not apply to charitable trusts, which may be perpetual.
1.2. Why is this significant?
For public policy reasons, noncharitable trusts in Texas have not been allowed to last forever. So the argument goes, tying up property for long periods of time could stymie commerce and growth because property would not be available for purchase by others. Therefore, a citizen of Texas could not create a trust which would last longer than the death of the last person in being at the trust’s creation plus 21 years plus a period of gestation (the “21 years after lives in being rule”). In most cases this meant that the maximum duration of a trust was 90 – 100 years. Rather than leaving the maximum trust period to vary based on lives in being, some states fixed the maximum term at 90 years or 100 years. This provided clarity but did not materially extend the perpetuities period.
The adoption of the generation-skipping transfer tax (“GST”) and the ability to create GST-exempt trusts caused citizens and practitioners to seek ways to maximize the length of trusts. If the property in a GST-exempt trust could avoid estate taxation in the second and third generations, why not continue it for the fourth, fifth, and sixth generations as well? Therefore, a demand arose for noncharitable trusts which did not have to end after 90 years or so.
A few states began to eliminate the rule against perpetuities entirely. This was done largely to draw trust business to those states from the majority of states which had perpetuities limits. Some states did not eliminate the rule entirely but adopted extremely long perpetuities periods – 500 years, 700 years, etc.
Some trust offices at corporate trustees in Texas have long wished for Texas to join the states which have eliminated or greatly extended the rule against perpetuities. They saw trust business going to out-of-state institutions as Texans desiring extremely long-term trusts created those trusts with out-of-state corporate trustees so that they would be subject to other states’ laws.
There have been two big stumbling blocks for extending the perpetuities period in Texas. First, some practitioners and charities opposed the extension on policy grounds. Second, the Texas constitution prohibits perpetuities, so eliminating the rule against perpetuities would have required a constitutional amendment.
In 2021, the proponents finally overcame opposition and were able to pass a bill. In an effort to meet the constitutional restriction, the drafters opted for setting the perpetuities limit to 300 years. The argument: “It isn’t perpetual – it has to end in 300 years – so it does not violate the constitution.”
This opens the door for a significant number of new GST-exempt trusts to permit ultra-long terms. The author assumes that a majority of GST-exempt trusts now will at least permit that trust (or trusts created out of the original trust as the generations pass) to last until the new perpetuities period, even if they contain provisions which give each generation a chance to end the trust.
1.3. Is it constitutional?
Article I, Section 26 of the Texas Constitution provides:
Perpetuities and monopolies are contrary to the genius of a free government, and shall never be allowed, nor shall the law of primogeniture or entailments ever be in force in this State.
The rule against perpetuities was pretty well defined and understood in 1876 when this constitutional provision was adopted, and it meant the 21 years after lives in being rule. In 1984, the legislature included the 21 years after lives in being rule in Section 112.036 in the new Trust Code and it has been there ever since.
There is little doubt that the drafters of the 1876 constitution had the 21 years after lives in being rule in mind when this provision was added. That’s what “perpetuities” meant back then. While the legislature may have some leeway in setting the maximum term – for example, setting it at 90 years instead of the uncertain period caused by the need to measure lives in being – it is not clear that this leeway permits more than tripling the perpetuities period.
For the best analysis of the constitutionality of the new statute, see Bill Pargaman’s 2021 legislative update or in the materials from the State Bar’s 2021 Advanced Estate Planning and Probate Course. Bill’s conclusion on the constitutional issue (not on the merits of an extended perpetuities period): a constitutional amendment probably is required to extend the perpetuities period to 300 years, so the new statute may be unconstitutional.
1.4. Should I draft trusts using the new 300-year perpetuities period?
What is the consequence of creating a trust in reliance on the 300-year rule and later learning that the Texas Supreme Court declares this statute unconstitutional? The trust probably still will be valid, but it would terminate upon the running of the traditional perpetuities period. See Tex. Trust Code §112.036(e) and Tex. Property Code §5.043, which permit reformation of interests which otherwise violate the rule.
Therefore, if the client wants to continue the trust for multiple generations, there seems to be no reason not to utilize the new rule – the new trust will not fail; at worst it can be reformed. However, if perpetuities is a driving force for the client, not just a side benefit, then it makes sense to make the trust subject to another state’s laws where the Texas constitutional provision does not pose a threat.
1.5. Can I make the 300-year perpetuities period apply to my existing trust?
Subsection (d) provides that an interest in a pre-9/1/21 trust may be subject to the 300-year perpetuities period “if the instrument provides that an interest in the trust vests under the provisions of this section [Tex. Trust Code §112.036] applicable to trusts on the date that the interest vests.” A lot of attorneys, including the author, over the years have tried to draft provisions in trusts which would take advantage of a change in the rule against perpetuities, but the author doubts that many thought to refer to this Trust Code section and to provide that the interest vests under the law in effect “on the date that the interest vests.” Someone must have used this approach or the drafters would not have included this. The author has used a provision which made it clear that the settlor wanted to take advantage of any later extension of the perpetuities period by any means possible, but that provision did not include the specific language from subsection (d). Perhaps the clear intention would be enough for a court to construe compliance with this subsection.
As a practical matter, though, it seems unlikely that many pre-9/1/21 trusts will be able to utilize the new 300-year period. Note, however, that the 300-year rule applies to trusts which become irrevocable on or after September 1, 2021, so existing trusts which are revocable can be amended to take advantage of the new rule.
What about a judicial modification of a trust to make the new perpetuities period apply? This is likely to create GST problems if the effect of the change is to extend the date of vesting beyond its original date. Also, it may be difficult to get an attorney ad litem or guardian ad litem for unascertained beneficiaries to agree to a change which causes the trust property not to vest in the parties he or she represents. On the other hand, if the trust included a provision stating the settlor’s clear intent to take advantage of an extended perpetuities period, it would be easier to meet the statutory standards for modification in Texas Trust Code §112.054.
1.6. What about trusts with real estate – does the 300-year rule apply?
Tex. Trust Code §112.036(f) provides that “a settlor may not direct that a real property asset be retained or refuse that a real property asset may be sold for a period longer than 100 years.” Does this mean that trusts cannot utilize the new 300-year perpetuities period if the trust holds real estate? Almost certainty not. While it is unclear why this provision was added to the statute, so long as the trust instrument does not require the trustee to hold a real estate interest for more than 100 years or prohibit the sale of a real estate interest for more than 100 years, the new 300-year perpetuities period should apply. In other words, as long as the trustee has discretion to sell or retain a real property interest and is not compelled to retain the interest, subsection (f) should not apply.
2. Disclaimers and Child Support Obligors
Section 240.151(g) of the Property Code provides that a disclaimer by a child support obligor meeting that section’s requirements is barred as to disclaimed property that could be applied to satisfy the disclaimant’s child support obligations. This section remained unchanged and by itself is sufficient to prevent those child support obligors from avoiding their obligations by disclaiming.
That was not good enough for the proponents of SB 286, which adds subsection (e) to Section 240.009 of the Property Code to require that all disclaimers by individuals must contain a statement under penalty of perjury regarding whether the disclaimant is a child support obligor subject to Section 240.151(g).
As originally filed, this could have been a disaster for disclaimer practice. First, as originally filed each disclaimer would have to include a “sworn statement.” This would have required every disclaimer by an individual – regardless of whether or not the disclaimant was a child support obligor – to have the disclaimer notarized or to include an unsworn declaration. Fortunately, the proponents accepted a change that provides that the statement must be made under “penalties of perjury,” sidestepping the notarization issue.
Still, without a change the new subsection would have required every disclaimer to include a statement which would be wholly unnecessary for the vast majority of disclaimers, and it would have jeopardized the effectiveness of a disclaimer which failed to include the statement. Fortunately, the bill was amended to add this sentence to subsection (e): “An individual’s failure to include the statement does not invalidate a disclaimer if the disclaimer is not barred under Section 240.151(g).”
How does this change disclaimer practice?
Proper practice is to comply with the statute by making every disclaimer by an individual contain this statement: “Under penalty of perjury, I declare that I am not a child support obligor whose disclaimer is barred under Texas Property Code §240.151(g).”
However, failure to include the statement does not render the disclaimer ineffective unless the disclaimant is in fact a child support obligor.
Disclaimers still do not need to be notarized unless a real property interest is involved. See Texas Prop. Code §240.111.
3. Guardianship Law Changes
The REPTL guardianship bill (SB 626) was the only REPTL bill that passed. None of the changes it makes are earth-shattering, but there are numerous improvements and clean-ups. Also, SB 615, which was supported by the statutory probate judges, passed and included numerous guardianship law changes.
Change to application requirements. SB 615 and SB 626 amended Estates Code §1101.001 to require that applications for guardianship (a) include the applicant’s former name, if any; and (b) provide a detailed description of the proposed ward’s liquid and illiquid assets, including real estate.
Unnotarized declaration permitted as oath of guardian. SB 626 makes several changes to Chapter 1105 of the Estates Code to permit a guardian to make an unnotarized declaration instead of taking a (notarized) oath in order to qualify as guardian.
All attorneys in guardianships must be certified. Estates Code §1054.201 previously required the attorney representing the applicant for a guardianship and all court-appointed attorneys in a guardianship proceeding to take a certification course. SB 626 amends this section to require an attorney representing any party in a guardianship proceeding to be certified. The section also was amended to permit an uncertified attorney to commence representation of a person’s interest and file an appearance before completing the certification course, but the course must be completed within 14 days of filing the appearance and before filing any substantive motion in the proceeding.
Procedural changes for sale of real estate. SB 626 made several changes to Chapter 1158 regarding the sale of real property in a guardianship. Public sales of real estate must be made at a public auction subject to rules related to the time and place of the auction. There are changes regarding contracts for private sale and reporting sales to the court.
Temporary guardianship changes. SB 615 and SB 626 make several changes to the procedure for temporary guardians, including a more detailed requirement for final accounts.
Guardianship management trust changes. SB 626 includes a new notice provision and trust termination provisions for guardianship management trusts established under Chapter 1301 of the Estates Code.
Certain county courts at law may hear trust matters. SB 626 amended Estates Code §1021.001 to permit county courts at law in counties with no statutory probate court to hear a matter regarding the interpretation or administration of a trust of which the ward is a beneficiary. This parallels the jurisdiction of such courts in a decedent’s estate proceeding under Estates Code §31.002.
Dealing with an incapacitated guardian. HB 1296 and HB 3394 amended Section 1203.052 of the Estates Code to establish a procedure in the event there is probable cause to believe that a guardian is an incapacitated person.
4. Other Changes
We really mean it – driver’s license and social security numbers in all proceedings. SB 615 (supported by the statutory probate judges) amends Section 30.014 of the Civil Practices and Remedies Code to make it clear that each party to a civil action, including a probate or guardianship proceeding as well as any action in a statutory probate court, must include the last three digits of the party’s driver’s license number and the last three digits of the party’s social security number in the party’s initial pleading.
Serving out-of-state distributees in heirship proceeding. Estates Code §202.054 permits a court to require personal service on distributees named in an application for determination of heirship. For distributees outside Texas, the section was amended to permit any disinterested person to serve the citation.
Recording a non-English foreign will. Estates Code §503.001 provides an inexpensive way to pass title to Texas real estate under the terms of a will probated in another state or country. An authenticated copy of the will and the order admitting it to probate in the foreign jurisdiction may be filed in the real property records without further proof or authentication. In 2021 Section 503.002 was amended to permit the recording of a non-English-language will in the real property records under Section 503.001, so long as a correct English language translation also is recorded.
Financial abuse of the elderly is a crime. HB 1156 adds Section 32.55 to the Penal Code, making it an offense to knowingly engage in the financial abuse of an elderly individual. This includes financial exploitation by a fiduciary. The offense ranges from a Class A misdemeanor to a first degree felony, depending on the value of the property taken or appropriated. SB 109 amends Section 32.46 of the Penal Code, which makes it a crime to fraudulently secure the execution of a document affecting property or service or the pecuniary interest of any person. The bill adds the concept of “effective consent” and provides that consent is not effective if it is given by a person who by reason of youth, mental disease or defect, or intoxication is unable to make reasonable property dispositions or given by a person who by reason of advanced age has diminished capacity to make informed and rational decisions about the reasonable disposition of property.
Expedited death certificates. HB 1011 adds Section 193.005 to the Health and Safety Code to permit an authorized person to request an expedited copy of a death certificate from certain counties if (a) expedited completion of the death certificate is needed for religious reasons and (b) the remains are to be interred in a foreign country. If this applies, the death certificate must be provided within 48 hours unless an inquest will be conducted.