Pending Legislation: Purpose Trusts

This is part of a series of blog posts about legislation pending in Texas.

A Texas trust must have an ascertainable beneficiary (except for charitable trusts and pet trusts, which are specifically authorized by Section 112.037 of the Trust Code).  HB 2333, authored by Rep. Steve Allison (San Antonio), would permit a trust to be created for a noncharitable purpose without an ascertainable beneficiary.  It also would permit a “commercial legacy trust” for a commercial purpose, including seeking economic and noneconomic benefits.

Purpose trusts are not an entirely new concept. Section 409 of the Uniform Trust Code permits trusts created for noncharitable purposes without an ascertainable beneficiary.  But the UTC version limits the duration of such trusts to 21 years.  Rep. Allison’s version would have no such restriction, so presumably it could last for up to 300 years.  The UTC doesn’t specifically authorize commercial legacy trusts, but it appears to be broad enough to permit such a trust.

Under the proposed law, a purpose trust would have to have one or more trust enforcers, who would be charged with enforcing the purpose and terms of the trust. In addition, a commercial legacy trust may have a business committee, which would act more or less like the board of directors of the trust.  The trustee would be obligated to follow the instructions of the business committee in most matters.

While it might be fun as a trust lawyer to draft a purpose trust, they are potentially problematic – especially if they may last for 300 years.  Section 112.031 of the Trust Code prohibits trusts created for an illegal purpose and provides that 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.  Purpose trusts under the new law would be subject to these restrictions.  Beyond that, however, there are no restrictions as to the purpose of the trust.

This bill has been on file for a while and hasn’t been set for a hearing (as of March 29, 2023), so it isn’t clear if it is going to pass.