Perpetuities: How about 200 years?

The Wealth Management and Trust Division of the Texas Bankers Association (the TBA) has tried to repeal or extend the rule against perpetuities as it applies to trusts in past sessions, and it appears that it is going to try again.  HB 372 and SB 261 would amend Section 112.036 of the Texas Trust Code to permit trusts to last for 200 years.

Will Hartnett, Author of HB 372

The companion bills were filed by Rep. Will Hartnett (R-Dallas) and Sen. John Carona (R-Dallas).

Like most states, Texas follows the traditional rule against perpetuities.  The rule is codified in Section 112.036 of the Texas Trust Code:

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 [Property Code] Section 5.043.

In the past 15 years, several states have either abolished the rule against perpetuities or greatly extended the permissible duration of trusts.  Ironically, it was the enactment of the generation-skipping transfer tax (GST) -- which was intended to curb the use of multi-generational trusts to avoid estate taxation -- that appears to have spawned the interest in abolishing the rule.  Lifetime transfers of a certain amount of property are exempt from the GST (currently $5,000,000), and many Americans have created multi-generational trusts to take advantage of this exemption.  Apparently, many of those Americans see no reason why those trusts cannot last forever (or a really long time), and they have urged state legislators to abolish the rule.

According to a chart prepared by Elizabeth Schurig and Amy Jetel of the Austin firm of Schurig Jetel Beckett Tacket in 2007, at least 18 states have abolished the rule against perpetuities or extended it by many years, including Alaska (1,000 years), Arizona, Colorado (1,000 years), Delaware, Idaho, Illinois, Maine, Maryland, Missouri, New Hampshire, New Jersey, Rhode Island, South Dakota, Tennessee (260 years), Utah (1,000 years), Washington (150 years), Wisconsin and Wyoming.

A paper by Robert Sitkoff of Harvard Law School and Max Scanzenbach in 2008 lists 23 states as having "abolished" the RAP.  The Sitkoff/Scanzenbach paper used different criteria in adding Florida (360 years), Nebraska, North Carolina, Ohio, Pennsylvania and Virginia to the list and leaving Tennessee and Washington off the list.  The Sitkoff/Scanzenbach paper also gives some idea of the pace of adoption of anti-RAP legislation:

John Carona, Author of SB 261

• Before 1985:  3 states

• 1995-1999:  9 states

• 2000-2004:  8 states

• 2005-2007:  3 states

The paper was written in 2008, so it does not report legislative activity since 2007.

TBA believes Texas banks and trust companies are put at a competitive disadvantage because Texas still follows the rule.  Smaller banks and trust companies -- that have no out-of-state branches or affiliates -- are particularly hamstrung.  Wealthy Texans can create perpetual trusts now, but they must use an out-of-state bank or a big, national bank with offices in non-RAP states.  

Also, TBA believes the passage of the bill would simplify the rule by putting all trusts on equal footing with a simple term of years.  Further, the bill would end “RAP games,” where some attorneys incorporate the Kennedy or Royal families as the measuring lives.

The TBA has tried at least twice before to abolish the rule against perpetuities or extend the permissible duration of trusts.  In each case the legislation failed to pass.

Stephen Saunders, an Austin attorney, has opposed RAP repeal/modification legislation in the past and is opposed to  HB 372 and SB 261.  Mr. Saunders thinks that the RAP is good public policy -- and has been for 400 years.  He thinks modifying or repealing the RAP would have far-reaching consequences, including a reduction in charitable giving and increased litigation.  Also, he says, it would be bad social policy and tax policy.  Here is his 2003 paper giving reasons to leave the RAP alone.

The task of abolishing the RAP is more daunting in Texas because of the state constitution.  The Bill of Rights (Article 1, Section 26) provides:  "Perpetuities and monopolies are contrary to the genius of a free government, and shall never be allowed...."  It seems clear that the outright abolition of the rule against perpetuities would require a constitutional amendment.  Does substantially lengthening the permissible duration of trusts (in the typical case, 200 years is more than twice as long as the current limit) raise constitutional concerns?

x-Did Not Pass: SB 342 -- Authority of attorney general to make inquiries of charitable entities

Caption:  Relating to the power of the office of the attorney general to make certain examinations and inquiries.
Author:  Carona
Bill History
Bill Text 

Relevance:  This bill would add Section 123.007 to the Property Code, which would permit the attorney general to inspect any record of a charitable entity or trust to require a person suspected of engaging in unlawful acts to file sworn statements and reports or submit to an examination under oath.

Enacted-Effective 9/1/11: HB 577 -- EMS not required to review or honor health care directive

Caption: Relating to emergency prehospital care provided by emergency services personnel.
Author: McClendon
Bill History
Bill Text

Relevance:  HB 577 amends the Health and Safety Code so that EMS personnel who are providing emergency pre-hospital care to a person are not required to review, examine, interpret or honor a person's written directive. 

Enacted-Effective 9/1/11: HB 549 -- Disposition of remains

Caption: Relating to prohibiting the disposition of a decedent's remains by a person charged with certain criminal conduct against the decedent.
Author:  Dutton
Bill History
Bill Text 

Relevance:  A person who is indicted of a crime involving family violence connected with the decedent's death may not control the disposition of the decedent's remains.

x-Did Not Pass: HB 547 -- Legal separation in a marriage

Caption:  Related to a suit for legal separation in a marriage.
Author:  Dutton
Bill History
Bill Text 

Relevance:  HB 547 would permit court-approved legal separation in a marriage and would permit the court to (a) permanently partition community property into separate property and (b) provide that future income from that property will be separate property.  HB 547 would require a constititional amendment.  Also pending is HJR 54, which proposes a constitutional amendment authorizing a court to partition community property and to characterize future earnings of spouses as separate property in the event of legal separation of the spouses.

Bill Pargaman's Legislative Preview

Bill Pargaman

Bill Pargaman, Chair of the Legislative Committee of the Real Estate, Probate and Trust Law Section of the State Bar of Texas, has recently updated his preview of the upcoming Texas legislative session.

He discusses the legislative process, the impending codification of the Probate Code and the changes we can expect in probate, guardianship and trust law this year.

Session Begins January 11

The regular session of the 82nd Texas Legislature begins Tuesday, January 11, 2011.  The dominant issues this session promise to be the budget shortfall and redistricting.  Hopefully there will be some time given to other issues, like probate, guardianship and trust law legislation.

Sen. Chris Harris, the new chairman of the Jurisprudence Committee

In the Senate, Senator Chris Harris (R-Arlington) is the new chairman of the Jurisprudence Committee.  Most probate, guardianship and trust law legislation will go through the Jurisprudence Committee.  Other members of that committee are Senators Mario Gallegos, Jr. (D-Houston), John Carona (R-Dallas), Robert Duncan (R-Lubbock), Juan Hinojosa (D-McAllen), Joan Huffman (R-Southside Place) and Carlos Uresti (D-San Antonio).

The shape of the session in the House hasn't been determined.  At this writing (January 6, 2011), a speaker hasn't been chosen.  It is likely to take the new speaker weeks to make committee assignments.

x-Did Not Pass: SB 286 -- Costs in guardianships

Caption:  Relating to attorney's fees and other amounts taxed as costs in guardianship proceedings.
Author:  Harris
Bill History
Bill Text 

Relevance:  This bill would amend Probate Code Sections 665A and 665B to permit the court to allocate costs in a guardianship proceeding among the parties as the court finds is fair and just.  Costs include compensation of attorneys ad litem, guardians ad litem, mental health professionals and interpreters.

See "Ad litem fees and attorneys' fees in guardianships: who pays?" on texasprobate.com.

x-Did Not Pass: SB 261 -- Perpetuities

Caption: Relating to the rule against perpetuities.
Author:   Carona
Bill History
Bill Text 

Relevance:  HB 372 would modify the rule against perpetuities to permit trusts to last for 200 years.

See "Perpetuities: How about 200 years?" on texasprobate.com. 

x-Did Not Pass: HB 372 -- Perpetuities

Caption:  Relating to the rule against perpetuities.
Author:  Hartnett
Bill History
Bill Text

Relevance:  HB 372 would modify the rule against perpetuities to permit trusts to last for 200 years.

See "Perpetuities: How about 200 years?" on texasprobate.com. 

Enacted-Effective 9/1/11: SB 220 -- Guardianships and DADS

Caption: Relating to guardianships, including the assessment of prospective wards for, and the provision of, guardianship services by the Department of Aging and Disability Services.
Author:  Nelson
Bill History
Bill Text 

 Relevance:  Revises sections of the Probate Code regarding guardianship costs, notice, citation, removal and reinstatement of a guardian and permanent successor guardians.

See "Ad litem fees and attorneys' fees in guardianships: who pays?" on texasprobate.com.

Texas Probate, Trust and Guardianship Legislation, 1997 - 2009

Glenn Karisch has been tracking legislation and writing about it on The Texas Probate Web Site since 1997. With the transition to the new web site in January 2011, the information about legislation from prior sessions was moved to the legacy Texas Probate Web Site at texasprobate.net.  Please note that it is possible that moving the old pages to the legacy site may have broken some of the links.  The vast majority still work, but if you encounter a broken link, please email Glenn at karisch@texasprobate.com, and he may be able to fix the link.

Here are links to some of the 1997 - 2009 information:

2009 Legislation

The 2009 session will be remembered for:

• "Chubbing" in the House late in the session, which caused many bills -- including REPTL's decedents' estates bill -- from passing.

• Enactment of the first 65 chapters of the new "Estates Code," set to become effective January 1, 2014. These changes included most of the chapters on decedents' estates.

• Enactment of new jurisdictional rules affecting decedents' estates -- gone are "appertaining to and incident to an estate," replaced by "probate proceedings" and "matters related to probate proceedings."

• New statutes making it easier to place residential property in revocable living trusts while maintaining homestead protections.

• A new statute on in terrorem ("no contest") provisions in wills and trusts which prohibits their enforcement in cases where probable cause exists for bringing the action and the action is brought and maintained in good faith.

• New options for special needs trusts making it easier to get court approval of these government-benefit-planning devices, including 867 Trusts with individuals or guardianship programs as trustees and court-ordered placement of funds in a pooled interest trust.

Web site resources include:

• Glenn Karisch's 2009 Texas Legislative Update -- Glenn Karisch's summary of 2009 probate, guardianship and trust law changes in pdf format.

• Bill Pargaman's 2009 Texas Legislative Update -- Bill Pargaman's summary of the changes affecting trust law, probate and guardianships, including the full text of Probate Code and Trust Code changes, in pdf format.

• Other 2009 resources.

 2007 Legislation

Key changes in 2007 include:

• Major changes to Probate Code Section 128A, requiring notice to beneficiaries that a will has been probated and an independent executor appointed.

• Repeal of the 2005 statute requiring trustees to keep beneficiaries informed.

• A myriad of changes affecting decedents' estates, including making marriage voidable after death based on mental incapacity, new rules about handling unpaid child support claims, "disinheriting" bad parents and changes to the rules about what happens when spouses divorce but don't change their wills.

• Changes to pleading, proof and order requirements for guardianships intended to protect proposed ward's rights to vote and drive

Here are links to web site resources:

• Glenn Karisch's 2007 Texas Legislative Update -- Glenn Karisch's summary of the changes affecting trust law, probate and guardianships, including the full text of Probate Code and Trust Code changes, in pdf format.

• Other 2007 resources, including Section 128A notice and affidavit forms.

2005 Legislation

2003 Legislation

2001 Legislation

1999 Legislation

1997 Legislation