H.B. No. 1314
TRUSTS CREATED UNDER SECTION 867 OF THE PROBATE CODE
Governor Bush signed HB 1314 on June 20, 1997. HB 1314 becomes effective on September 1, 1997.
Since 1993, Texas law has permitted the creation of a "guardianship management trust" as an alternative way to manage a minor or incapacitated person's assets. These trusts, created under Section 867 of the Probate Code, are commonly called "867 Trusts." They a similar in many respects to their older cousins, "142 Trusts," which are created under Section 142.005 of the Property Code.
In 1995 and again in 1997, the legislature tinkered with the statutes governing 867 Trusts. HB 1314 was 1997's effort.
I am modifying my paper on 867 Trusts and 142 Trusts to incorporate the 1997 changes, and I discuss some of the issues raised (and settled) by HB 1314 in it. Click here to go to that the latest draft of that paper [Note: The paper still is in draft form; I hope to finish it shortly.]
Here are the principal changes wrought by HB 1314:
(1) Attorney ad litems now are permitted to apply for creation of 867 Trusts. This will make it possible to avoid the Texas two-step -- the need to have a guardian appointed and qualified before the guardian can apply for creation of the 867 Trust. Now, if it is clear that an 867 Trust is to be created at the outset, the attorney ad litem (rather than the guardian) can apply for creation of the trust.
(2) It is now clear that the court can order a third party holding funds to transfer those funds directly to the trustee of the 867 Trust without the need for passing those funds through the hands of the guardian.
|Three key changes:
(1) New subsection (d) permits modification of the otherwise "mandatory" terms to qualify an 867 Trust for Medicaid "supplemental needs trust" status. (SB 912 made a similar, though not identical, change for 142 Trusts.)
(2) Subsection (b) was amended to make it clear that the trust instrument may permit "facility of payment" distributions for the benefit of the beneficiary directly to a person providing goods or services to the ward.
(3) New subsection (e) makes it clear that the trust instrument may provide additional terms, so long as they are not inconsistent with the mandatory provisions.
|We tried, we REALLY tried, to amend the statute to make it clear that, unless there was a good reason to keep the guardian around after the trust was created, he or she could be discharged. Unfortunately, some of the statutory probate judges thought this was a bad idea. They wanted either a guardian of the person or a guardian of the estate serving while the trust was in existence. So, new section 868A provides that the guardian of the estate may be discharged only if a guardian of the person is in place.
|This new section makes it clear that, to the extent it is not inconsistent with the trust instrument or the statutes governing 867 Trusts, the Texas Trust Code applies to 867 Trusts. This new section permitted the repeal of subsection 868(c), which was added in 1995 to permit the trust instrument to give trustees the powers of a trustee under the Trust Code.
|Prior law gave the district courts and the statutory probate courts exclusive jurisdiction of matters concerning trusts. That left open the question of the authority of a constitutional county court or a county court at law to supervise and, if necessary, take action with respect to an 867 Trust it created. New subsection 869C makes it clear that the court creating the trust has the same jurisdiction over the trust as it had over the guardianship. A corresponding change was made to Section 115.001 of the Trust Code.
|This section was amended to provide that a trust created for an incapacitated person (other than a minor) terminates on the date the court determines that "continuing the trust is no longer in the ward's best interests."
A lot of thought went into the effective date sections of HB 1314. The clear intent was:
The legislative history of HB 1314 supports such a construction. However, the language of the statute itself is not as clear as it should have been because the Legislative Council, which okays the language in bills before it clears committee, messed it up. Nevertheless, I still think the language of the statute, plus the legislative history, gets to the manifestation of the intent expressed above.
The alternative to addressing the effective date problem is what was done in SB 912, which affects 142 Trusts. SB 912 simply doesn't address whether the new provision applies to pre-existing trusts.