HBA-SEB H.B. 1475 76(R)BILL ANALYSIS
Office of House Bill AnalysisH.B. 1475
By: Thompson
Pensions and Investments
4/16/1999
Committee Report (Amended)
BACKGROUND AND PURPOSE
Currently, a trustee may have difficulty appointing an investment agent for
the administration of a trust estate due to the possibility of the trustee
being held strictly liable under common law. Also, under current statutory
law, a trustee who wishes to bind future beneficiaries to a trust, whether
minors or unborn, must do so through litigation. H.B. 1475 authorizes a
trustee to employ an investment agent and to delegate investment decisions
to the agent. This bill also provides for a final and binding written
instrument to designate a minor or an unborn person as a beneficiary.
RULEMAKING AUTHORITY
It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Section 113.018, Property Code, to authorize a trustee
to employ investment agents in the administration of a trust estate.
SECTION 2. Amends Section 113.056(a), Property Code, to provide that the
standard requiring a trustee to exercise judgment and care in the
management of the trust prescribed by this subsection neither requires the
trustee to invest trust funds for capital appreciation or follow modern
portfolio theory in investing the funds nor prohibits the trustee from
investing trust funds for capital appreciation or following modern
portfolio theory.
SECTION 3. Amends Subchapter B, Chapter 113, Property Code, by adding
Section 113.060, as follows:
Sec. 113.060. AUTHORITY TO DELEGATE INVESTMENT DECISIONS. (a) Defines
"beneficiary."
(b) Authorizes a trustee to employ and delegate investment decisions to an
investment agent. Establishes that the trustee is responsible for the
investment decisions of the agent, except as provided by Subsection (c).
(c) Specifies that a trustee is not responsible for investment decisions
made by an investment agent employed as provided by this section if the
trustee exercises the judgment and care that a person of ordinary prudence,
discretion, and intelligence would exercise in the management of the
person's own funds in selecting the investment agent and in establishing
the scope and terms of the delegation, if the trustee investigates specific
credentials of the investment agent, if the investment agent is subject to
the jurisdiction of the courts of this state, if the investment agent is
subject to the standard of trust management and investment prescribed by
Section 113.056 (Standard for Trust Management and Investment) and assumes
liability for failure to follow that standard under the terms of the
delegation agreement, and if the trustee periodically reviews the
investment agent's decisions in order to ensure compliance with the
trustee's investment strategy.
(d) Requires the trustee to send written notice to each beneficiary of
the trust informing the beneficiary of an intended delegation and
identifying the investment agent not later than the 30th day before the
date a trustee enters into an agreement to delegate investment decisions to
the investment agent.
SECTION 4. Amends Subchapter B, Chapter 114, Property Code, by adding
Section 114.032, as follows:
Sec. 114.032. LIABILITY FOR WRITTEN AGREEMENTS. (a) Provides that a
written agreement between a trustee and a beneficiary, including a release,
consent, or other agreement relating to a trustee's duty, power,
responsibility, restriction, or liability is final and binding on the
beneficiary and any person represented by a beneficiary if the instrument
is signed by the beneficiary, if the beneficiary has legal capacity to sign
the instrument, and if the beneficiary has full knowledge of the
circumstances surrounding the agreement.
(b) Provides that a written agreement is final and binding on any person
who takes under the power of appointment or who takes in default if the
power of appointment is not executed. Establishes that a final and binding
agreement under this subsection must be signed by a beneficiary who has the
power to revoke the trust or the power to appoint, including the power to
appoint through a power of amendment, the income or principal of the trust
to or for the benefit of the beneficiary, the beneficiary's creditors, the
beneficiary's estate, or the creditors of the beneficiary's estate.
(c) Provides that a written instrument is final and binding on a
beneficiary who is a minor if the minor's parent, including a parent who is
also a trust beneficiary, signs the instrument on the minor's behalf if no
conflict of interest exists and if no guardian, including a guardian ad
litem, has been appointed to act on the minor's behalf.
(d) Provides that a written instrument is final and binding on an unborn
or unascertained beneficiary if a beneficiary who has an interest
substantially identical to the interest of the unborn or unascertained
beneficiary signs the instrument. Specifies that for the purposes of this
subsection, an unborn or unascertained beneficiary has a substantially
identical interest only with a trust beneficiary from whom the unborn or
unascertained beneficiary descends.
(e) Establishes that this section does not apply to a written instrument
that terminates a trust in whole or in part unless the instrument is
otherwise permitted by law.
SECTION 5. Effective date: September 1, 1999.
Makes application of this Act prospective.
SECTION 6. Emergency clause.
EXPLANATION OF AMENDMENTS
Committee Amendment #1
Deletes SECTION 2 of the bill and redesignates SECTIONS 3-6 to SECTIONS
2-5. The deleted text would have amended Section 113.056(a), Property
Code, to provide that the standard requiring a trustee to exercise judgment
and care in the management of a trust neither requires the trustee to
invest trust funds for capital appreciation or to follow modern portfolio
theory in investing the funds nor prohibits the trustee from investing
trust funds for capital appreciation or following modern portfolio theory.