HBA-JLV S.B. 698 77(R)    BILL ANALYSIS


Office of House Bill AnalysisS.B. 698
By: Carona
Financial Institutions
4/20/2001
Engrossed



BACKGROUND AND PURPOSE 

Currently, perpetual trusts are prohibited by the Texas Constitution and
the Property Code.  The Rule Against Perpetuities (RAP) provides that a
trust must end twenty-one years after the death of the last "measuring
life," or family members who are alive at the time the trust is created.
Since a Texas resident cannot create a perpetual trust in Texas, that
resident can create a perpetual trust by moving their capital to a trust
fund created in another state that allows perpetual trusts.  By revising
the RAP provision, Texans may be encouraged to leave trust assets in the
state, which may prevent an erosion of the intangible personal property tax
base.  Senate Bill 698 removes the prohibition on perpetual trusts and
provides that no interest is invalid under any rule against perpetuities
during the 360 years following the date the instrument creating the
interest becomes irrevocable.   

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. 

ANALYSIS

Senate Bill 698 amends the Property Code to provide that the rule against
perpetuities, as that rule relates to trusts, does not apply in this state.
The bill provides that the rule against perpetuities does not apply to
trusts, with exceptions.  The bill provides that no nonvested property
interest, interest in a trust, or other disposition of property, including
any interest created pursuant to the exercise of a power of appointment, is
invalid under any rule against perpetuities during the 360 years following
the date the instrument creating the interest becomes irrevocable.  The
bill provides that if, at the end of the 360 years following the date the
instrument creating an interest becomes irrevocable, any of the assets
subject to the interest have not vested, the assets are required to be
distributed by a court having jurisdiction.  The court is required to give
effect to the general intent of the settlor of the trust or person
exercising a power of appointment in the case of any further trust or other
disposition of property made pursuant to the exercise of a power of
appointment.  The bill provides that perpetual charitable trusts are
permitted and are not subject to the rule against perpetuities. 

EFFECTIVE DATE

The Act takes effect January 1, 2002, but only if the constitutional
amendment proposed by the 77th Legislature, removing the prohibition
against perpetual trusts is approved by the voters.  If that amendment is
not approved by the voters, this Act has no effect.