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RayAnswers, Attorney
Category: Estate Law
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Experience:  Texas lawyer for 30 years in Estate law
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Can a Special Needs Trust Trustee change beneficiaries and

Customer Question

Can a Special Needs Trust Trustee change beneficiaries and the secondary beneficiaries of a Special Needs Trust by decanting it? In this case, the disabled primary beneficiary lives in CA, the Trustee lives in Tx and the trust situs is in Texas. The current Trustee is also the secondary beneficiary. Thank you in advance for the help.
Submitted: 28 days ago.
Category: Estate Law
Expert:  RayAnswers replied 28 days ago.

Hi and welcome to JA. Ray here to help you today.Please bear with me a few moments while I review your question, conduct and prepare your response.

Expert:  RayAnswers replied 28 days ago.

Here to accomplish this you would have to petition in Texas District Court and seek court approval to do so.Since the beneficiary is involved you have to convince the court here under Texas law that this is in the best interests of the beneficiary to approve this.The court by order would approve if it finds it is in the best interest to decant the trust.

Expert:  RayAnswers replied 28 days ago.

SUBCHAPTER C. REVOCATION, MODIFICATION, AND TERMINATION OF TRUSTS

Sec. 112.051. REVOCATION, MODIFICATION, OR AMENDMENT BY SETTLOR. (a) A settlor may revoke the trust unless it is irrevocable by the express terms of the instrument creating it or of an instrument modifying it.

(b) The settlor may modify or amend a trust that is revocable, but the settlor may not enlarge the duties of the trustee without the trustee's express consent.

(c) If the trust was created by a written instrument, a revocation, modification, or amendment of the trust must be in writing.

Amended by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec. 2, eff. Jan. 1, 1984.

Sec. 112.052. TERMINATION. A trust terminates if by its terms the trust is to continue only until the expiration of a certain period or until the happening of a certain event and the period of time has elapsed or the event has occurred. If an event of termination occurs, the trustee may continue to exercise the powers of the trustee for the reasonable period of time required to wind up the affairs of the trust and to make distribution of its assets to the appropriate beneficiaries. The continued exercise of the trustee's powers after an event of termination does not affect the vested rights of beneficiaries of the trust.

Amended by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec. 2, eff. Jan. 1, 1984.

Sec. 112.053. DISPOSITION OF TRUST PROPERTY ON FAILURE OF TRUST. The settlor may provide in the trust instrument how property may or may not be disposed of in the event of failure, termination, or revocation of the trust.

Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec. 2, eff. Jan. 1, 1984. Amended by Acts 1991, 72nd Leg., ch. 895, Sec. 17, eff. Sept. 1, 1991.

Sec. 112.054. JUDICIAL MODIFICATION OR TERMINATION OF TRUSTS. (a) On the petition of a trustee or a beneficiary, a court may order that the trustee be changed, that the terms of the trust be modified, that the trustee be directed or permitted to do acts that are not authorized or that are forbidden by the terms of the trust, that the trustee be prohibited from performing acts required by the terms of the trust, or that the trust be terminated in whole or in part, if:

(1) the purposes of the trust have been fulfilled or have become illegal or impossible to fulfill;

(2) because of circumstances not known to or anticipated by the settlor, the order will further the purposes of the trust;

(3) modification of administrative, nondispositive terms of the trust is necessary or appropriate to prevent waste or avoid impairment of the trust's administration;

(4) the order is necessary or appropriate to achieve the settlor's tax objectives and is not contrary to the settlor's intentions; or

(5) subject to Subsection (d):

(A) continuance of the trust is not necessary to achieve any material purpose of the trust; or

(B) the order is not inconsistent with a material purpose of the trust.

(b) The court shall exercise its discretion to order a modification or termination under Subsection (a) in the manner that conforms as nearly as possible to the probable intention of the settlor. The court shall consider spendthrift provisions as a factor in making its decision whether to modify or terminate, but the court is not precluded from exercising its discretion to modify or terminate solely because the trust is a spendthrift trust.

(c) The court may direct that an order described by Subsection (a)(4) has retroactive effect.

(d) The court may not take the action permitted by Subsection (a)(5) unless all beneficiaries of the trust have consented to the order or are deemed to have consented to the order. A minor, incapacitated, unborn, or unascertained beneficiary is deemed to have consented if a person representing the beneficiary's interest under Section 115.013(c) has consented or if a guardian ad litem appointed to represent the beneficiary's interest under Section 115.014 consents on the beneficiary's behalf.

Expert:  RayAnswers replied 28 days ago.

The modernization and liberalization of Texas trust law that began with enactment of the two UPIAs (the Uniform Prudent Investor Act and Uniform Principal and Income Act) in 2003 continued in 2013 with enactment of Texas’s first default decanting statute. New Subchapter D of Chapter 112 of the Trust Code (Sections 112.071 – 112.087) permits a trustee to distribute trust principal “in further trust” in some cases.

The Texas statute distinguishes between “full discretion trusts” and “limited discretion trusts.” In a full discretion trust, the trustee’s power to distribute is not limited in any manner. In limited discretion trusts, the power to distribute is limited in some way. HEMS trusts – trusts permitting the trustee to distribute property for the beneficiary’s health, education, maintenance and support – are “limited discretion trusts” under the Texas statutes.

Under the decanting statute, the trustee may distribute principal from a full discretion trust to another trust for the benefit of one or more of the current beneficiaries of the first trust. Also, the trustee may give a wholly discretionary beneficiary a broad power of appointment. The justification for these actions is that, if the trustee could distribute the entire principal to a beneficiary, the trustee ought to be able to make that distribution in further trust with new rules for a beneficiary.

In order to decant from a limited discretion trust, the current beneficiaries of both trusts must be the same, the successor and remainder beneficiaries of both trusts must be the same, and the distribution standard of both trusts must be the same. Due to these limitations, it is likely that the decanting power in limited discretion trusts will be useful only for administrative changes.

When decanting, the trustee must act in good faith, in accordance with the terms and purposes of the trust and in the interests of the beneficiaries. In no case is the trustee deemed to have a duty to decant. The power to decant is reduced to the extent it would cause any intended tax benefits to be lost.

When decanting, the trustee may not take away a beneficiary’s mandatory distribution right, materially impair the rights of any beneficiary, materially lessen the trustee’s fiduciary duty, decrease the trustee’s liability or exonerate the trustee, or eliminate another person’s power to remove the trustee.

he trustee must give 30 days’ written notice to current beneficiaries and presumptive remainder beneficiaries. If a charity is a beneficiary, the notice also must be given to the attorney general. If no one objects during the 30-day notice period, the trustee may decant without judicial approval, although the trustee may seek judicial approval if desired. If a beneficiary other than the attorney general objects, the trustee may seek judicial approval but is not required to do so. If the attorney general objects, the trustee must seek judicial approval before decanting.

The trustee may not decant without judicial approval solely to change the trustee compensation provisions. However, the trustee may change compensation provisions without judicial approval if the change is in conjunction with other changes for which there are valid reasons, so long as the change does not provide for unreasonable compensation under Texas law.

Except as otherwise provided in the trust instrument, the decanting provisions apply to trusts existing or created on or after September 1, 2013.

Expert:  RayAnswers replied 28 days ago.

Thanks again decanting is certainly possible either under the law above or through the courts if necessary.

Expert:  RayAnswers replied 28 days ago.

If you can positive rate it is much appreciated, thanks again.

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