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Revised February 02, 2006

2005 Texas Trust Legislation

by

Gerry W. Beyer

Governor Preston E. Smith Regents Professor of Law
Texas Tech University School of Law
Lubbock, Texas

    This article reviews the legislation enacted by the 2005 Texas Legislature relating to the Texas law of trusts.  The reader is warned that not all recent legislation is presented and not all aspects of each cited statute are analyzed.  You must read and study the full text of the legislation before relying on it or using it as authority.

A.  Effect of Divorce

    Sections § 471-473 were added to the Probate Code (not the Trust Code) to address the situation of what happens if the settlor and beneficiary of a revocable trust are divorced and the settlor fails to amend the trust to address this change in circumstance.

    1.  Effective Date

        The new provisions apply only if the settlor creates the trust on or after September 1, 2005 and the divorce occurs thereafter.  Thus, the property interest of spouse-beneficiaries of pre-September 1, 2005 trusts will not be effected by a subsequent divorce, even if that divorce is after the effective date of the legislation.

    2.  Types of Trusts Covered

        Only written revocable trusts are covered by the new provisions.  The ex-spouse remains as the beneficiary of an irrevocable trust and of a revocable oral trust.

    3.  Effect of Divorce or Annulment

        a.  Provisions Statutorily Revoked

            If the settlor of a written revocable trust divorces a beneficiary of that trust to whom the settlor was married before or at the time of trust creation, the following provisions of the trust in favor of the ex-spouse are automatically revoked:

·         Beneficiary of a revocable disposition or appointment.

·         Donee of a general or special power of appointment, and

·         Designation as a fiduciary (e.g., trustee, personal representative, agent, or guardian).

        b.  Effect of Statutory Revocation

            Any property interest which is automatically revoked passes as if the ex-spouse executed a valid disclaimer of that interest under Texas law.  If a fiduciary designation is automatically revoked, the trust instrument is read as if the ex-spouse died immediately before the dissolution of the marriage.

    4.  Exceptions

        The automatic revocation of provisions in favor of the ex-spouse discussed above does not occur if one or more of the following instruments provides otherwise:

·         A trust executed after the divorce,

·         A court order,

·         Express language in the trust, or

·         Express language of a contract relating to the division of the marital estate entered into before, during, or after the marriage.

    5.  Bona Fide Purchaser Protection

        A bona fide purchaser from the ex-spouse of trust property or a person who receives a payment from the ex-spouse which is traceable to the trust, does not have to return the property or payment and is not liable for that property or payment.

    6.  Duty of Ex-Spouse to Return Improper Receipts

        If the ex-spouse receives property or a payment from a trust to which the ex-spouse is not entitled, the ex-spouse has a duty to return the property or payment and is personally liable to the person who is entitled to that property or payment.

[Note:  The rest of the changes to trust law discussed in this section took effect on January 1, 2006 unless expressly stated otherwise.]

B.  Non-Waivable Trust Code Provisions

    Under former Trust Code § 111.002, the terms of the trust prevailed over conflicting Trust Code rules except that the settlor could not waive certain self-dealing duties of corporate trustees.  A new section, § 111.0035, was added to the Trust Code which greatly expands the list of non-waivable items and provides detailed rules with regard to the waiver of certain trustee duties.

    1.  Trust Purposes

        The settlor may not change the restriction in Trust Code § 112.031 that a trust may not be created for an illegal purpose or require the trustee to commit a criminal or tortious act or an act that is contrary to public policy.

    2.  Self-Dealing Duties of Corporate Trustees

        Consistent with prior law, the settlor may not waive certain self-dealing duties for corporate trustees regarding the buying, selling, and lending of trust property under Trust Code §§ 113.052 and 113.053.

    3.  Trustee Exculpation

        In a new section discussed below, the rules regarding trustee exculpation are recodified and expanded.  The settlor is prohibited from restricting the limitations on exculpation imposed by this section.

    4.  Statute of Limitations

        The settlor may not shorten the periods of limitation for commencing a judicial proceeding regarding a trust.

    5.  Trustee’s Duty to Account for Irrevocable Trusts

        The settlor may not limit the duty of a trustee of an irrevocable trust to respond to a beneficiary’s demand for an accounting under Trust Code § 113.151 provided that the beneficiary is either (1) entitled or permitted to receive trust distributions or (2) would receive a distribution from the trust if the trust terminated at the time of the demand.

    Note the settlor may restrict the trustee’s duty to account in other situations such as (1) if the trust is revocable or (2) if the beneficiaries of the irrevocable trust are remote, that is they are not eligible for current distributions or a distribution if the trust were to terminate.

    6.  Trustee’s Duty of Good Faith

        The settlor may not limit the trustee’s duty to act in good faith and in accordance with the purposes of the trust.

    7.  Trustee’s Duty to Inform Beneficiaries

        Generally, the settlor may not limit the trustee’s duty under a new section discussed below to keep the beneficiaries informed about the administration of the trust and the material facts the beneficiaries need to protect their interests.  There are three important exceptions, that is, situations were the settlor may limit the trustee’s duty to inform the beneficiaries:

·         The trust is revocable,

·         The beneficiary of an irrevocable trust is under age 25, or

·         The beneficiary of an irrevocable trust is remote, that is, the beneficiary is not eligible for current distributions or a distribution if the trust were to terminate.

    8.  Court’s Power

        The settlor may not restrict the power of a court to take action or exercise jurisdiction.  The statute provides a non-exclusive list of powers included in this restriction:

·         Modify, terminate, or take other action with regard to the trust under Trust Code § 112.054,

·         Remove a trustee under Trust Code § 113.082,

·         Exercise jurisdiction over the trust under Trust Code § 115.001

·         Determine matters related to the trustee’s bond (e.g., require, dispense with, modify, or terminate the bond), and

·         Adjust or deny compensation to a trustee who committed a breach of trust.

C.  Definition of “Settlor”

    The definition of settlor in Trust Code § 111.004(14) was revised to make it clear that a person who contributes property to the trust is encompassed within the term.  In other words, the Trust Code provisions effecting a person who creates a trust apply equally to a person who contributes property to an existing trust.

D.  Definition of “Breach of Trust”

    A definition is now supplied for the term “breach of trust” in new subsection (25) to Trust Code § 111.004.  Breach of trust means “a violation by a trustee of a duty the trustee owes to a beneficiary.”

E.  Acts Not Deemed Acceptance of Trust by Trustee

    Trust Code § 112.009 was expanded to permit a person named as a trustee to engage in certain conduct without having those acts be considered acts of acceptance.

    1.  Preservation of Trust Property

        The named trustee may act to preserve the trust property without such actions be deemed acceptance if the named trustee gives notice of the rejection to either (1) the settlor, if living and competent, or (2) if the settlor is deceased or incapacitated, all beneficiaries then entitled to receive trust distributions from the trust.  The named trustee must give this notice within a reasonable time after acting to preserve the trust property.

    2.  Inspection and Investigating Trust Property

        The named trustee may inspect and investigate trust property for any purpose, including determining the potential liability of the trust under environmental laws, without having those acts being deemed acceptance.

F.  Pet Trusts

    Traditionally, a trust in favor of specific animals failed for a variety of reasons such as for being in violation of the Rule Against Perpetuities because the measuring life was not human or for being an unenforceable honorary trust because it lacked a human or legal entity as a beneficiary who would have standing to enforce the trust.  To get around this problem, pet owners who wanted to assure that their pets were properly cared for after they died created a traditional trust which indirectly provided pet care by instructing the trustee to help the person, the actual beneficiary of the trust, who is providing care to the pet by paying for the pet’s expenses (and perhaps a fee) according to the pet owner’s directions as long as the beneficiary takes proper care of the pet.

    With the enactment of Trust Code § 112.037, Texas joins the growing number of states which authorize statutory pet trusts.  This type of trust is a basic plan and does not require the pet owner to make as many decisions regarding the terms of the trust.  The statute “fills in the gaps” and thus a simple provision in a will such as, “I leave $1,000 in trust for the care of my dog, Rover” may be effective.

    1.  Authorization

        The statute permits the pet owner to create a trust to provide for the care of an animal alive during the settlor’s lifetime (that is, not animals born after the settlor’s death).

    2.  Termination

        The trust ends when the last surviving animal for which the trust was created dies.

    3.  Enforcement

        The settlor may appoint a person to enforce the trust.  If the settlor does not appoint an enforcer, the court may appoint someone.  Any person having an interest in the welfare of the animal may request the court to appoint a person to enforce the trust or remove a person previously appointed.

    4.  Use of Property

        a.  General Rule

            The property in the trust may be used only for the care of the animal unless the exception discussed below applies.

        b.  Exception

            If the court determines that the value of the trust property exceeds the amount required for the care of the animals, the court may authorize trust property to be used in a different manner.  In priority order, here is the list of the ways in which the court may allow the excess property to be used:

·         As specified by the settlor in the trust.

·         If the settlor is still alive, to the settlor.

·         If the settlor is deceased and died testate, under the terms of the settlor’s will.

·         If the settlor is deceased and died intestate, to the settlor’s heirs.

    5.  Rule Against Perpetuities

        Instead of exempting pet trusts from the Rule Against Perpetuities, the legislature created a special rule for determining measuring lives.  The measuring lives include:

·         The human beneficiaries of the trust.

·         The humans named in the trust instrument, even if not beneficiaries.

·         If the settlor is living at the time the trust becomes irrevocable, the settlor of the trust.

·         If the settlor is not living at the time the trust becomes irrevocable, the individuals who would have inherited the settlor’s property had the settlor died intestate at the time the trust became irrevocable.

G.  Spendthrift Trusts

    Trust Code § 112.035 was expanded to clarify the rules applicable to spendthrift trusts.  The key change helps assure that a surviving spouse does not lose spendthrift protection under a bypass trust under specified circumstances.  The new language provides that a beneficiary of a trust is not considered to be a settlor (or to have made a voluntary or involuntary transfer of the beneficiary’s interest in the trust, or to have the power to make a voluntary or involuntary transfer of the beneficiary’s interest in the trust) merely because the beneficiary holds or exercises the following powers as a trustee or in another other capacity:

·         A presently exercisable power to consume, invade, appropriate, or distribute property to or for the benefit of the beneficiary if the power is either (1) exercisable only on consent of another person holding an interest adverse to the beneficiary’s interest, or (2) limited by an ascertainable standard, including health, education, support, or maintenance of the beneficiary.

·         A presently exercisable power to appoint any property of the trust to or for the benefit of a person other than the beneficiary, a creditor of the beneficiary, the beneficiary’s estate, or a creditor of the beneficiary’s estate.

·         A testamentary power of appointment.

·         A presently exercisable Crummey withdrawal power.

H.  Deviation

    Trust Code § 112.054 was liberalized to permit the court to modify trusts in a greater number of situations than had previously been the case.  Under both the old and new versions of this section, the court may exercise its deviation powers if the purposes of the trust have been fulfilled, have become illegal to fulfill, or have become impossible to fulfill.  The only additional ground under prior law was if, “because of circumstances not known to or anticipated by the settlor, compliance with the terms of the trust would defeat or substantially impair the accomplishment of the purposes of the trust.”  The new version of § 112.054 permits deviation in many additional situations including the following:

·         The court order will further the purposes of the trust because of circumstances not known to or anticipated by the settlor.

·         “Modification of administrative, nondispositive terms of the trust is necessary or appropriate to prevent waste or avoid impairment of the trust’s administration.”

·         Deviation is “necessary or appropriate to achieve the settlor’s tax objectives and is not contrary to the settlor’s intentions.”  The court may give this order retroactive effect but whether retroactivity will be recognized for tax purposes is problematic because recognition is a matter of federal, not state, law.

·         “Continuance of the trust is not necessary to achieve any material purpose of the trust” provided all beneficiaries have expressly consented to the deviation or are deemed to have consented via virtual representation (§ 115.013(c)) or through a guardian ad litem (§ 115.014).  (This provision legislatively overrules the Texas Supreme Court case of Frost Nat’l Bank of San Antonio v. Newton, 554 S.W.2d 149 (Tex. 1977), in which the court held that “a court cannot go beyond the face of the [trust] to make an ad hoc and speculative assessment of which purposes the [settlor] considered ‘primary’ and which he considered merely ‘incidental.’”)

·         Deviation is not inconsistent with a material purpose of the trust provided all beneficiaries have expressly consented to the deviation or are deemed to have consented via virtual representation (§ 115.013(c)) or through a guardian ad litem (§ 115.014).

    When exercising its deviation power, the court is no longer bound to follow the settlor’s actual intent.  Instead, the court only has to conform to the settlors “probable” intention.

I.  Division and Combination of Trusts

    Section 112.057 previously allowed a trustee to divide or merge trusts with identical terms only if it was appropriate to achieve significant tax savings.  The Legislature expanded this section by removing the limitation to tax purposes by providing that a division or combination may be done so long as “the result does not impair the rights of any beneficiary or adversely affect achievement of the purposes of the original trust.”

J.  Options

    The Legislature added § 113.003 to grant the trustee authority to deal with options.  These powers include the following:

·         To grant an option involving a sale, lease, or other disposition of trust property, and

·         To acquire and exercise an option for the acquisition of property.

The trustee may take these actions with respect to options even if they are exercisable beyond the duration of the trust.

K.  Distributions to a Minor or an Incapacitated Beneficiary

    Two changes were made to § 113.021 which address distribution options when the beneficiary lacks legal capacity and the trust instrument does not provide distribution instructions.  The first change is technical – the reference to a minor’s custodian was updated to reflect the enactment of the Texas Uniform Transfers to Minors Act in 1995.  The second change gives the trust another distribution option – to manage “the distribution as a separate fund on the beneficiary’s behalf, subject to the beneficiary’s continuing right to withdraw the distribution.”  Although the beneficiary would actually lack capacity to make a withdraw, the beneficiary’s guardian would have capacity.  In addition, the trustee may continue to manage the property until the beneficiary reaches the age of majority or regains capacity thereby avoiding the need for a guardianship.

L.  Distribution Methods

    Section 113.027 was added to provide the trustee with guidance regarding the distribution of trust property and when dividing or terminating a trust.  Distributions may be made in the following ways:

·         Divided interests.

·         Undivided interests.

·         Allocation of assets in proportionate shares.

·         Allocation of assets in disproportionate shares.

The trustee may value the trust property to make the distributions and then adjust the distribution, division, or termination to take account of the resulting differences in valuation.

    This authorization of non-pro rata distributions was designed to remedy a potentially significant federal income tax problem that could result if the trust instrument did not expressly authorize a non-pro rata distribution.  Under Rev. Rul. 69-486, 1969-2 C.B. 159, a non-pro rata distribution is treated as a pro rata distribution which is followed by exchanges between the beneficiaries.  These exchanges could then subject the beneficiaries to capital gains tax.

M.  Beneficiary’s Right to Prohibit Trustee from Suing

    In a provision effective on June 17, 2005, the Legislature created a method for a trust beneficiary to prevent a trustee from bringing certain lawsuits that the trustee would otherwise institute to comply with the trustee’s fiduciary duties.  A trustee may not prosecute or assert a claim for damages if all of the following conditions are met:

·         The claim is one for damages, that is, the claim is not for some other remedy,

·         The potential defendant is not a beneficiary of the trust,

·         The trustee is not bringing the action in the trustee’s individual capacity, and

·         Each beneficiary gives written notice to the trustee of the beneficiary’s opposition to the trustee’s pursuing the claim.

A trustee who does not prosecute or assert a claim under this provision is protected from the liability that might otherwise attach for failing to pursue the claim.

N.  Duty of “Good Faith”

    The Legislature codified the trustee’s common law duty to administer the trust in good faith by an addition to § 113.051.

O.  Bond

    Section 113.058 was revised to grant the court the authority to excuse a non-corporate trustee from the requirement of giving bond even if the settlor did not waive bond in the trust instrument.

P.  Duty to Inform Beneficiaries

    The Legislature codified the common law duty of the trustee to fully disclose to the beneficiaries all material facts that might affect their rights.  See Huie v. DeShazo, 922 S.W.2d 920 (Tex. 1996).  Section 113.060 provides that the trustee must keep the beneficiaries reasonably informed regarding (1) the administration of the trust and (2) the material facts the beneficiary needs to protect his or her interests.

    The settlor may, however, limit this duty if the trust is revocable or if the beneficiary is either (1) under age 25, or (2) remote, that is, the beneficiary is not eligible for current distributions or a distribution if the trust were to terminate.

Q.  Removal of Trustee

    Section 113.082 was revised to change an outdated reference from an “incompetent” trustee to an “incapacitated” trustee.  In addition, a repetitive statement that the court has the discretion to remove a trustee was deleted.

R.  Multiple Trustees

    The rules regarding how multiple trustees may exercise trust powers were revised and expanded.

    1.  Majority May Act

           Consistent with prior law, cotrustees who are unable to reach a unanimous decision may act by a simple majority unlike at common law where unanimity was required.  § 113.085(a).

    2.  Vacancies

           Again consistent with prior law, the remaining trustees may act for the trust when a vacancy occurs.  § 113.085(b).

    3.  Duty of Cotrustee to Participate

           Section 113.085(c) codifies the cotrustee’s duty to participate in trust administration.  However, a cotrustee is excused from this duty under the following circumstances:

·      The cotrustee is unavailable, e.g., the cotrustee is absent, ill, disqualified, or is temporarily incapacitated.  If a cotrustee is unavailable and prompt action is necessary to achieve the purposes of the trust or to avoid injury to the trust property, the remaining cotrustee or a majority of the remaining cotrustees may act for the trust.  § 113.085(d).

·      The cotrustee has complied either with applicable law or the terms of the trust in delegating the performance of a trust function.  To use this exception, the cotrustee must (1) communicate the delegation to all the other cotrustees, and (2) file the delegation in the trust records.

    4.  Duty to Exercise Reasonable Care

           A cotrustee must exercise reasonable care to (1) prevent another cotrustee from committing a serious (but not minor) breach of trust, and (2) compel a cotrustee to redress a serious (but not minor) breach of trust.  § 114.006(b).  The Code provides no guidance on how a court should determine whether a breach is serious or minor.  Is it the amount of money involved, the moral depravity of the breach, or some other factor?

    5.  Liability

        a.  Non-Joining Cotrustee

              A cotrustee who does not join in an action of another cotrustee is not liable for the cotrustee’s action unless the non-joining cotrustee breached the cotrustee’s duty to exercise reasonable care.  § 114.006(a).

        b.  Dissenting But Joining Cotrustee

           A cotrustee who joins in an action at the direction of the majority of the trustees is not liable for the action under § 114.006(c) if all of the following are true:

·         The cotrustee exercised reasonable care, and

·         The cotrustee gave written notice of the dissent to any cotrustee at or before the time of the action.

S.  Delegation of Duties to Cotrustees

    Section 113.085(e) codifies the rules regarding when a cotrustee may delegate duties to another cotrustee.  The subsection grants a cotrustee the right to delegate the performance of a duty unless the settlor specifically directed that a particular trust function must be performed jointly.  The cotrustee may revoke a delegation at any time unless the cotrustee expressly made the delegation irrevocable.

T.  Common Trust Funds

    The Legislature fixed an outdated reference in § 113.171(a) to the Uniform Gifts to Minors Act to reflect the Texas passage of the Uniform Transfers to Minors Act which occurred in 1995.

U.  Trust Protectors

    The Legislature modernized § 114.003 to reflect the increased use of trust protectors.

    1.  Authorization

       The settlor may grant a trustee or a third party the power to direct the modification or termination of the trust.

    2.  Duty of Trustee

       Normally, the trustee must follow the instructions of the trust protector.  However, the trustee may not follow those instructions under the following circumstances:

·         The protector’s instruction is manifestly contrary to the terms of the trust, or

·         The trustee knows that the instruction would constitute a serious breach of the protector’s fiduciary duty to the beneficiaries.

    3.  Duty of Protector

       A protector is presumed to be a fiduciary who is required to act in good faith with regard to the purposes of the trust and the interests of the beneficiaries.  However, a beneficiary who is also a protector is excluded from this presumption.

    4.  Liability of Protector

       A protector is liable for any loss that results from a breach of the protector’s fiduciary duty.

V.  Exculpation of Trustee

    The Legislature recodified the rules regarding the ability of a settlor to exculpate the trustee for breaches of duty from § 113.059 to newly created § 114.007.  The new section makes it clear that except for the restrictions imposed by § 111.0035 (discussed in Part I of this article in § IV(B)), the settlor may include terms exculpating the trustee as follows:

·         To relieve the trustee from a duty or restriction imposed by (1) the Trust Code or (2) common law, and

·         To direct or permit the trustee to do or not to do an action that would otherwise violate a duty or restriction imposed by (1) the Trust Code or (2) common law.

W.  Remedies for Beach of Trust

    In newly created § 114.008, the Legislature compiled the remedies which are available for a breach of trust that has either occurred or which might occur in the future.  The remedies, as listed below, were most likely available under prior law either through the Trust Code or via common law.

·         Compel the trustee to perform the trustee’s duties.

·         Enjoin the trustee from committing a breach of trust.

·         Compel the trustee to redress a breach of trust (e.g., by paying money or restoring property).

·         Order an accounting.

·         Appoint a receiver to take possession of the trust property and to administer the trust.

·         Suspend the trustee.

·         Remove the trustee under § 113.082.

·         Reduce or deny trustee compensation.

·         Void an act of the trustee (see note below).

·         Impose a lien or a constructive trust on the trust property (see note below).

·         Trace trust property which was improperly disposed of and recover the property or its proceeds (see note below).

Note:  The latter three remedies are not available if granting the remedy would injure a person (other than a beneficiary) who (1) acted without without knowledge of the trustee’s improper conduct, or (2) dealt with the trustee in good faith and for value.

X.  Jurisdiction

    1.  Generally

       The 2005 Legislature clarified the court’s involvement with an ongoing trust by revising § 115.001(c).  This section now explains that the court may intervene in the administration of a trust to the extent that an interested person or an applicable law invokes the court’s jurisdiction.  This involvement, however, does not result in the trust being subject to continuing judicial supervision unless the court so orders.

    2.  Section 142.005 Management Trusts

       Subsection § 115.001(d) was amended to make it clear that the district court’s jurisdiction over trusts is not exclusive if another court creates a Property Code § 142.005 management trust.  Likewise, § 142.005(d) was revised to provide that a court that creates a § 142.005 trust “has continuing jurisdiction and supervisory power over the trust, including the power to construe, amend, revoke, modify, or terminate the trust.”

Y.  Necessary Parties to a Trust Action

    Section 115.011 was revised to eliminate confusion regarding the persons who are necessary parties to a trust action.  As previously written, anyone who was designated by name in the instrument creating the trust was arguably a necessary party, even if that person had absolutely no interest in the trust.  For example, a named trustee who refused to serve and a beneficiary named in the non-trust portion of a will creating a testamentary trust could both have fallen within the scope of necessary parties.  The amendment provides that only a beneficiary who is designated by name is a necessary party and that only a trustee who is serving at the time the action is filed is a necessary party.  (The other ways a party may qualify as a necessary party were not changed by the amendment.)

Z.  Guardian Ad Litem

    Under new § 115.014(c), a guardian ad litem may now consider the general benefit accruing to the living members of the represented person’s family.

AA.  Uniform Principal and Income Act

    1.  Trustee’s Power to Adjust

           The 2005 Legislature removed a restriction on the trustee’s power to adjust which formerly prevented the trustee from making an adjustment that would diminish the income interest of a trust that requires all of the trust income to be paid at least annually to a spouse and for which an estate or gift tax marital deduction would be allowed if the trustee did not have the power to adjust.  Former § 116.005(c)(1).  The removal was triggered by the issuance of Treasury Regulation 1.643(b)-1, effective January 2, 2004 which provides that an adjustment which meets the regulation’s requirements does not disqualify a trust for QTIP treatment even if it reduces trust income.

    2.  Deferred Compensation, Annuities, and Similar Payments

       As originally enacted in 2003, § 116.172 which explains how deferred compensation, annuity, and similar payments are allocated, contained “garbled language” which made the section “almost impossible to administer.”  Glenn M. Karisch, 2005 Texas Legislative Update (June 26, 2005).  The 2005 Legislature revised this language so it reflects what the drafters of the 2003 legislation intended.

BB.  Attorney General’s Involvement with Charitable Trusts

    1.  Notice Time

       Effective September 1, 2005, a party initiating a proceeding involving a charitable must give the attorney general a longer time to respond prior to a hearing in the proceeding.  Property Code § 123.003 was revised to require the notice to be given no less than 25 days, rather than 10 days, prior to the hearing.

    2.  Exempt Proceedings

       To prevent the attorney general’s office from being unnecessarily bombarded with notices, the 2005 Legislature amended § 123.003(a) to exempt the following proceedings from the notice requirement:

·         An uncontested application that exclusively seeks to admit a will to probate.  The exception applies regardless of whether the application is to probate the will as a muniment of title or is coupled with a request for the appointment of a personal representative.

·         The second exception is poorly worded and its true impact is problematic.  Read literally, this exception would remove all proceedings except those under Probate Code § 83 (applications pertaining to a second application to probate a will) from the notice requirement.  It is likely, however, that this result, triggered by the use of a double-negative, was not the Legislature’s intent.  It is likely the Legislature actually meant to exempt second applications under § 83 from the notice requirement.

CC.  Probate Code § 867 Management Trusts

    The changes discussed in this section apply to an application filed on or after September 1, 2005.  Note that non-substantive and clarifying changes to the provisions governing § 867 management trusts are not discussed below.

    1.  Proper Applicants

           The list of persons who may apply for the creation of a § 867 management trust was expanded.  Under prior law, only guardians, guardians ad litem, and attorneys ad litem could petition the court for the creation of a management trust.  New § 867(a-1) provides the following comprehensive list of proper applicants:

·         Guardians of the estate, person, or estate and person,

·         Ad litems, attorney or guardian, who are appointed to represent the ward or the ward’s interests,

·         A person interested in the welfare of an alleged incapacitated person who does not have a guardian of the estate, and

·         Ad litems, attorney or guardian, who are appointed to represent an alleged incapacitated person, or the person’s interests, who does not have a guardian.

    2.  Creation of Trust for Incapacitated Person Without a Guardian

        The 2005 Legislature authorized the court to create a § 867 trust for an incapacitated person who is not currently subject to a guardianship.  Section 867(b-1) permits the court to do so it if finds that the following are true after conducting a proper hearing:

·         The person is incapacitated (see § 601(14)).  The court must use the same procedures and evidentiary standards as required in a hearing for the appointment of a guardian in making its determination of incapacity.  Probate Code § 867(b-3).

·         The creation of the trust is in the person’s best interests.  If the court determines that the person is incapacitated but that the creation of the trust is not in the person’s best interests, the court may appoint a guardian without the necessity of a separate proceeding.  Probate Code § 867(b-4).

If a guardianship application is pending when an application for the creation of a trust for the alleged incapacitated person is filed, the application must be filed in the same court in which the guardianship proceeding is pending.  Probate Code § 867(b-2).

    3.  Venue

       New Probate Code § 867A provides that if a proceeding for the appointment of a guardian for an alleged incapacitated person is not pending on the date the application is filed, venue is determined in the same manner as venue for the appointment of a guardian under Probate Code § 610.

    4.  Presumption of Incapacity

       The 2005 Legislature restored a provision removed in 2003 by adding Probate Code § 874 which provides that a person who has a temporary guardian under § 875 may not be presumed to be incapacitated.  This makes sense because temporary guardianship proceedings do not have all of the safeguards of a formal guardianship.

In publishing this article, the author is not engaged in rendering legal, accounting or other professional service. If legal advice is required, the service of a competent professional should be sought.