The 86th Regular Session & Family Law: Trust Construction at Death and Divorce – CHANGES IN EFFECT AS OF SEPTEMBER 1
This post is the second in our three-part series, The 86th Regular Session & Family Law & Trusts, aimed at summarizing key changes from the legislative session that could surface in the course of a family law practice. The focus of this post is on two of the session’s many updates to Texas law regarding trusts.
The Rules of Will Construction Have Come to Trusts
HB 2245 (SB 631) – Rules of Construction for At-Death Dispositions in Trusts, Amendment to Texas Property Code 112.0335, Effective September 1, 2019.
With the creation of Texas Property Code 112.0335, the laws of will construction in the Texas Estates Code now apply to revocable trust at-death dispositions. At the death of the settlor, the law now makes it as if the trust were a will and its provisions could be construed according to the following principles:
- the settlor of the trust is the testator,
- the beneficiaries of the at-death transfer are devisees, and
- the at-death transfers are devises and the Estates Code provisions relating to abatement of bequests apply to the abatement of at-death transfers.
And the following transfer equivalences apply for purposes of the provisions of Chapters 255 and 355 of the Estates Code:
- an at-death transfer of specifically identifiable trust property is a specific bequest, devise, or legacy;
- an at-death transfer from the general assets of the trust that does not transfer specifically identifiable property is a general bequest, devise, or legacy; and
- an at-death transfer of trust property that remains after all specific and general transfers have been satisfied is the residuary estate.
Divorce Works a Revocation in Existing Trusts
HB 2245 (SB 631) – Impact of Divorce on Existing Trusts, Amendments to Texas Property Code 112.102 and 112.103, Effective September 1, 2019.
With the creation of Texas Property Code 112.102 and 112.103, the rules regarding the impact of divorce on existing trusts have been brought to the Property Code. To be clear, these provisions were already effective provisions in the Texas Estates Code, Ch. 123, Subch. B, and were copied and pasted into this amendment verbatim. So in that sense, these are not new laws but old laws in a new place.
The basic thrust of Texas Property Code 112.102(a) is that a divorce works to revoke or undo any trust provision that benefits a settlor’s ex-spouse or ex-spouse’s family member who is not otherwise a family member of the settlor.
So according to 112.102(a), a divorce revokes all of the following trust provisions:
- (1) trust property dispositions and appointments to an ex or ex’s family member,
- (2) powers of appointment conferred in favor of an ex or ex’s family member, and
- (3) nominations of an ex or ex’s family member to serve as personal representative, trustee, conservator, agent, guardian, or any other fiduciary or representative capacity.
For 112.102(a)(1) and (2), 112.103 states that the ex or ex’s family member is treated as though he or she disclaimed.
For 112.102(a)(3), 112.103 states that the ex or ex’s family member is treated as though he or she predeceased the settlor.
And 112.102(b) states that the revocations of (a) do not apply in any of the following circumstances:
- (1) a court order specifies otherwise,
- (2) the trust executed before the divorce expressly provides for such provisions to survive divorce, or
- (3) a contract concerning marital property division executed at any time expressly provides otherwise.