USA – TEXAS Trends and Developments Contributed by: Perrin Clark, Ytterberg Deery Knull LLP
Recent Developments Trust protectors and directed trusts
affecting the ownership of the investment or rights in the investment and, with respect to a nonpublicly traded investment, the valuation of the investment.” Pursuant to Section 114.0031, all these persons are considered fiduciaries under Texas law, regardless of any contrary provision in the respective trust instru - ment. Trusts with such persons appointed, particularly investment advisers and distribution advisers, are referred to as directed trusts. The trustee of a directed trust “does not, except to the extent the trust terms provide otherwise, have the duty to: (1) monitor the conduct of the advisor; (2) provide advice to the advi - sor or consult with the advisor; or (3) communicate with or warn or apprise any beneficiary or third party concerning instances in which the trustee would or might have exercised the trustee’s own discretion in a manner different from the manner directed by the advisor.” And the trustee of a directed trust “who acts in accordance with the direction of an advisor, as prescribed by the trust terms, is not liable, except in cases of wilful misconduct on the part of the trustee so directed, for any loss resulting directly or indirectly from that act.” Further, if a trustee may act only with the consent of an adviser, “the trustee [will not be] liable, except in cases of wilful misconduct or gross negligence on the part of the trustee, for any loss resulting directly or indirectly from any act taken or not taken as a result of the advisor’s failure to provide the required consent after having been requested to do so by the trustee.” Decanting Law and practice in Texas with respect to the decant - ing of trusts has developed significantly over the past decade. As a result of adoption and subsequent changes in the law that allows for decanting, the “dis - tribution of trust principal in further trust” (ie, decant - ing) has become much more prevalent in the admin - istration of trusts governed by Texas law. The breadth of a trustee’s power to decant depends on whether the trustee has “limited discretion” or “full discretion.” Limited discretion means the power to distribute principal according to mandatory distribu - tion provisions or the power to distribute principal to or for the benefit of one or more beneficiaries of a trust
Law and practice in Texas with respect to trust protec - tors and directed trusts has developed significantly over the past decade. As a result of adoption and subsequent changes in the law that allow both trust protectors and other persons to be appointed and to direct certain trustee actions, the appointment of trust protectors, investment advisers, distribution advisers, and other quasi-fiduciaries has become much more prevalent in the planning for Texas residents and in trust and estate documents governed by Texas law. The appointment of trust protectors is now allowed pursuant to Section 114.0031 of the Texas Trust Code. A trust protector is considered to be an “advis - er”, along with other quasi-fiduciaries who might be appointed pursuant to this section. A trust protector “has all the power and authority granted to the [trust] protector by the trust terms, which may include: (1) the power to remove and appoint trustees, advisors, trust committee members, and other [trust] protec - tors; (2) the power to modify or amend the trust terms to achieve favorable tax status or to facilitate the effi - cient administration of the trust; and (3) the power to modify, expand, or restrict the terms of a power of appointment granted to a beneficiary by the trust terms.” Importantly, “the trust terms may provide that [a trust protector] acts in a nonfiduciary capacity if: (1) the [trust protector’s] only power is to remove and appoint trustees, advisors, trust committee members, or other [trust] protectors; and (2) the [trust protec - tor] does not exercise that power to appoint the [trust protector’s] self to a position described by Subdivi - sion (1).” Therefore, a trust protector with such limited powers may avoid being considered a fiduciary under Texas law. Other “advisers” appointed pursuant to Section 114.0031 may include investment advisers, distribu - tion advisers, and advisers with authority to direct, consent to, or disapprove other actions of a trustee. To clarify the full scope of these provisions with respect to persons providing investment advice, an invest - ment adviser is defined as a person with authority with respect to “investment decisions”, which include deci - sions with respect to “any investment, the retention, purchase, sale, exchange, tender, or other transaction
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