USA – TEXAS Law and Practice Contributed by: Perrin Clark and Meredith McIver, Ytterberg Deery Knull LLP
• relies on trust distributions for support; • has a remainder interest in the trust; • has received or can compel distributions of trust principal; • has a general power of appointment; and • can assign trust property. Marital property agreements The Texas Constitution provides for marital prop - erty agreements, including premarital agreements. It provides that “persons about to marry and spouses, without the intention to defraud pre-existing creditors, may by written instrument from time to time partition between themselves all or part of their property, then existing or to be acquired, or exchange between them - selves the community interest of one spouse or future spouse in any property for the community interest of the other spouse or future spouse in other community property then existing or to be acquired, whereupon the portion or interest set aside to each spouse shall be and constitute a part of the separate property and estate of such spouse or future spouse; spouses also may from time to time, by written instrument, agree between themselves that the income or property from all or part of the separate property then owned or which thereafter might be acquired by only one of them, shall be the separate property of that spouse...” Accordingly, in Texas, marital property agreements are permitted to alter the character of any interest, present or future, legal or equitable, vested or contingent, in real or personal property, including income and earn - ings, of the spouses from the default characterisation under Texas law. In order to be valid, a marital property agreement must be in writing and signed by the parties. A marital prop - erty agreement may be amended only by a written agreement signed by the parties. A marital property agreement is presumed enforce - able under Texas law; provided, a spouse seeking to avoid it may overcome the presumption by demon - strating that either (i) the agreement was entered into involuntarily; or (ii) the agreement is unconscionable and certain disclosure standards were not met. To succeed with a claim of involuntariness, the spouse opposing the marital property agreement must dem - onstrate that they did not enter into the agreement
intentionally or by the free exercise of their will. To avoid a marital property agreement due to uncon - scionability, the agreement must be “so one-sided that no reasonable person could consider it to be an arm’s length transaction” and the spouse opposing the marital property agreement must prove that at the time of the agreement, they (i) were not provided fair and reasonable disclosure of the financial condition of the other spouse; (ii) did not waive such disclo - sure; and (iii) did not have, or reasonably could not have had, adequate knowledge of the other spouse’s financial condition. 2.5 Transfer of Property For US federal income tax purposes, property trans - ferred by a decedent upon their death receives a step- up in basis to the fair market value of such property at the time of death. In Texas, because it is a community property state, this tax benefit extends to a surviving spouse’s interest in the community estate, meaning that the surviving spouse’s one half interest in commu - nity property receives a similar step-up in basis on the death of their spouse. See 1.3 Income Tax Planning . 2.6 Transfer of Assets: Vehicle and Planning Mechanisms There are numerous planning techniques for the pur - pose of transferring assets to lower generations in a tax-efficient manner, including the following without limitation. • Dynasty trust – a trust that is designed to last for very long periods, often only limited by the applica - ble rule against perpetuities (RAP), thereby benefit - ing multiple successive generations and potentially reducing transfer taxes. • Rule against perpetuities – sometimes clients cre - ate trusts in a jurisdiction that provides a longer RAP period – eg, Texas law now provides for a 300-year RAP period. • Generation-skipping trust – a trust that is similar to a dynasty trust, except that it intentionally skips over children in order to directly benefit grandchil - dren and more remote descendants. • Crummey trust – named after the trusts involved in Crummey v Commissioner , this trust provides ben - eficiaries with limited withdrawal rights that allow
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