USA – TEXAS Law and Practice Contributed by: Perrin Clark and Meredith McIver, Ytterberg Deery Knull LLP
• directed trusts that, by their terms, delegate certain activities to a certain person or group of persons, such as investment management or decisions regarding distributions; • exoneration or reimbursement for certain expenses incurred in connection with estate or trust adminis - tration; • fiduciary liability insurance and similar insurance products; • periodic accountings to provide adequate disclo - sure and begin the running of applicable statutes of limitations with respect to certain potential claims; • court approval of fiduciary accountings; • exculpatory provisions in wills and trust instru - ments, which limit liability with respect to acts and omissions that may constitute simple negligence or even gross negligence; • indemnification provisions in wills and trust instru - ments, which allow for indemnification of the fidu - ciary in certain circumstances; and • releases from beneficiaries for certain acts and omissions or for certain periods of service. 6.3 Fiduciary Regulation In Texas, fiduciary actions are significantly regulated by the Texas Estates Code and the Texas Trust Code, among other statutes. These laws have codified much of what previously was part of the common law gov - erning fiduciary actions. One important part of the regulations is the Texas Uniform Prudent Investor Act found in Chapter 117 of the Texas Trust Code, which codified the prudent investor rules, subject to modern portfolio theory. See 6.4 Fiduciary Investment . 6.4 Fiduciary Investment Under Texas law, a trustee has a duty to comply with the Texas Uniform Prudent Investor Act unless oth - erwise provided in the trust instrument. Under the prudent investor rule, a trustee has a duty to invest and manage trust assets as a prudent investor would, considering the purposes, terms, distribution require - ments, and other circumstances of the trust. In sat - isfying the standard of prudence, the trustee must exercise reasonable care, skill and caution. In light of this, a trustee has a duty to diversify trust investments unless they reasonably determine that, because of special circumstances, the purposes of a trust are bet - ter served without diversifying. For example, the duty
to diversify may be avoided if a beneficiary has unu - sual opportunities or risks, the settlor demonstrates an intent that the trustee retain or purchase certain assets, the trust holds a restricted asset or one that is meaningful to the settlor or beneficiary, or nega - tive tax implications would arise due to diversification. Such assets may include active and/or closely held businesses. The trust instrument also may relieve the trustee of any duty to diversity. Regardless, a trustee’s investment and manage - ment decisions respecting individual assets must be evaluated not in isolation, but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust. The trustee is required to consider a wide set of circumstances in investing and managing trust assets, as they are relevant to the trust or its beneficiaries. This essentially encapsulates modern portfolio theory. Foundations have a number of special limitations with respect to investments, including rules prohibiting excess business holdings and jeopardising invest - ments. 7. Citizenship and Residency 7.1 Requirements for Domicile, Residency and Citizenship Requirements in the United States Domicile A person is a domiciliary of the United States if they live in the United States with no intent to leave (ie, they intend to stay in the United States indefinitely) and, if they are temporarily away from the United States, they intend to return to the United States. The test with respect to domicile is a facts and circumstances test, involving an examination of numerous aspects of a person’s life. A person’s domicile is important because it is one of the two bases for imposition of US transfer taxes with respect to a person’s worldwide estate. See the discussion regarding US transfer taxes in 1.1 Tax Regimes .
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