Bill Text: TX HB1948 | 2017-2018 | 85th Legislature | Enrolled
Bill Title: Relating to the administration and operation of certain trusts created to provide for the general care and maintenance of perpetual care cemeteries.
Spectrum: Partisan Bill (Republican 3-0)
Status: (Passed) 2017-06-15 - Effective on 9/1/17 [HB1948 Detail]
Download: Texas-2017-HB1948-Enrolled.html
H.B. No. 1948 |
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relating to the administration and operation of certain trusts | ||
created to provide for the general care and maintenance of | ||
perpetual care cemeteries. | ||
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: | ||
SECTION 1. Chapter 712, Health and Safety Code, is amended | ||
by adding Subchapter B-1 to read as follows: | ||
SUBCHAPTER B-1. DISTRIBUTIONS FROM FUND | ||
Sec. 712.0351. DEFINITIONS. In this subchapter: | ||
(1) "Net income fund" means a fund from which | ||
permissible distributions are calculated based on the net income | ||
method. | ||
(2) "Net income method" means calculation of | ||
permissible annual distributions by the trustee as equal to the | ||
annual net income of the fund. | ||
(3) "Total return fund" means a fund from which | ||
permissible distributions are calculated based on the total return | ||
method. | ||
(4) "Total return method" means the calculation of | ||
permissible annual distributions by the trustee as equal to the | ||
average fair market value of the assets in the fund, determined | ||
under Section 712.0353, multiplied by the total return percentage. | ||
(5) "Total return percentage" means the annual | ||
percentage selected by the trustee in accordance with Section | ||
712.0354. | ||
Sec. 712.0352. MODIFICATION OF DISTRIBUTION METHOD. (a) | ||
Except as otherwise provided by this subchapter, the trustee of a | ||
fund shall use the net income method to determine permissible | ||
distributions from the fund to the corporation. | ||
(b) A corporation on concurrence of the corporation's | ||
trustee may modify the terms of the trust instrument governing the | ||
fund to require the trustee to use the total return method in | ||
determining permissible distributions to the corporation. To | ||
convert a net income fund to a total return fund, at least 60 days | ||
before the effective date of the conversion, which must be the first | ||
day of the fund's next fiscal year, the corporation shall submit | ||
written documentation to the commissioner in support of the | ||
conversion that includes: | ||
(1) a copy of the trust instrument governing the fund | ||
and any proposed amendments to the instrument necessary to | ||
authorize the conversion; | ||
(2) the trustee's estimates of the current fair market | ||
value and the average fair market value of the fund as of the | ||
effective date of the conversion, as determined under Section | ||
712.0353, and actions by the trustee to finalize the trustee's | ||
determination of both current and average fair market value of the | ||
fund and to advise the corporation and the commissioner as soon as | ||
reasonably possible after the effective date; | ||
(3) a description of the method the trustee used or | ||
will use to determine the fair market value of any unique and | ||
hard-to-value asset in the fund, and identification and explanation | ||
of any asset the trustee excluded or will exclude from the average | ||
fair market value calculation; | ||
(4) the total return percentage selected by the | ||
trustee under Section 712.0354, and the reasons for the selection; | ||
(5) a copy of the written investment policy for the | ||
fund as modified to support use of the total return method; and | ||
(6) any additional information required by rules | ||
adopted under this chapter. | ||
(c) A corporation that converts the corporation's fund to a | ||
total return fund under this section may elect to reconvert the fund | ||
to a net income fund and modify the terms of the trust instrument | ||
governing the fund to require the trustee to calculate permissible | ||
distributions under the net income method. To reconvert a total | ||
return fund to a net income fund, the corporation must submit | ||
written documentation to the commissioner in support of the | ||
reconversion before the proposed effective date of the | ||
reconversion, that includes: | ||
(1) a copy of the trust instrument governing the fund | ||
and any proposed amendments to the instrument necessary to | ||
authorize the reconversion; | ||
(2) the proposed effective date of the reconversion, | ||
provided that the effective date must be the first day of the fund's | ||
next fiscal year unless the total distributions received or to be | ||
received from the fund in the current fiscal year would not exceed | ||
the distributions permissible for a net income fund at the | ||
beginning of the current fiscal year; and | ||
(3) any additional information required by rules | ||
adopted under this chapter. | ||
(d) The trustee of a net income fund or a total return fund | ||
shall make distributions to the corporation, annually or in more | ||
frequent installments agreed to by the trustee and the corporation, | ||
to be used by the corporation in the manner required by Section | ||
712.025. | ||
Sec. 712.0353. DETERMINATION OF FAIR MARKET VALUE. (a) The | ||
trustee of a total return fund, or of a net income fund seeking to | ||
convert to a total return fund, shall determine for the | ||
corporation, in the trustee's sole discretion and in accordance | ||
with this section, the average fair market value of the fund at the | ||
beginning of each fiscal year. | ||
(b) The trustee shall derive the average fair market value | ||
of the fund at least annually by averaging the fair market value of | ||
fund assets, determined on an asset-by-asset basis, as of the | ||
beginning of the current fiscal year and in each of the two previous | ||
years, or for the entire term of the trust with less than two | ||
previous years, using the valuation date or averages of valuation | ||
dates as the trustee considers appropriate. The trustee shall | ||
exclude from the fair market value calculation any asset described | ||
in Section 712.030(b) and any asset for which the trustee is not | ||
able to reasonably ascertain a fair market value. In determining | ||
the average fair market value, the trustee shall adjust the fair | ||
market value for each year used in the calculation as follows: | ||
(1) for assets added to the fund during the years used | ||
to determine the average, the trustee shall add the amount of each | ||
addition to all years in which the addition is not included; and | ||
(2) for assets withdrawn from the fund during the | ||
years used to determine the average, other than in satisfaction of | ||
permissible distributions, the trustee shall subtract the amount of | ||
each withdrawal from all years in which the withdrawal is not | ||
included. | ||
(c) Before the 31st day after the beginning of each fiscal | ||
year, the trustee of a total return fund shall send written notice | ||
to the commissioner and to the corporation of the trustee's | ||
determination of the current fair market value of the fund as of the | ||
beginning of the current fiscal year and the average fair market | ||
value of the fund for determining permissible distributions for the | ||
fiscal year, with identification and explanation of any asset | ||
excluded from the determination. If the trustee alters the | ||
methodology of determining fair market value in a manner that | ||
changes the fair market value of the fund during a fiscal year, the | ||
trustee shall send written notice to the commissioner and to the | ||
corporation of the revised current and average fair market value of | ||
the fund and the reason for the revision before the first | ||
distribution is made based on the revised average fair market | ||
value. | ||
(d) This section does not alter or otherwise affect a | ||
fiduciary duty under other law to evaluate and monitor the fair | ||
market value of assets held in trust. | ||
Sec. 712.0354. DETERMINATION OF TOTAL RETURN PERCENTAGE. | ||
(a) Consistent with the prudent investor rule, the trustee in the | ||
exercise of the trustee's sole discretion shall select the total | ||
return percentage to be used in determining permissible | ||
distributions from a total return trust at least annually, in an | ||
amount that represents a reasonable current return from the fund in | ||
light of the investment policy currently applicable to the fund, | ||
provided that the total return percentage does not exceed five | ||
percent. | ||
(b) Before the 31st day after the beginning of each fiscal | ||
year, the trustee of a total return fund shall send written notice | ||
to the commissioner and to the corporation of the trustee's | ||
determination of the total return percentage to be applied in the | ||
fiscal year. If the trustee alters the total return percentage | ||
during a fiscal year, the trustee shall send written notice to the | ||
commissioner and to the corporation of the revised total return | ||
percentage and the reason for the revision before the first | ||
distribution is made based on the new total return percentage. | ||
Sec. 712.0355. REGULATORY LIMITS ON DISTRIBUTIONS. (a) | ||
After notice and an opportunity for hearing, the commissioner by | ||
order may convert a total return fund to a net income fund, limit or | ||
prohibit distributions from the fund, or both, if: | ||
(1) the current fair market value of the fund at the | ||
beginning of a fiscal year is less than the original principal of | ||
the fund, consisting of the sum of all required deposits into the | ||
fund under this chapter, including deposits required by Sections | ||
712.004 and 712.028; | ||
(2) the average fair market value of the fund declines | ||
by 10 percent or more over a two-year period; or | ||
(3) the trustee or other fiduciary of the fund | ||
responsible for investment policy has demonstrated a lack of | ||
sufficient knowledge and expertise or has failed to ensure that an | ||
investment policy is in place to support the use of the total return | ||
method of calculating distributions in a manner consistent with | ||
achieving the purposes of the fund as provided by Section | ||
712.021(f). | ||
(b) The commissioner may decline to impose corrective | ||
measures under Subsection (a) if the commissioner finds that: | ||
(1) the cause of the adverse trend in the fair market | ||
value of the fund is due to one or more unusual or temporary factors | ||
not within the control of the corporation or trustee of the | ||
corporation's fund and could not have been reasonably anticipated; | ||
(2) the current, written investment policy of the | ||
fund, in light of anticipated distributions from the fund, is | ||
reasonably designed to protect the fund from further declines in | ||
fair market value; and | ||
(3) the exception appears to be both necessary and | ||
appropriate for the continued protection and perpetual existence of | ||
the fund. | ||
Sec. 712.0356. RULES. The Finance Commission of Texas may | ||
adopt rules to implement and clarify this subchapter. | ||
Sec. 712.0357. NATURE OF TOTAL RETURN DISTRIBUTIONS. (a) A | ||
distribution from a total return fund is considered a distribution | ||
of all income of the fund that reasonably apportions the total | ||
return of the fund, and may not be considered a fundamental | ||
departure from applicable state law. | ||
(b) Unless the trust instrument provides otherwise, the | ||
trustee of a total return fund shall treat a distribution as first | ||
being made from the following sources in order of priority: | ||
(1) from net accounting income; | ||
(2) from ordinary accounting income not allocable to | ||
net accounting income; | ||
(3) from net realized short-term capital gains; | ||
(4) from net realized long-term capital gains; and | ||
(5) from the principal of the fund. | ||
SECTION 2. Section 712.00395(h), Health and Safety Code, is | ||
amended to read as follows: | ||
(h) An order approving the surrender of a certificate of | ||
authority must impose four conditions that are not subject to | ||
objection. Failure to satisfy any of these conditions constitutes | ||
a violation of the commissioner's order, and the certificate holder | ||
is subject to an enforcement action under this chapter. The order | ||
approving the surrender must: | ||
(1) require the perpetual care fund to remain in an | ||
irrevocable trust, with the permissible distributions [ |
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be used for perpetual care of the cemetery in general and for those | ||
plots that were purchased before the certificate was surrendered; | ||
(2) require that the cemetery remove any signage or | ||
other announcement stating that the cemetery is a perpetual care | ||
cemetery; | ||
(3) require each contract and other evidence of | ||
ownership entered into after the date of the order to clearly state | ||
that the cemetery is not regulated by the Texas Department of | ||
Banking and may not use the term "perpetual care cemetery"; and | ||
(4) state the location of cemetery records and require | ||
the cemetery to: | ||
(A) retain existing records regarding the | ||
perpetual care fund for five years after the date of the order; and | ||
(B) continue to comply with all recordkeeping | ||
requirements of Chapter 711. | ||
SECTION 3. Sections 712.021(b) and (g), Health and Safety | ||
Code, are amended to read as follows: | ||
(b) Except as otherwise provided by this chapter [ |
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voluntarily, and it must remain inviolable. The trustee shall | ||
maintain the principal of the fund separate from all operating | ||
funds of the corporation. | ||
(g) The trustors of two or more perpetual care trust funds | ||
may establish a common trust fund in which deposits required by this | ||
chapter are made, provided that separate records of fund assets | ||
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cemetery for the benefit of which the common trust fund is | ||
established[ |
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SECTION 4. Section 712.025, Health and Safety Code, is | ||
amended to read as follows: | ||
Sec. 712.025. USE OF FUND DISTRIBUTIONS [ |
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distributions [ |
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care described by the instrument that established the fund, | ||
including the general care and maintenance of the property entitled | ||
to perpetual care in the perpetual care cemetery. | ||
SECTION 5. Section 712.0255(a), Health and Safety Code, is | ||
amended to read as follows: | ||
(a) The commissioner may petition a court to modify or | ||
terminate a fund under Section 112.054, Property Code. In addition | ||
to the grounds described by that section, the commissioner may | ||
petition a court under that section if the permissible | ||
distributions [ |
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maintain, repair, and care for the perpetual care cemetery and | ||
another source for providing additional contributions to the fund | ||
is unavailable. | ||
SECTION 6. Section 712.026, Health and Safety Code, is | ||
amended by amending Subsections (a) and (c) and adding Subsection | ||
(d) to read as follows: | ||
(a) If the directors of a corporation do not generally care | ||
for and maintain the corporation's perpetual care cemetery, the | ||
district court of the county in which the perpetual care cemetery is | ||
located may: | ||
(1) by injunction compel the directors to expend the | ||
permissible distributions from [ |
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fund as required by this chapter; or | ||
(2) appoint a receiver to take charge of the fund and | ||
expend the permissible distributions from [ |
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as required by this chapter. | ||
(c) In a suit for relief under this section, court costs and | ||
attorney's fees shall be awarded: | ||
(1) to the directors of the corporation, if it is found | ||
that the directors are substantially expending the permissible | ||
distributions from [ |
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by this subchapter; or | ||
(2) to the plot owners initiating the suit, if it is | ||
found that the directors are not substantially expending the | ||
permissible distributions from [ |
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as required by this subchapter. | ||
(d) Fund assets may not be used to pay court costs and | ||
attorney's fees awarded under Subsection (c). | ||
SECTION 7. Section 712.030, Health and Safety Code, is | ||
amended to read as follows: | ||
Sec. 712.030. USE OF GIFT FOR SPECIAL CARE OF PLOT IN | ||
PERPETUAL CARE CEMETERY. (a) A trustee may take and hold property | ||
transferred to the trustee in trust in order to apply the principal, | ||
proceeds, or income of the property for any purpose consistent with | ||
the terms of the trust and the purpose of a corporation's perpetual | ||
care cemetery, including: | ||
(1) the improvement or embellishment of any part of | ||
the perpetual care cemetery; | ||
(2) the erection, renewal, repair, or preservation of | ||
a monument, fence, building, or other structure in the perpetual | ||
care cemetery; | ||
(3) planting or cultivating plants in or around the | ||
perpetual care cemetery; or | ||
(4) taking special care of or embellishing a plot, | ||
section, or building in the perpetual care cemetery. | ||
(b) Except as provided by this subsection, the assets of a | ||
trust established under this section are not considered assets of | ||
the fund. If a gift in trust is specifically intended to serve the | ||
same general purpose as the fund, the trust may be merged with the | ||
fund. | ||
SECTION 8. Section 712.044(a), Health and Safety Code, is | ||
amended to read as follows: | ||
(a) The commissioner may examine on a periodic basis as the | ||
commissioner reasonably considers necessary or appropriate to | ||
protect the interest of plot owners and efficiently administer and | ||
enforce this chapter: | ||
(1) the books and records of a corporation relating to | ||
its fund, including deposits to or withdrawals from the fund, | ||
income of the fund, and uses and expenditures of distributions from | ||
the fund [ |
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(2) the books and records of a corporation relating to | ||
sales of undeveloped mausoleum spaces and any preconstruction trust | ||
established by the corporation as provided by Section 712.063, | ||
including deposits to or withdrawals from the preconstruction | ||
trust, income of the preconstruction trust, and uses and | ||
expenditures of principal and income of the preconstruction trust; | ||
and | ||
(3) the consumer complaint files of a corporation | ||
relating to the fund, sales of undeveloped mausoleum spaces, a | ||
preconstruction trust, or to discharge of the corporation's | ||
perpetual care responsibilities, minutes of the corporation's | ||
board of directors, cemetery dedication statements and plat maps, | ||
and mausoleum and lawn crypt construction contracts and | ||
specifications. | ||
SECTION 9. This Act takes effect September 1, 2017. | ||
______________________________ | ______________________________ | |
President of the Senate | Speaker of the House | |
I certify that H.B. No. 1948 was passed by the House on April | ||
20, 2017, by the following vote: Yeas 142, Nays 2, 2 present, not | ||
voting. | ||
______________________________ | ||
Chief Clerk of the House | ||
I certify that H.B. No. 1948 was passed by the Senate on May | ||
24, 2017, by the following vote: Yeas 29, Nays 2. | ||
______________________________ | ||
Secretary of the Senate | ||
APPROVED: _____________________ | ||
Date | ||
_____________________ | ||
Governor |