Court Created Section 867 Trusts

© 1998 Kathleen Ford Bay

Hilgers & Watkins, P.C.

98 San Jacinto, Suite 1300

Austin, Texas 78701

Tel. 512-476-4716

Fax. 512-476-5139

Email. hilgers@hwlaw.com

Webpage. www.hwlaw.com

Personal Trust Seminar

Financial Services Division

Texas Bankers Association

Wyndham Anatole Hotel

Dallas, Texas

Friday, February 6, 1998

This paper was prepared for the Texas Bankers Association and is made available for purposes of research only. No advice or warranty is intended. Consult your own attorney for advice.

COURT CREATED SECTION 867 TRUSTS

I.	The Statute -- Overview and 1997 Amendments	1

II.	The Statute -- Literally, Turn to Appendix A	3

III.	Let's Look at a § 867 Trust, Turn to Appendix B	3

IV.	Would You Rather be the Guardian of the Ward's Estate, the Trustee of a § 867 Trust, or the Trustee of a § 142 Trust? Turn to Appendix C

Appendix C is a Chart that compares § 142 trusts to Guardianships and § 867 Management Trusts.	3

V.	The Fun Stuff -- What are Courts Doing with § 867 Trusts? Turn to Appendix D	3

VI.	In Closing	4

VII.	Post-Script: The ARC of Texas Master Pooled Trust	5

Appendices

A	Copy of Texas Probate Code, §§ 867 - 873.

B	§ 867 Trust With Commentary

C	Comparison Chart for Court-Created Trusts

D	Texas Probate Code § 867 Management Trusts: Report on A Questionnaire to Probate Judges on Creation and Administration

E	Bill Analysis by Senate Research Staff, May 13, 1997, including witness list: Glenn Karisch (another one of your speakers today) spoke at 2:15 on May 14th, also including witness list for House Committee, and Glenn Karisch spoke again

COURT CREATED SECTION 867 TRUSTS

© 1998 Kathleen Ford Bay

Goal for the Day. During your tenure as trust officers, you will have (and probably already have had) many opportunities to review proposed § 867 trusts before their adoption by the Court and to deal with their day-to-day administration. The goal for the day is to review the statutory history of § 867 and relate to you the impressions of probate judges around the state who are creating and overseeing the administration of these trusts so that you will be able to identify §867 trust issues quickly.

Housekeeping Note. All statutory citations are to the Texas Probate Code unless otherwise noted.

I.	The Statute -- Overview and 1997 Amendments

Section 867 Trusts first appeared in 1993. The Texas Legislature added § 867 in Acts 1993, 73rd Legislature, ch. 857, § 1, effective September 1, 1993. Subpart N ("Management Trusts"), Part 2 ("Guardianship Proceedings and Matters"), Chapter XII ("Guardianship"), of The Texas Probate Code has been amended twice since then, first in 1995 by Acts 1995, 74th Leg., ch. 1039, § 57, effective September 1, 1995, and most recently in 1997, by Acts 1997, 75th Leg., ch. 1375, § 1, effective September 1, 1997.

Sections 7 and 8 of the 1997 Act, 75th Leg., ch. 1375, make it clear that a trust may be created under § 867 regardless of when the guardianship was initially created and that the new changes, discussed below, apply to all § 867 trusts regardless of the dates on which the trusts were created.

New Changes. Tedious as it may at first appear to be, to fully understand § 867 we are going to need to go over and analyze the statute so that you -- the trust officers who must review, make comments upon, and accept being appointed as Trustee -- will be able to recognize quickly mandatory and permissive language for such trusts. For those of you who are already administering such trusts, here is a quick summary of the 1997 changes:

•	A ward's attorney ad litem may now apply to have a § 867 trust created. Previously, only a court-appointed guardian of the ward could apply.

•	The order creating the § 867 trust shall direct "the guardian or another person to deliver all or part of the assets of the guardianship" to the trust. Subpart N as a whole seems to contemplate that there will always be a formal guardian of the person appointed, although this is not explicitly so stated. It may well be that in some cases no guardianship will need to be established prior to the creation of the trust; for example, a minor child may have assets but not need a formal appointment of his or her parents as guardians of the person and a § 867 trust can be created without there being a court-appointed guardian; however, a guardianship proceeding would need to be pending so that an attorney ad litem could be appointed. Then, once the trust is created the Court can determine that it is not necessary to appoint a guardian of the estate or person.

•	Section 867(a) has been restructured somewhat to clarify that the trust may provide that the trustee may make distributions for the health, education, support, or maintenance of both the ward and any person whom the ward is legally obligated to support, by making such distributions to the following persons:

• the ward's guardian;

• a person who has physical custody of the ward or another person whom the ward is legally obligated to support; or

• a person providing a good or service to the ward or another person whom the ward is legally obligated to support.

Note, it is unlikely that you will see such language in trusts created for minor beneficiaries, who have no legal obligation to support anyone but whose parents have, instead, an obligation to support them.

•	A § 867 trust can be a "special needs" trust so as to qualify, or continue to qualify, the beneficiary for "public benefits or assistance," like Medicaid. The Court must make a specific finding that a "special needs" trust is warranted and in the beneficiary's "best interests." (Basically, "special needs" means that language is included in the trust so that its corpus will not be counted as an asset of the beneficiary's and that distributions will not generally be made for food, clothing, or shelter of the beneficiary because such distributions count as "income" in the month made. See Ron Cresswell's outline on "special needs" trusts.)

•	Once a trust is created, the Court may discharge the guardian of the ward's estate only if a guardian of the ward's person remains, upon a finding that doing so is in the ward's "best interests." Tex. Probate Code § 868A. It is this section which implies that the ward will always have a guardian of the person. The definition of "guardian" contained in § 601(10) does not include the parent as a "natural" guardian.

•	The Texas Trust Code applies. If there is a conflict between it and the Probate Code Sections governing management trusts, then the Probate Code controls. §869B(a) & (b). Previously, the statute provided that the trust "may" provide that the § 867 trustee has the powers of a trustee under the Trust Code, which led to musings on whether or not the Texas Trust Code otherwise applied to § 867 trusts. For an example of a conflict between the Trust Code and the § 867 et seq., note that venue for any action involving a trust is, under the Trust Code, where the corporation's principal office is located. However, if the corporate Trustee is in Houston and the guardianship is in Smith County, venue will not be in Harris County; the Smith County court will retain jurisdiction over the § 867 trust. §§ 869B and 869C. The Texas Trust Code is really Subtitle B of Title 9 of the Texas Property Code.

•	A § 867 trust for an incapacitated person other than a minor will end either on the death of the ward or the date the Court determines that continuing the trust is no longer in the ward's best interests. This is a change from the previous language which provided that the Court could terminate the trust if it deemed that the trust was no longer necessary for the ward.

II.	The Statute -- Literally, Turn to Appendix A

You need to know how the statute reads, so turn to Appendix A for a copy.

III.	Let's Look at a § 867 Trust, Turn to Appendix B

IV.	Would You Rather be the Guardian of the Ward's Estate, the Trustee of a § 867 Trust, or the Trustee of a § 142 Trust? Turn to Appendix C

Appendix C is a Chart that compares § 142 trusts to Guardianships and § 867 Management Trusts.

V.	The Fun Stuff -- What are Courts Doing with § 867 Trusts? Turn to Appendix D

In preparation for this talk, I developed, with the aid of The Honorable Guy Herman, Probate Judge, Probate Court Number One of Travis County, Texas, for which I am immensely grateful, a questionnaire and sent it to all the probate judges that I was able to identify - 123 of them. I received responses from 33. The questionnaire along with a summary of responses is attached as Appendix D.

VI.	In Closing

When you review a proposed § 867 trust -- and you will get to review it for otherwise you cannot sign it and even if a Court appoints you without your knowledge you can always petition to amend and restate the trust in the form you want -- you will want to check the trust to make sure that all mandatory provisions required by the Texas Probate Code appear in it and you will also want to request that the draftsman include other provisions, such as the ones mentioned in this Outline. If the trust agreement does not allow you to take commissions periodically and requires that you first apply to the Court for approval, then make sure your administrative people get it set up right in the computer! A few years ago, the administrative people accidentally set up a guardianship as a trust and not only were commissions paid without court approval but distributions were made per the standards set forth in the computer without checking the actual file. Distributions exceeded the $5,000 "safe harbor" threshold of § 776(b) and the corporate fiduciary was surcharged for the excess. With an 867 management trust that is treated as a guardianship for compensation purposes, it will be even easier for the computer to be set up wrong and commissions paid out under the fiduciary's fee schedule instead of in accordance with guardianship rates.

You will need to account to the Court and to the Guardian of the person and/or estate of the beneficiary every year.

An 867 management trust is a "grantor" trust for federal income tax purposes. Rev. Rul. 83- 25, 1983-1 C.B. 116 addresses this issue. There the National Office of the Internal Revenue Service concludes that what are apparently § 142 trusts under Texas law are "grantor" trusts for income tax purposes. Around 1990, before the income tax rates became so compressed for complex and simple trusts, I did an informal survey of bank and trust company trust departments in Texas and out of 20 learned that half were treating court-created trusts as "grantor" trusts and half were treating them as "complex" trusts. I have not updated that survey; however, most of the bank and trust company trust departments for whom I do work now have indicated that they are treating such trusts as "grantor" trusts. If you treat a court-created trust as a grantor trust, you may want to take steps to make it clear to the parents that an income tax return will need to be filed in the child/beneficiary's name reporting all of the trust's income. Some trust departments with whom I work have even taken the extra step of helping the parents find an accountant and/or attorney who can help them prepare each year's income tax return or arranged directly for an accountant and/or attorney to prepare the return. The bank may even want to make quarterly estimated tax payments for the individual beneficiary from the Trust. (I had one situation recently where the parent did not realize that she was supposed to be filing income tax returns for her child each year. By the time the Internal Revenue Service contacted her and the Trustee referred her to me, significant interest was due; we have asked that penalties be waived. The Trustee had not been making quarterly estimated tax payments and had even filed a return for the child for one of the years in question.)

And finally for those of you who are excited about § 867 trusts and want to read the Bill Analysis prepared by the Senate Research Center of the Texas Legislature prior to the recent amendments, see Appendix E.

VII.	Post-Script: The ARC of Texas Master Pooled Trust

Periodically, you will be contacted by attorneys and families with the request that your bank or trust company serve as Trustee of a sum that is really too small, in your view, for you to economically and realistically manage. Most banks and trust companies take on some of these smaller trusts as a community pro bono project, but you cannot take on all that are offered to you. For disabled beneficiaries, there is now another alternative that is available: The ARC of Texas Master Pooled Trust. Separate accounts/trusts come in two flavors under the ARC: (1) a "special needs" trust which contains Medicaid reimbursement language, with the anticipation that the beneficiary's property will fund such a separate account, and (2) a trust created by parents or grandparents that need not be used to reimburse Medicaid at the beneficiary's death.

For further information, contact:

The Arc of Texas Master Pooled Trust

1600 W. 38th St., Suite 200

Austin, Texas 78731

Attn: Lisa Rivers

(800) 252-9729

or

(512) 454-6694

Fax: (512) 454-4956

Founders Trust Company

ATTN: Cynthia Williams

Vice-President and Trust Officer

111 Congress, Suite 330

Austin, Texas 78701

(512) 344-7000/320-5939

Fax: (512) 479-3299/345-5461

Appendices

A	Copy of Texas Probate Code, §§ 867 - 873.

B	§ 867 Trust With Commentary

C	Comparison Chart for Court-Created Trusts

D	Texas Probate Code § 867 Management Trusts: Report on A Questionnaire to Probate Judges on Creation and Administration

E	Bill Analysis by Senate Research Staff, May 13, 1997, including witness list: Glenn Karisch (another one of your speakers today) spoke at 2:15 on May 14th, also including witness list for House Committee, and Glenn Karisch spoke again. This analysis can be located at www.capitol.state.tx.us. At screen choose View Individual Bill Information, then enter bill number (HB1314); select text at information type and submit.

APPENDIX A

Westlaw customers may access WESTLAW and the statute for a fee at URLWESTDOC.com. [Westlaw allowed me to attach a copy of its printed version of the statute to the hard copy of my speech, for which I am grateful.]

Form of § 867 Trust for a Minor, Plain Vanilla (Not "Special Needs")

1998 Kathleen Ford Bay, Not Copyrighted

APPENDIX B

THE §867 TRUST

AGREEMENT OF TRUST

FOR THE BENEFIT OF

,

TRUSTEE

-----------------------------------------------------------------------------------------------------------------------

AS ADOPTED BY DECREE OF THE

COURT OF COUNTY, TEXAS,

CAUSE NO.

ENTERED ON THE DAY OF , 1998.

EXHIBIT A TO COURT ORDER

Caveat: Use form at your own risk. No advice or warranty is intended or made.

TABLE OF CONTENTS

1.	Trustee	3

2.	Beneficiary	4

3.	Trust Estate	4

4.	Distributions from the Trust; Undistributed Income to be Added to Principal	4

5.	Termination	6

6.	Revocability	8

7.	Spendthrift Provision	9

8.	Trustee's Investment Authority	9

9.	Trustee's Compensation and Expenses	10

10.	Administrative Provisions	11

11.	Miscellaneous	12

(a)	Books and Records, Informal Accountings	12

(b)	Trustee's Apparent Authority	13

(c)	Permission of Court Needed to Resign	13

(d)	Headings for Convenience	14

12.	Inception of the Trust	14

13.	Definitions	14

(a)	Trust Estate	14

(b)	Codes	15

(i)	Internal Revenue Code	15

(ii)	Texas Trust Code	15

(iii)	Texas Property Code	15

(iv)	Texas Probate Code	15

(c)	Trustee	15

(d)	Beneficiary	16

(e)	Court	16

(f)	Other Terms	16

THE § 867 TRUST

This instrument establishes the terms of a management trust ("the Trust") created for the benefit of , a minor, pursuant to the Order of the Court of County, Texas ("the Probate Court") under the authority of the TEX. PROB. CODE ANN. § 867 (Vernon Supp. 1998).

A minor is by definition "incapacitated." If the beneficiary is an adult, change language to "an incapitated person."

i.	Trustee. The trustee of the Trust is and shall be (the "Trustee"), and its successors and assigns by merger or otherwise.

The Trustee must be a "trust company or a state or national bank that has trust powers" in Texas. § 867. Mandatory Provision.

Upon approval of an accounting, the Guardian of the Estate of shall deposit into the Trust as its corpus those funds which the Court shall direct and the Trustee's duties shall commence in accordance with the terms hereof.

If the Trust's funds are coming from a person other than the Guardian of the Estate, then the above language will need to be modified. Also, Court may not require the above language as the statute simply states that the "order shall direct the guardian or another person to deliver all or part of the assets of the guardianship" to the Trustee. Make sure the person who is to deliver assets to the Trust is a party to Court proceedings so he/she/it will be bound by the Court order.

No bond or other security is required of the Trustee or of any successor trustee.

This provision is required by § 868(4). Mandatory Provision.

ii.	Beneficiary. The sole and only beneficiary of the Trust is (the "Beneficiary"), who was born on . Her social security number is .

The ward must be the only beneficiary of the Trust. Mandatory Provision. As Trustee, you are going to need to know the beneficiary's date of birth and social security number and you will never lose the Trust Agreement, so you mind as well ask that they be included in the Trust. (Even if you lose your copy, you can always get another copy from the Court.)

iii.	Trust Estate. The Trust shall be funded with all assets received from the Guardian of the Estate of and any interest earned thereon which is or has been ordered to be paid to the Trustee by the Guardian of the Beneficiary's Estate. Such assets shall constitute the initial principal of the Trust.

Again, if assets are coming from a person other than the Guardian of the Estate, language should be changed accordingly. Further, you may want to refer to a Schedule A and actually list the assets that are coming into the Trust there.

iv.	Distributions from the Trust; Undistributed Income to be Added to Principal. The Trustee may pay to or apply for the benefit of the Beneficiary such amounts out of the net income and principal (if income is insufficient) of the Trust as are reasonably necessary in the sole discretion of the Trustee to provide for the health, education, support, and maintenance of the Beneficiary.

This language restates § 868(2). Mandatory Provision.

Any income of the trust that the Trustee does not distribute shall be added to the principal of the trust.

This language is required by § 868(3). Mandatory Provision.

In making any discretionary payments to the Beneficiary, the Trustee shall consider (i) the standard of living to which the Beneficiary shall have been accustomed prior to the creation of the Trust; (ii) any known resources of the Beneficiary; (iii) the ability of any person who is legally obligated to support the Beneficiary to do so; (iv) the ability of the Beneficiary to earn funds for the Beneficiary's own support and maintenance except while obtaining an education; and (v) any present or future Texas Probate Code provisions governing the use and expenditure of funds held in management trusts; provided, that in making such distributions the Trustee shall consider specifically the obligation of the Beneficiary's parents to support him while he is a minor and the income and assets of the parents that are available for the Beneficiary's support, and also whether or not the parents are adequately fulfilling their support obligation.

This is not a mandatory provision, but it is one that delineates the duties of the Trustee more clearly and one that you can point to if the family tries to look to the Trust for the sole support of the child. It is unclear whether or not the Trustee, if it fulfills the support obligation of the parents, can recover for the Trust the amount so spent. If this becomes a problem with any of your trusts, you will need to seek legal advice and perhaps seek the court's direction and order that parents provide a specific amount of support. Tex. Family Code § 154.001.

The Trustee may make any distribution required or permitted hereunder, without the intervention of any guardian or other legal representative, in any of the following ways:

(i) to the Beneficiary directly where ordered by the Probate Court or when the Beneficiary is eighteen (18) or older (and de minimis amounts of under Fifty Dollars ($50) may be made to the beneficiary while she is under eighteen (18) for spending money on class trips and the like);

§ 868(b) contains so-called facility of payment provisions; this is not one of the mandatory or permissible provisions specified in the statute. However, § 868(e) provides that the court may include additional provisions in a Trust if it concludes that the addition does not conflict with the mandatory provisions required by § 868(a). This is a useful provision and you may want to ask that it be included.

(ii) to the legal Guardian of the Beneficiary's person;

§868(b)(2) provides that distributions can be made to the ward's Guardian. When there is a management trust, there will rarely be a Guardian of the Estate, so the provision allows distributions to be made to the Guardian of the Beneficiary's person. Specified Permissive Provision.

(iii) to any person furnishing care, education, support, or maintenance to the Beneficiary; and

§ 867(b)(2) actually is narrower than the above language and provides that a distribution may be made to "a person who has physical custody of the ward." The statute may be too narrow; thus, you may want the authority of the Trustee to be broadened as provided above. Permissive per § 868(e).

(iv) by utilizing any distribution directly for the Beneficiary's benefit.

§ 867(b)(3) is essentially the same as the above language and reads as follows: "a person providing a good or service to the ward."

v.	Termination. The Trust shall terminate upon the earliest to occur of the following:

(i) pursuant to an order of the Probate Court, when the Beneficiary attains the age of twenty- five (25) years,

(ii) the Beneficiary's death prior to attaining such age, and

(i) and (ii) above are set forth in § 870, provided that a trust for a minor will terminate at age 18 unless the Court has extended it in the Court order and the Court order may include a date that is not later than the ward's 25th birthday. Mandatory Provisions where beneficiary is a minor. What if you anticipate at the beginning of the Trust that the beneficiary's injury or condition is such that the beneficiary will never have capacity? Can the Trust be drafted to provide that it will not terminate at age 25 unless the beneficiary is not under a disability, and then define disability? § 868(e) provides that the Trust may include any provisions that do not violate the mandatory provisions of § 868(a) and including an extension provision certainly does not violate §868(a). However, § 870(a)(2) provides that the Court order cannot extend the Trust beyond the ward's 25th birthday. Hmm; would a Court actually sign an order at the beginning of the Trust that allows it to be automatically extended beyond 25 if the beneficiary is still under a disability?

As a practical matter, even if there is not a Guardian of the person while the minor is under 18, when the minor reaches age 18 there will probably be a proceeding to appoint a Guardian of the adult incapacitated person. A Guardian will be needed for medical reasons, if nothing else. As part of that proceeding, the § 867 trust can be modified to show that it now applies to an adult incapacitated person and provide that it will continue until the death of the beneficiary or until the Court determines that continuing the trust is no longer in the beneficiary's best interests.

(iii) distribution of the entire corpus of the Trust pursuant to the terms of this instrument.

This provision does not appear in the statute, but is intuitively obvious.

Upon termination, the Trustee shall pay all of the then remaining Trust Estate of the Trust to the Beneficiary free of any further trust or, if the Beneficiary is then deceased, to the personal representative of the Beneficiary's estate.

§ 873 mandates the above language. There is similar language in Tex. Property Code § 142.005(e). District Courts have allowed the following language to be substituted. If there would not otherwise be a "probate estate" but for the distribution of the Trust to an administrators, this provision can expedite the closing of the trust and save expenses:

"Distribution Where Beneficiary Dies Before Termination: If the Beneficiary dies prior to becoming entitled to receive the entire Trust Estate under the foregoing provisions of this Section, then upon the Beneficiary's death the Trust Estate shall be paid over to such person or persons or corporation or corporations, to such extent, in such amounts or proportions, and in such lawful interests or estates, whether absolute or in trust, as the Beneficiary may direct by a specific reference to this power in the Beneficiary's Last Will. If there is no specific direction in the Beneficiary's Will, then the Trust Estate shall be paid to the beneficiaries of the Beneficiary's residuary estate upon the same terms and conditions as provided in the Will, unless the Beneficiary has stated in such Will that the power of appointment is not being exercised.

"If the Beneficiary does not have a Will, or has provided in the Will that the Beneficiary does not intend to exercise this power of appointment over the Trust Estate, then upon the Beneficiary's death, the Trust Estate shall be paid over to the heirs-at-law of the Beneficiary pursuant to Section 38 of the Texas Probate Code as now in effect or as it may hereafter be amended. However, if the Beneficiary at the time of death is a resident of a State other than Texas and does not have a Will, or if the Beneficiary has a Will it states that the Beneficiary is not exercising the power of appointment, then the Trust Estate shall be distributed to the Beneficiary's heirs-at-law determined in accordance with the statutes of the State where the Beneficiary is a resident at the time of death. In such a case, the Trustee, in its sole discretion, may:

"(1)	require a determination of heirship proceeding in a Probate Court or other court that would have jurisdiction over the Beneficiary's estate,

"(2)	ascertain independently who are the heirs of the Beneficiary, or

"(3)	distribute the Trust Estate to the court-appointed personal representative of the Beneficiary's estate.

"The purpose of this provision is to expedite the distribution of the Trust Estate if the Beneficiary dies before its termination either without a Will or with a Will in which the Beneficiary states that the power of appointment is not being exercised, to avoid the additional costs that would result from having an administration of an intestate estate in addition to any proceedings needed to close the administration of the Trust Estate, to allow the Trustee to pay the Trust Estate directly to the Beneficiary's heirs-at-law without the need to have an administrator of the Beneficiary's estate appointed, and to avoid having to transfer the Trust Estate to an Executor if there is a Will in which the Beneficiary has stated that the power of appointment is not being exercised. In fulfilling its responsibilities under this paragraph, the Trustee shall be liable to the Beneficiary and the Beneficiary's heirs only for gross negligence, gross misconduct, or fraud. The Trustee shall not be liable to an unknown creditor of the Beneficiary or of the Beneficiary's estate if the Trustee, before distributing the Beneficiary's share of the Trust Estate directly to the Beneficiary's heirs, first has a notice to creditors published in the form prescribed by the applicable state probate law for probate estates, and then waits thirty (30) days to see if any claims are filed. The Trustee has complete authority to negotiate payment of claims. After thirty (30) days the Trustee may make distributions to the heirs without liability to any unknown creditors. For purposes of Section 873 of the Probate Code, the Trustee shall be the 'personal representative' of the Beneficiary's estate under the circumstances set forth above."

vi.	Revocability. This Trust shall not be revoked, altered, or amended by the Beneficiary or any guardian or other legal representative of the Beneficiary, but it shall remain subject to amendment, modification, or revocation by the Court at any time prior to the termination of the Trust. If the Court revokes the Trust prior to the Beneficiary attaining the age of eighteen (18) years, the Court may enter such further or additional orders concerning the Trust Estate as may be authorized by the Texas Probate Code, as then in effect. If the Court revokes the Trust after the Beneficiary attains the age of eighteen (18) years, the Trust Estate shall be paid and delivered to the Beneficiary, free of trust.

See § 869.

vii.	Spendthrift Provision. Prior to the actual receipt of any distribution of any portion of the Trust Estate by the Beneficiary, and to the fullest extent allowed by law, no property (whether income or principal) of the Trust shall be subject to anticipation or assignment by the Beneficiary, or to attachment by or the interference or control of any creditor or assignee of the Beneficiary, or be taken or reached by a legal or equitable process in satisfaction of any debt or liability of the Beneficiary. Any attempted transfer or encumbrance of any interest in the Trust Estate by the Beneficiary prior to the actual distribution thereof to the Beneficiary shall be wholly void.

I have never seen a court-created trust that does not include a spendthrift provision. How effective is such a provision? I do not know; to my knowledge there are no Texas cases that discuss the viability of a spendthrift provision in a court-created trust that is being funded with monies that belong to the beneficiary. See Tex. Trust Code § 112.035(d) and § 111.004(14). At the Seminar by the Texas Bankers Association, Financial Services Division, on February 6, 1998, Glenn M. Karisch noted that his firm, Ikard & Golden, P.C., is currently involved in a case where the spendthrift provision's protection is at issue. So, there may soon be a Texas case on this issue. Check with Mr. Karisch.

viii.	Trustee's Investment Authority. The Trustee shall invest the Trust Estate in accordance with the standards set forth in Tex. Trust Code § 113 and the Trustee may also invest all or any part of the Trust Estate in one or more common trust funds now or hereafter established by the Trustee pursuant to Tex. Property Code §§ 113.171 and 113.172.

Since § 868(e) allows the Court to include additional provisions, an investment provision which specifically refers to common trust funds may be helpful. I have also used the following language:

"Nothing herein shall be deemed to allow the Trustee to deviate from the prudent person rule of investments as set forth in the Texas Trust Code; provided, however, that the Court recognizes specifically that as a corporate trustee the Trustee for the sake of economy and practicality often places the assets of trusts that are less than a certain minimum amount (for example, $200,000) in its own common trust funds, in various families of mutual fund-type investments, and partially or wholly in certificates of deposit and treasury bills. The Court specifically acknowledges this practice and approves of it, both when the Trust is under that minimum amount and also to diversify investments when the Trust is over that minimum amount."

ix.	Trustee's Compensation and Expenses. The Trustee shall be entitled to receive for the Trustee's services hereunder a fair and reasonable compensation determined in accordance with Section 868 of the Texas Probate Code.

§ 868(a)(5) provides that the Trustee's "reasonable compensation" is to be determined in the same manner as compensation of a Guardian of an estate under § 665. Under that provision, a Guardian is entitled to a fee of 5% of the gross income and 5% of all money paid out, but "money paid out" does not include any money loaned, invested, or paid over on the settlement of the guardianship or a tax-motivated gift made by the beneficiary. Further, if the fee is "unreasonably low" the Court may increase it. This requires an application to the Court and a showing that the services performed by the Trustee warrant additional compensation. Mandatory Provision for compensation. See § 666 for reimbursement provision re guardians.

The Trustee shall also be reimbursed for all reasonable expenses incurred by the Trustee in connection with the Trust.

General trust practice dictates that the Trust bears the costs of expenses, not the Trustee. If the Trustee has advanced its own funds to pay for a Trust expense, it should be reimbursed.

The manner in which fees are to be calculated hereunder has been approved by the Probate Court at the inception of the Trust, and the Trustee may pay itself such fees and on a periodic basis, but the Probate Court may review such fees and also expenses at any time on the Probate Court's own motion or at the instance of the Trustee or any other party interested in the welfare of the Beneficiary, and upon a hearing of the matter, the Probate Court shall take any action with respect to such fees and expenses as the Probate Court may deem appropriate. The Trustee expressly agrees to reimburse to the Trust any fees previously paid to the Trustee by the Trust in the event the Probate Court orders the Trustee to do so.

The above provision is, arguably, in "conflict" with § 868(a)(5) which provides as follows: "the trustee, on annual application to the court and subject to the court's approval, is entitled to receive reasonable compensation for services that the trustee provided to the ward as the ward's trustee." (Emphasis added.) Nevertheless, Courts are aware that it can be quite costly to the Trust to hire an attorney every year just to apply to have the Trustee's fee approved. Most Courts also require an accounting in order to approve the fee. A common practice that appears to be developing is to allow the Trustee to pay itself without prior Court approval, but also to require that the Trustee annually submit to the court the transaction statements for the Trust and also to explicitly provide in the Trust document that the Court still has the authority to revisit the compensation taken and require the Trustee to reimburse the Trust if the Court deems it necessary. Most trust departments seem to be set up to take commissions automatically on a monthly or quarterly basis and if the Court will include the language above, they can continue this practice. This provision also allows the Trustee to be paid currently rather than having to wait in some instances for more than a year to be paid.

x.	Administrative Provisions. In the administration of the Trust, the Trustee shall be authorized and empowered:

(i) To exercise all of the powers now or hereafter granted to trustees of express trusts by the Texas Trust Code, except in any instance in which the Texas Trust Code or such other statutory provision may conflict with the express provisions of this Agreement of Trust, or the provisions contained in Sections 867 through 873 of the Texas Probate Code, in which case the provisions of this Agreement of Trust and the Texas Probate Code shall control.

(ii) To adjust, compromise, abandon, sue on, or defend, and otherwise deal with and settle all claims in favor of or against the Trust. To engage and retain attorneys or accountants at any time when it may be reasonably necessary to do so in order to provide for the prudent management and preservation of the Trust.

(iii)	To continue to act as Trustee of the Trust regardless of any change of name of the Trustee and regardless of any reorganization, merger, or consolidation of the Trustee.

Again, since § 868(e) allows the addition of such provisions, consider adding them.

xi.	Miscellaneous. The Trust shall also be held and administered pursuant to the following terms and conditions:

(a)	Books and Records, Informal Accountings. The Trustee shall keep books of account respecting the Trust and all transactions involving the Trust, and shall furnish, at least annually, an informal accounting to the Guardian of the Beneficiary's person or estate and to the Probate Court which shall consist of the Trustee's transaction statements for the Trust showing receipts and disbursements of income and corpus of the Trust and a list of assets held in the Trust. The Trustee shall also furnish such additional statements and/or reports, documents, or information to the Probate Court upon the request of the Probate Court.

This is the quid pro quo provision that Courts require if they release the Trustee from the necessity of applying to the Court before taking any compensation. You may still wish to use an attorney to submit the informal accounting, but I know of no Court that requires that you do so. NOTE, however, that if you are applying to the Court rather than simply sending the Court the transaction statements, you must have an attorney to represent you. Rule 7 of the Texas Rules of Court has been construed to mean that a corporation cannot represent itself pro se in Court. Dell Dev. Corp. v. Best Industries Uniform Supply Co., Inc., 743 S.W.2d 302 (Ct. App. -- Houston [14th Dist.] 1987, writ denied). Most Courts require that an officer of the corporation verify that the transaction statements --the "informal accounting"-- are true and correct.

§ 871(a) requires that the Trustee file with the Court "an annual accounting of transactions in the trust in the same manner and form that is required of a guardian under this chapter." Many Courts now allow informal accountings as described above. § 871(b) requires the Trustee to send a copy of this accounting to the Guardian of the ward as well. § 871(c) provides that the annual accounting is subject to Court "review and approval in the same manner that is required of an annual account prepared by a guardian under this chapter." Under § 741, the Trustee must submit the accounting - be it informal or formal - not later than the 60th day after the expiration of 12 months from the date of appointment, unless extended. The informal accounting should, under § 741, be verified under oath. Under § 742, after the accounting has been on file for 10 days, the judge shall consider it and "may continue the hearing on the account until the judge is fully advised as to all items of the account." Thus, there is no necessity that each year's annual accounting be approved by Court order, but when the Trust terminates a full accounting will need to be done. You may also want to consider requesting every 5 years that your actions and inactions for that period be approved in order to limit liability while at the same time saving Court costs, including attorneys' fees. § 873.

(b)	Trustee's Apparent Authority. No person or entity dealing with the Trustee hereunder shall be obligated to see to the application of any money or property paid or delivered to the Trustee, and no such person or entity shall be obligated to inquire into the expediency or propriety of any transaction of the authority of the Trustee to enter into and consummate the same upon such terms as the Trustee may deem reasonably appropriate.

§ 868(e) allows the inclusion of additional language not set forth in the statute. The above provision is one that typically is included in Trust Agreements.

(c)	Permission of Court Needed to Resign. The Trustee may not resign as Trustee and a Trustee may not be substituted in place of the present Trustee of the Trust without receiving prior authority from the Court to do so; however, no court order is needed if the successor Trustee is a successor or assign of 's by merger or otherwise.

See § 869A.

(d)	Headings for Convenience. The headings appearing in this Agreement are for convenience only and do not purport to define or limit the scope or intent of the provisions to which they refer.

xii.	Inception of the Trust. This Trust shall become effective upon (i) the effective date of the Court order which authorizes the creation of this Trust; (ii) the transfer of the above stated sum of money to the Trustee; (iii) the Trustee's acceptance of the Trust which shall be evidenced by the signature below of the appropriate officer of the Trustee; and (iv) the filing of one of the two (2) originals of this document in the guardianship proceedings. This Trust is created by operation of law as it is implemented herein by the Court and, to the extent permitted by law, neither the Beneficiary's Guardian nor the Court is the grantor of this Trust within the meaning of the Internal Revenue Code.

Since § 868(e) allows the addition of various provisions, you may want to consider adding a provision similar to the one above.

13.	Definitions.

(a)	Trust Estate: The term "Trust Estate" means all assets, however and whenever acquired, which may belong to the Trust hereunder at any designated time. That term shall include income earned after the termination of the Trust Estate and prior to the actual final distribution from such Trust Estate.

(b)	Codes:

(i)	Internal Revenue Code: The term "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, and as it may be amended from time to time after the date of this Trust Agreement.

(ii)	Texas Trust Code: The term "Texas Trust Code" means the Texas Trust Code, contained in the Texas Property Code, sections 111.001 through 115.017, as now in effect and as it may be amended from time to time.

(iii)	Texas Property Code: The term "Texas Property Code" means the Texas Property Code, as now in effect and as it may be amended from time to time.

(iv)	Texas Probate Code: The term "Texas Probate Code" means the Texas Probate Code, as now in effect and as it may be amended from time to time.

(c)	Trustee: The terms "Trustee" and "Trustees" and the pronoun "it" in reference to such terms always refer to the institution then holding a trusteeship of any Trust under this Trust Agreement. Such terms also refer to any successor or alternate, including corporations which succeed another by merger, conversion, consolidation, change of name or otherwise, and the appointment of a corporate Trustee shall be deemed to include appointment of its corporate successor or alternate. All successor or substitute Trustees shall have the same powers, authorities, obligations and limitations as the original Trustee unless other provisions of this Trust Agreement specifically provide to the contrary.

(d)	Beneficiary: Unless the context indicates otherwise, the term "Beneficiary" shall mean .

(e)	Court: The term "Court" shall mean, initially, the Court of County, Texas; "Court" shall also mean such other Texas court where guardianship proceedings for are transferred. Pursuant to Section 869C of the Texas Probate Court, the Court having jurisdiction over the guardianship of the Beneficiary also has jurisdiction over the Trust.

(f)	Other Terms: Any term or word which is not defined in this Agreement shall have the meaning given it in the Texas Trust Code and the Texas Probate Code and if not therein defined shall have the meaning generally accorded it in legal usage as interpreted in good faith by the Trustee.

§ 868(e) allows the inclusion of additional provisions and the ones above may be ones you would like to have included.

IN WITNESS WHEREOF, the Trustee has executed this Declaration of Trust in duplicate, one original to be placed in the Court records and the other to be held by the Trustee, and the Trustee, acting by and through the undersigned duly authorized officer, hereby accepts all the rights, powers, privileges, duties, and responsibilities of a trustee under this Trust Agreement and agrees to exercise and perform the same in accordance with the Trust Agreement.

By:

Vice President and Trust Officer

I have found it useful to have two original trust documents signed, one to stay with the Court and the other to go with the Trustee. The corporate Trustee generally wants an "original" and without creating duplicate originals to begin with, a certified copy will be needed, and those can get costly.

THE STATE OF TEXAS	§

§

COUNTY OF TRAVIS	§

Before me, the undersigned authority, on this day of , 19xx , personally appeared , Give Title, of , a national banking association authorized to do business in Texas [a trust company with trust powers in Texas], the persons whose name is subscribed to the foregoing instrument, and acknowledged to me that as such officer executed the foregoing instrument for the purposes and consideration therein expressed.

NOTARY PUBLIC, STATE OF TEXAS

(SEAL)	Printed name:

My commission expires:

g:\dwarwick\kfb\office\speeches\142trust\tba.98\867Form 6/5/98, 11:05AM ehg

COMPARISON OF COURT CREATED TRUSTS

WITH LEGAL GUARDIANSHIPS AND GUARDIANSHIP COURT § 867 TRUSTS

© 1998 Kathleen Ford Bay and Amy Peterson Bloomquist

Hilgers & Watkins, P.C.

San Jacinto Center, Suite 1300

98 San Jacinto Boulevard

P.O. Box 2063

Austin, Texas 78768

Telephone: 512-476-4716

Telecopier: 512-476-5139

Email: hilgers@hwlaw.com

Court Created Trusts Pursuant to Powers of Court

Under Common Law, Equity, and/or Property Code § 142.005

(a) Legal Guardianships/ (b) § 867 Management Trust

(1)	Can Last Longer: Until 25 or if beneficiary is incapacitated, for life. Tex. Prop. Code § 142.005(b)(4).

Trust may provide that distributions from principal may be made as beneficiary reaches certain ages; for example, 1/2 at 21, rest at 25. Tex. Prop. Code § 142.005(c).

With the court's approval, choose any age between 18 and 25 for the trust's final payout and, if the beneficiary is incapacitated, the trust can last for life. The court must approve the termination age.

(1)	(a) Legal Guardianships: Ends at 18 or, if beneficiary is incapacitated, the guardianship will continue for life. However, if guardianship begins while child is under 18 there will have to be a court finding of incapacity once the child is no longer a minor. (Family Code § 11.01(a) defines a minor as a person under 18).

(b) Management Trust: Can Last Longer: Until 25 if court approves, or, if beneficiary is incapacitated, until Court decides a guardianship is no longer necessary. Tex. Prob. Code § 870. (Travis County Probate Court will not approve extension until age 25 unless the minor is old enough to give his or her approval; at least one Harris County Probate Judge will not extend beyond age of majority). Note, there must be a guardianship established before the court can create a Management Trust, thus creating more expense than when the Court simply creates a § 142 trust. Management trusts are created by probate courts -- "court in which guardianship proceedings is pending," not district courts.

(2)	More types of investments with potential for growth, including in the stock market; investments must be made under the prudent person rule. Tex. Trust Code § 113.056.

(2)	(a) Legal Guardianships: Investments limited to really safe things like treasury bills, and CDs with a maturity of 1 year or less: bonds or other obligations of U.S., tax-supported bonds of any county, district, political subdivision, or incorporated city or town in Texas; provided that such bonds must have the following restrictions: the net funded debt of said issuing unit shall not be greater than 10% of the assessed value of taxable property therein; in the case of cities and towns, less that part of the debt incurred for acquisition or improvement of revenue-producing utilities, the revenues of which are not pledged to support other obligations; provided, however, that these restrictions shall not apply to bonds issued for road purposes under the Texas Constitution, Art. III, sec. 52, where supported by a tax unlimited as to rate or amount; shares or share accounts in any federal savings and loan domiciled in Texas where the account is insured by the FDIC; in shares or share accounts of any Texas building and loan association, provided the account is insured by the FDIC; in collateral bonds of companies incorporated in Texas having paid in capital of $1 million or more, if such bonds are a direct obligation of the issuing company and are specifically insured by first mortgage real estate notes or other securities pledged with a trustee; and in interest-bearing time deposits which may be withdrawn on or before a year after demand in any bank doing business in Texas, if deposit is F.D.I.C. insured. Tex. Prob. Code § 855.

Policies of life, term or endowment insurance, annuity contracts, or both, issued by a life insurance company licensed by the Texas State Board of Insurance or administered by the VA may, with prior court permission, be purchased by the guardian. Tex. Prob. Code § 857.

(b) Management Trust: Presumably, more types of investments with potential for growth, including in the stock market; investments must be made under the prudent person rule. Tex. Trust Code § 113.056.

(c) Other Investments: Guardian may apply to court to invest in Texas Tomorrow Fund or other investments not specifically covered. Trust instrument may contain specific directions reinvestments.

(3)	More flexibility and thus more quickly responsive to needs of beneficiary: Trustee does not need court permission to make distributions to beneficiary for health, education, maintenance, and support. Tex. Trust Code § 113.021; Tex. Prop. Code § 142.005(b)(2).

(3)	(a) Legal Guardianships: Court permission needed on many matters which slows down response time in meeting needs of the beneficiary. While the court will usually order a periodic allowance to the guardian, court permission is needed for any special or additional distributions and going to court costs time and money (legal fees) which can be avoided with a trust. Also, guardian needs permission to sell properties and make investments other than those on the "list" above. Tex. Prob. Code § 857. (The court may appoint an ad litem to represent the beneficiary before granting requests.)

(b) Management Trust: More flexibility and thus more quickly responsive to needs of beneficiary: Trustee does not need court permission to make distributions to beneficiary for health, education, maintenance, and support. Tex. Prob. Code § 868(a)(2).

(4)	No bond: The Trustee is a bank or trust company and no bond is needed. This avoids the expense of the cost of the bond being paid from the money set aside in trust for the beneficiary. Tex. Trust Code § 113.058(a).

(4)	(a) Legal Guardianships: Bond Required for Individual Guardian: The yearly cost in 1998 for bonds on the following amounts being held for a beneficiary or ward are:

$ 50,000	$ 295/year

$ 75,000	395/year

$ 100,000	495/year

$ 150,000	695/year

$ 200,000	895/year

$ 500,000	1,645/year

$ 700,000	1,845/year

$1,000,000	2,145/year

Tex. Prob. Code § 194. Corporate guardians need not post a bond, Tex. Prob. Code § 195(b); however, most banks and trust companies will not serve as guardian unless the ward's estate is at least $100,000.

(b) Management Trust: No bond: The Trustee is a bank or trust company and no bond is needed. This avoids the expense of the cost of the bond being paid from the money set aside in trust for the beneficiary. Tex. Prob. Code §§ 867, 868(a)(4).

(5)	Compensation: Trustee receives "reasonable compensation" which is usually determined in accordance with the Trustee's fee schedule. Tex. Trust Code § 114.061. Tex. Prop. Code § 142.005(b)(6) provides that the Trustee will receive reasonable compensation "on application and approval of the court;" Texas District Courts typically will pre-approve the method of determining compensation, adopting the corporate Trustee's fee schedule and directing that a copy of the calculation be provided to the beneficiary and/or family members.

(5)	Compensation: (a) Legal Guardianships:

--	No fee on receipt.

--	5% on gross income; and

--	5% on all money paid out, on a finding by the court that the guardian has taken care of and managed estate in compliance with the Texas Probate Code.

--	if fee is an unreasonably low amount, court may increase it. Tex. Prob. Code § 665.

(b) Management Trust: Same as that of a Guardian. Tex. Prob. §868(a)(5)(B).

(6)	Amendment process allows flexibility: Court may amend, modify, or revoke trust prior to its termination. Even though there's a cost associated with going to court, if circumstances change the trust can be changed. Tex. Trust Code § 112.054.

(6)	(a) Legal Guardianships: No way to amend, must follow guardianship statutes.

(b) Management Trust: Amendment process allows flexibility: Court may amend, modify, or revoke trust prior to its termination. Even though there's a cost associated with going to court, if circumstances change the trust can be changed. Tex. Prob. Code § 869(a).

(7)	Payment at death before trust ends -- May be able to avoid an administration if beneficiary has no Will: The statute provides that if the beneficiary dies before the trust ends, it shall be paid to the "representative of the estate of the beneficiary." Tex. Prop. Code § 142.005(e). In order to avoid the need for and cost of a determination of heirship proceeding, Texas district courts have created trusts where the beneficiary is given a general power of appointment, and, if not exercised, trust property is paid over to the court- appointed personal representative, if any, and if none, to the heirs of the beneficiary under the intestacy statutes, with the Trustee in such case serving as the "representative of the estate". Trustee can determine if an administration and heirship proceeding are necessary. An affidavit of heirship, if on file for at least 5 years, is prima facie evidence and can be done at the time the trust is established. Tex. Prob. Code § 52.

(7)	(a) Legal Guardianships: Payment at death while guardianship in effect: Generally, a proceeding to declare heirship will be needed and perhaps an administration. Tex. Prob. Code §§ 48, 145(e). The Probate Court may require that an ad litem be appointed in guardianship proceedings. See generally Prob. Code §§ 53(b), 113A, Tex. Rules of Civil Procedure, Rule 173.

(b) Management Trust: Payment at death before trust ends -- May be able to avoid an administration if beneficiary has no Will: The statute provides that if the beneficiary dies before the trust ends, it shall be paid to the "representative of the deceased ward's estate." Tex. Prob. Code § 873. It doesn't hurt to ask if court will allow a provision like the one listed under § 142.

(8) Formal Accounting Generally Not Needed; Less Costly: Trustee will provide the beneficiary of a trust and other persons specified by the court with an annual statement of the trust's income, distributions, and investments, and calculation of its compensation. This avoids the need to hire an attorney and file a petition each year to have the court approve the trustee's investments and actions, and compensation.

(8)	(a) Legal guardianships: accounting can be costly: the guardian of the estate (property) of a minor or incompetent person must file with the court an accounting each year. Thus, attorneys' fees and court costs cannot be avoided.

(b) Management trust: accounting can be costly: the trustee of the trust still must, in most courts, file an accounting each year, including a calculation of its compensation. Thus, annual attorneys' fees and court costs may not be able to be avoided. See if transaction statements can be used in lieu of a formal accounting. Tex. Prob. § 871(a).

(9) Special Needs Trusts:

(9)	Special Needs Trusts:

Note:

Some beneficiaries may be disabled and, as a result, receiving SSI and/or Medicaid. The Texas Legislature in 1997 added both to the Property Code and Probate Code provisions making it clear that the Court may create a trust which limits the Trustee's discretion for making distributions that could adversely affect public benefits.

I:\forms\business\bestate.Pln\50irrtrs\other.142\Trust-ch.96

APPENDIX D

TEXAS PROBATE CODE §867 MANAGEMENT TRUSTS

REPORT ON

A QUESTIONNAIRE TO PROBATE JUDGES ON

CREATION AND ADMINISTRATION

© 1998 Kathleen Ford Bay

Report Date: 1/19/98

Background

The 1993 Texas Legislature granted courts where guardianship proceedings are pending statutory authority to create a trust for the ward's benefit "if the court finds that the creation of the trust in the ward's best interests." The Trustee of a §867 Management Trust must be "a trust company or state or national bank that has trust powers" in Texas.

In February 1998, I have the honor and pleasure of speaking to trust officers who are members of the Financial Services (Trust) Division of the Texas Bankers Association. My topic is §867 Management Trusts. Rather than listening to me describe the statute - which they can all read - it will be more useful to these trust officers for me to talk about how you the probate judges view §867 Management Trusts, whether you are creating many of them, and what problems, if any, you have encountered in their "administration."

I respectfully request that you answer the following questions and return this Questionnaire to me in the self-addressed, stamped envelope and I thank you for taking the time to do so.

Key: Although 34 courts responded, every judge did not answer every question. Neither of the statutory probate courts in Bexar County responded in writing, but Judge Polly Spencer responded at the February 1998 seminar; 2 Dallas County probate courts responded; 2 Harris County probate courts, the Denton County probate court, 1 Tarrant County, and the Travis County Probate Court responded.

□	If you would like a copy of my speech, please check this box and I will send it to you.

1.	Creating	(a)	§867 Management Trusts.Have you ordered the creation of an §867 Management Trust?	□ □

Yes	No

If Yes, approximately how many? _________________

If No, under what circumstances would you as judge of the court create one?

________________________________________________________________________

0:	14 courts responding have never ordered a § 867 trust.

1-10:	13 courts responding have ordered between 1 and 10 § 867 trusts.

11-20: 3 courts responding have ordered between 11 and 20 § 867 trusts.

20-30:	3 courts responding have ordered approximately 20 to 30 § 867 trusts.

Probate Court Number 2 of Tarrant County (Judge Pat Ferchill), Probate Court Number 3 of Harris County (Judge Jim Scanlan), and Probate Court of Galveston County (Judge Jerome Jones)

Over

50:	1 court responding -- Travis County Probate Court Number One (Judge Guy

Herman) has ordered over 50 § 867 trusts

Courts which have not yet ordered the creation of an 867 trust indicated generally a willingness to do so, with the following comments:

"In situations where the ward or those concerned are at odds with each other; where the guardian has little or no investment experience; where the guardian wants the expertise offered by the proposed trustee."

Where the estate is large, it is better to use a professional fiduciary.

However, one court expressed concern about the cost of using a professional fiduciary:

"Families have indicated that they do not want to pay the high fees charged by trust departments."

Hmm. You need to find a clear and concise way of explaining how your expertise benefits the estate and that the fees are, therefore, reasonable when the services offered and performance achieved are compared to a simple guardianship estate.

(b)	Court-Created, Non §867 Trusts. Have you ever exercised the powers of your court at equity and/or under common law to create a trust for the ward's estate that was not a §867 Management Trust?	□	□

Yes	No

10:	Yes

23:	No

If Yes, describe the circumstances.

Miller Trust: 1; for tax reasons: 1; In PI Suits and guardianship matters: 1; Medical Needs: 1; "I created special needs trusts under a common law court of equity theory prior to the amendments to § 867 authorizing such type of trusts to be created under § 867."

(c)	Property Code §142 Trusts. If a guardianship proceeding is pending and a personal injury award is made to the ward, do you have a preference for a §142 or §867 Trust?

□	□

Yes	No

What is your preference and why?	.

This question proved to be confusing in a way that I had not anticipated and I need to rewrite it, if I ever redo the survey. Many of the judges answering it obviously thought that they were being asked if they preferred a court-created trust to a guardianship and the overwhelming majority of these answered that they prefer a court-created trust and would decide on the type based upon the circumstances and what they determine will provide and safest and best investment opportunities. There was one court which prefers a guardianship because of the "tight controls" and the avoidance of any possibility of waste by the Trustee. The judge there, after questioning the proposed Trustee in a recent case, obviously concluded that the Trustee would allow distributions that the judge would not and therefore the judge did not want the assets to be managed through a trust. Other judges read the question as it was intended: if you have an opportunity to create either a § 867 trust or a § 142 trust, which one would you create?

Of these, only 3 preferred a § 142 trust, on the grounds that it is more flexible and less expensive than an 867 management trust. 15 preferred a § 867 trust because of oversight and control:

"... because there is court oversight with regard to an annual accounting; lower fee"

"... court has more control; the statute is clearer"

"... more supervision, responsible reporting"

"I have a preference for § 867 trusts because of the required monitoring, the fee statute, and the ability to take into account the duties and relationship of parent and child in reference to the circumstances of the case."

2 judges specifically noted that their reading of Property Code § 142 is that if there is a guardianship pending, the court does not have the power under § 142 to create a trust.

2.	Trustee's Compensation.

(a)	Do you allow the corporate Trustee of an §867 Management Trust to receive fees in accordance with its standard fee schedule for serving as a Trustee, even though this may exceed a guardian's standard 5% fee on gross income and 5% fee on money paid out?	□	□

Yes, allow fee per	No, limit to 5% of gross

Trustee's Schedule	income, 5% monies

of Rates	paid out, unless

that is an unreasonably low amount

6:	Corporate Trustee can receive fees in accordance with its fee schedule; 1 of these noted that the increased fees would be allowed "on a finding regarding services and reasonable fees under the circumstances." One of the Harris County Probate Courts indicated it would allow fees per the Trustee's fee schedules.

22:	Fees will be limited to 5% of gross income and 5% on monies paid out, unless that is unreasonably low: "depends on the size of the estate and work done" or "If statutory fee is inadequate additional fee may be awarded after evidentiary hearing supporting it. It may equal standard fee schedule."

(b)	(1)	At creation of the §867 Trust, will you pre-approve the Trustee's compensation and allow the Trustee to pay itself monthly or quarterly?

□	□

Yes,	No, do not

preapprove	preapprove

7:	Will preapprove the Trustee's compensation and allow monthly or quarterly payments of compensation. A Tarrant County Probate Court is one of these.

19:	Will not preapprove compensation. However, one judge indicated that he would not

preapprove compensation in the Trust's first year, but might thereafter.

Come in after 1st 6 months; after 2 years pay on regular basis, so long as not grossly disproportionate compared to prior years and finalize at end of year.

(2)	Do you require the Trustee to account to court before it can be paid any compensation for the preceding year?

□	□

Yes	No

22:	Trustee must account to Court before it can receive compensation for the preceding year. 2 Dallas probate courts, 2 Harris

4:	Trustee need not account to court before it can be paid compensation for the previous year and one of the Tarrant County Probate Courts so stated.

After 2 years may let you take on monthly basis subject to finalization at end.

It is clear that each judge will need to be asked specifically whether or not he/she will approve commissions being taken on a regular basis and, if so, that protocol should be included in the trust instrument.

(3)	Annual Accounting.

Do you require the Trustee to file an annual accounting for the §867 Trust?	□	□

Yes	No

26:	An annual accounting must be filed.

2:	An annual accounting need not be filed.

6:	Either did not answer or indicated that since they had not yet created an 867 trust, they had not yet confronted this issue and thought that they probably would require an annual accounting.

If Yes, will you accept an "informal" accounting which consists of the transaction	statements generated by the Trustee, rather than requiring a formal accounting?

□	□

Yes, informal	No, formal

14:	Will require a formal accounting, although 1 of these indicated that it allows transaction statements generated by the Trustee to be "incorporated by reference." One of the Harris County Probate Courts, the Dallas County Probate Courts that responded, both Tarrant County Probate Courts that responded, and the Travis County Probate Court all require formal accountings.

11:	Will allow informal accountings, but they must be verified.

Note, if the transaction statements indicate all transactions during the accounting period, show the calculation of the Trustee's fees, and list property on hand at the beginning of the accounting period and on hand at the end (even if these are additional sheets to the transaction statements), you are more likely to be able to convince a judge and his/her staff to accept an "informal" or a hybrid informal accounting with some separate schedules that show the calculation of commissions. You're going to have to ask, however.

(4)	Specific Terms. Other than the provisions set forth in §867 itself, are there specific provisions that you want included in §867 Management Trusts that are created by order of your Court?

□	□

Yes	No

If yes, please attach such provisions or a copy of an §867 Trust in which they appear.

Most respondents did not answer this question.

4:	Said that there are specific terms they require. One of these requires the bank to agree to venue in the County.

"I would be willing to have statute provide for less formal accountings or optional formal accountings. Bank should be able to file computer-generated reports. Fee could be pre-approved up to three years with ad litem's concurrence." Probate Court Number 2, Tarrant County.

Judge Steve M. King of Probate Court Number 1, Tarrant County, has both a required form of trust and accounting. Judge Robert E. Price of Probate Court Number 2, Dallas County, provided a sample order and trust.

(5)	The space below is provided for any additional comments you would like to make, including problems you have encountered with their creation and ongoing administration of §867 Trusts.

•	Can an 867 trust invest in the Texas Tomorrow Fund?

•	"867 should provide method to hold ward's funds for a few years beyond 18th birthday to ensure mature use of funds but fees should not be at general corporate rate for smaller amounts of money. For minors, I would reduce the work load on trustee by limiting powers of distribution to avoid constant hounding by an 18 year old desperate for a new pickup truck."

•	The only problem encountered is the "Bank Trust Departments are not eager to accept unless over 200,000."

•	"We like to see the maximum age of 25 years set. If Ward over 18 is asking for early distribution (before age 25) we require a hearing."

•	"Problems regarding the § 867 management trust: (1) maintenance and management of unproductive property that should be disposed of and the high fees associated with maintaining it. (2) Judge feels 867 trust should terminate when minor reaches 18 or majority, not when they turn 25; feels it's unconstitutional [to extend beyond 18th birthday]."

"Specific provisions should:

"(1) Require accountings to comply with §741, et seq.

"(2) Require court approval of final account before any distribution on termination.

"(3) Require 'Report of Funding' (with executed duplicate of trust') to be filed with the County Clerk. Probate Court Number 2, Dallas County.