Texas Legislative Update: Rule Against Perpetuities Extended To 300 Years For Trusts September 1, 2021

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On June 16, 2021, the Texas Legislature passed a bill (HB 654) that extends the rule against perpetuities to 300 years for trusts.  The new Texas law on the rule against perpetuities takes effect on September 1, 2021.

New Section 112.036 of the Texas Property Code

The bill amends Section 112.036 of the Texas Property Code.  Effective September 1, 2021, section 112.036 will change the existing Texas Rule of Perpetuities and provide:

(a) The rule against perpetuities applies to an interest in a trust other than a charitable trust.

(b) For purposes of this section, the effective date of a trust is the date the trust becomes irrevocable.

(c) An interest in a trust must vest, if at all:

(1) not later than 300 years after the effective date of the trust, if the effective date of the trust is on or after September 1, 2021; or

(2) except as provided by Subsection (d), not later than 21 years after some life in being at the time of the creation of the interest, plus a period of gestation, if the effective date of the trust is before September 1, 2021.

(d) An interest in a trust that has an effective date before September 1, 2021, may vest as described by Subsection (c) (1) if the trust instrument provides that an interest in the trust vests under the provisions of this section applicable to trusts on the date that the interest vests.

(e) Any interest in a trust may be reformed or construed to the extent and as provided by Section 5.043.

(f) Under this section, a settlor of a trust may not direct that a real property asset be retained or refuse that a real property asset may be sold for a period of longer than 100 years.

What Is the Texas Rule Against Perpetuities?

The Texas Rule Against Perpetuities is an antiquated legal rule based on English feudal law that defines a permissible duration for certain Trusts.

The Texas Rule Against Perpetuities statute generally requires that an interest in a trust must vest no later than 21 years after some life in being at the time the trust was created.  Many states have already extended their Rule Against Perpetuities statutes, and with this new legislation effective September 1, 2021, Texas has joined the group by establishing a fixed number of years (300) for a trust to exist.

This new rule against perpetuities law will have an effect on the drafting and operation of Texas trusts beginning in 2021.  Texas probate attorneys will have to consider the amended rule against perpetuities when they draft trusts and how they discuss the rule against perpetuities with trust settlors.