An authorized trustee is restricted from making trust distributions that would harm specified federal tax benefits, and may distribute principal from a first trust to a second trust in one stated situation.
Sec. 112.086. TAX-RELATED LIMITATIONS. (a) The authorized trustee may not distribute the principal of a trust under Section 112.072 or 112.073 in a manner that would prevent a contribution to that trust from qualifying for or that would reduce the exclusion, deduction, or other federal tax benefit that was originally claimed for that contribution, including: (1) the annual exclusion under Section 2503(b), Internal Revenue Code of 1986; (2) a marital deduction under Section 2056(a) or 2523(a), Internal Revenue Code of 1986; (3) the charitable deduction under Section 170(a), 642(c), 2055(a), or 2522(a), Internal Revenue Code of 1986; (4) direct skip treatment under Section 2642(c), Internal Revenue Code of 1986; or (5) any other tax benefit for income, gift, estate, or generation-skipping transfer tax purposes under the Internal Revenue Code of 1986. (b) Notwithstanding Subsection (a), an authorized trustee may distribute the principal of a first trust to a second trust regardless of whether the settlor is treated as the owner of either or both trusts under Sections 671-679, Internal Revenue Code of 1986. (c) If S corporation stock is held in trust, an authorized trustee may not distribute all or part of that stock under Section 112.072 or 112.073 to a second trust that is not a permitted shareholder under Section 1361(c)(2), Internal Revenue Code of 1986. (d) If an interest in property that is subject to the minimum distribution rules of Section 401(a)(9), Internal Revenue Code of 1986, is held in trust, an authorized trustee may not distribute the trust's interest in the property to a second trust under Section 112.072 or 112.073 if the distribution would shorten the minimum distribution period applicable to the property. Added by Acts 2013, 83rd Leg., R.S., Ch. 699 (H.B. 2913), Sec. 3, eff. September 1, 2013.