Texas Property Code 112.086 – Tax-Related Limitations
(a) The authorized trustee may not distribute the principal of a trust under § 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.
Terms Used In Texas Property Code 112.086
- Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
- Gift: A voluntary transfer or conveyance of property without consideration, or for less than full and adequate consideration based on fair market value.
- Marital deduction: The deduction(s) that can be taken in the determination of gift and estate tax liabilities because of the existence of a marriage or marital relationship.
- Property: means real and personal property. See Texas Government Code 311.005
- Trustee: A person or institution holding and administering property in trust.
(c) If S corporation stock is held in trust, an authorized trustee may not distribute all or part of that stock under § 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 § 112.072 or 112.073 if the distribution would shorten the minimum distribution period applicable to the property.