BILL ANALYSIS
AB 873
Page 1
ASSEMBLY THIRD READING
AB 873 (Harman)
As Amended May 10, 2001
Majority vote
JUDICIARY 9-0 APPROPRIATIONS 21-0
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|Ayes:|Steinberg, Robert |Ayes:|Migden, Bates, Lowenthal, |
| |Pacheco, Corbett, Dutra, | |Jackson, Ashburn, |
| |Harman, Jackson, | |Cedillo, Corbett, Correa, |
| |Longville, Shelley, Wayne | |Daucher, Strom-Martin, |
| | | |Maldonado, Robert |
| | | |Pacheco, Papan, Pavley, |
| | | |Runner, Simitian, |
| | | |Thomson, Wesson, Wiggins, |
| | | |Wright, Zettel |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Seeks to clarify the effect of the filing and judgment
of a marital dissolution on nonprobate transfers which have the
effect of passing property on death while avoiding probate.
Specifically, this bill :
1)Provides that a nonprobate transfer to the transferor's former
spouse in an instrument executed before or during the
marriage, fails and a joint tenancy created before or during
the marriage is, severed upon the divorce or an annulment of
the partner.
2)Makes an exception to #1 above, if the transferor was not
permitted (by, for example, contract) to revoke the transfer,
if there is clear and convincing evidence that the transferor
intended to preserve the nonprobate transfer in favor of the
former spouse, or if a court has ordered that the instrument
be maintained on behalf of the former spouse.
3)Defines "nonprobate transfer" as a provision for a nonprobate
transfer on death in a contract of employment, bond, mortgage,
promissory note, security, pension plan, Individual Retirement
Account (IRA), trust, or other similar transfer upon death
(other than by means of a will) which avoids probate. Life
insurance policies are expressly excluded from this
definition.
AB 873
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4)Authorizes parties, notwithstanding the automatic restraint on
party's ability to dispose of property during the pendency of
a dissolution or legal separation, to create, modify, or
revoke a will, revoke a nonprobate transfer (with the
exception of insurance policies or other coverage), eliminate
a right of survivorship, or create an unfunded trust. Notice
must be provided before revoking a nonprobate transfer or
eliminating a right of survivorship.
5)Expressly prohibits parties under the terms of the automatic
restraint on disposition of property during the pendency of a
dissolution, from creating or modifying a nonprobate transfer
in a manner that affects the disposition of property without
the written consent of the other party or an order of the
court.
FISCAL EFFECT : According to the Assembly Appropriations
analysis, potential minor reimbursable costs to counties for
recording affidavits made with regards to the purchase of real
property that was formerly a non-probate transfer or held in
joint tenancy.
COMMENTS : This proposal seeks to implement two recommendations
of the California Law Revision Commission (Commission). The
first addresses the effect of marital dissolution on named
beneficiaries of retirement death benefits, revocable trusts,
and other "nonprobate transfers," excluding life insurance
policies. The second seeks to limit the reach of automatic
temporary restraining orders, concerning the disposition of
property while a marital dissolution is pending, to allow
parties to a dissolution to make certain estate planning
decisions.
The author notes that "[i]n California, as in most states, the
dissolution or annulment of a person's marriage automatically
revokes a disposition to a former spouse in that person's will.
This policy is based on the general assumption that typical
divorcing parties will not intend or expect a will provision
benefiting a spouse to survive the dissolution of their
marriage. . . California law does not extend similar protection
to a divorcing person who has chosen to pass property on death
by means of an instrument other than a will." The author
further argues that "the inconsistent treatment of probate and
nonprobate transfers after dissolution of marriage does not make
sense. If the typical divorcing person does not intend to
maintain a disposition benefiting a spouse in a will, that
AB 873
Page 3
person will likewise not wish to preserve a disposition to a
spouse in some other instrument."
According to the Commission, more and more, people are using
other forms of nonprobate transfers (also known as will
substitutes) to provide for the transfer of money or property
upon death. Such nonprobate transfers, however, are treated
differently upon dissolution or annulment than are provisions in
wills. There is no express statement of law that, like wills,
nonprobate transfers of property to a spouse will fail upon
dissolution or annulment. This bill seeks to provide such
treatment, consistent with the probable intentions and
expectations of most divorcing parties." This bill, however,
provides an escape clause, allowing the designation of the
former spouse to control where the parties do not intend the
divorce to alter the nonprobate transfer.
The Commission explains that "existing law imposes an automatic
temporary restraining order (ATRO) on both parties in a
proceeding for dissolution or annulment of marriage, or legal
separation. . . .[T]he ATRO restrains the parties from
'transferring, encumbering, hypothecating, concealing, or in any
way disposing of' . . . property without the consent of the
other party or an order of the court." However, "the extent to
which the ATRO restrains estate planning changes during a
dissolution proceeding is not clear."
This bill seeks to clarify the type of estate planning changes
that are permissible while ATRO is in effect, and those that are
not. This bill, therefore, provides that an ATRO prohibits
parties from creating or modifying a nonprobate transfer in a
manner that affects the disposition of property, but does not
restrain a party from creating, modifying or revoking a will,
revoking a nonprobate transfer (except insurance or similar
coverage for the benefit of the spouse and/or children),
severing a joint tenancy, creating an unfunded trust, or
disclaiming one's separate property interest in a will or other
instrument. In order to minimize the opportunity for mischief,
this bill expressly requires notice to the other spouse before
severing a joint tenancy or revoking a nonprobate transfer.
Analysis Prepared by : Donna S. Hershkowitz / JUD. / (916)
319-2334 FN:
0000810