BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Martha M. Escutia, Chair
2001-2002 Regular Session
AB 873 A
Assembly Member Harman B
As Amended May 10, 2001
Hearing Date: July 3, 2001 8
Family Code; Probate Code 7
GMO:sr 3
SUBJECT
Nonprobate Transfers: Former Spouses
DESCRIPTION
This bill would invalidate nonprobate transfers (i.e., by
trust, insurance policy, pay-on-death accounts, joint
tenancy, retirement benefit plan designations, etc.) made
to former spouses by a decedent before the termination of
the marriage, unless there is clear and convincing evidence
that the decedent intended for the benefits or property to
pass to the former spouse even after termination of the
marriage.
The bill would require the court to award costs, including
attorney's fees, and damages against a person who in bad
faith serves a written notice of adverse interest to the
holder of property or instrument that is subject to a
nonprobate transfer provision.
This bill also would make inapplicable Automatic Temporary
Restraining Orders (ATROs), normally issued with the filing
of a petition for dissolution of marriage or for legal
separation, to specified estate planning activities, and
would specifically restrain both parties from creating or
modifying a nonprobate transfer that disposes of property
without the consent of the other party or an order of the
court.
Lastly, the statutory form of the notice required to be
given with the summons issued or judgment ordered in a
dissolution regarding the possible effect of dissolution,
(more)
AB 873 (Harman)
Page 2
annulment, or legal separation on property rights, wills,
and other instruments would be amended to reflect the
changes this bill would make.
(This analysis reflects author's amendments as described in
Comments 2d and 2e.)
BACKGROUND
In September 1998 and October 2000, the California Law
Revision Commission issued its recommendations relating to
estate planning during dissolution of marriage proceedings
and the effect of dissolution of marriage on nonprobate
transfers.
This bill incorporates those recommendations in their
entirety, and is sponsored by the Estate Planning, Probate,
and Wills Section of the State Bar of California.
CHANGES TO EXISTING LAW
1. Existing law provides that unless expressly stated in
the will, a dissolution or annulment of marriage
automatically revokes a will provision benefiting a
former spouse. Any property that is prevented from
passing to the former spouse due to this automatic
revocation provision passes as if the former spouse
failed to survive the testator. [Probate Code Sections
6122 and 6127.] The automatic revocation also applies to
any other power of appointment conferred on the former
spouse, or any provision nominating the former spouse as
executor, trustee, conservator or guardian, such that the
former spouse is deemed to have predeceased the decedent.
This bill would provide that a nonprobate transfer (as
defined) made to or a joint tenancy created with a person
who does not qualify as a "surviving
spouse" of the transferor at the time of transferor's
death fails, unless:
a) the transfer is not subject to revocation at the time
of transferor's death; or
b) there is clear and convincing evidence that the
transferor intended to
AB 873 (Harman)
Page 3
preserve the nonprobate transfer to the former spouse;
or
c) there is in effect at the time of transferor's death
a court order maintaining
the nonprobate transfer on behalf of the former
spouse. (this provision applying only to nonprobate
transfers other than joint tenancy). [Proposed
Sections 5600 and 5601.]
This bill would provide exceptions to this new default
rule (See Comment 2c), including a transfer to a bona
fide purchaser for value and a court order to a party to
maintain the former spouse as a beneficiary or to
preserve a joint tenancy in favor of a former spouse.
[Proposed Section 5600(d), 5603.]
This bill would, in the event of a failed transfer of
interest or property to a former spouse, specify how or
to whom the interest or property would then be
transferred. [Proposed Section 21111.]
The provisions of this bill relating to nonprobate
transfers and joint tenancies would affect all nonprobate
transfers made and joint tenancies created before or
after the effective date of this bill (January 1, 2002),
except that current law would apply to those transfers or
joint tenancies where the person making the transfer or
creating the joint tenancy dies before January 1, 2002,
or where the dissolution of marriage or other event that
terminates the status of the transferee or beneficiary as
a "surviving spouse" occurs prior to January 1, 2002.
[Proposed Section 5604.]
Finally, the bill would make other conforming changes.
2. Existing law requires that a summons issued in
connection with a proceeding for dissolution of marriage,
legal separation, or annulment of marriage contain a
temporary restraining order whereby both parties are
restrained, among others, from making any transfers,
hypothecating, concealing or otherwise disposing of any
property of the parties, whether community, separate, or
quasi-community, except for expenses for the necessities
AB 873 (Harman)
Page 4
of life or in the usual course of business, without court
order or written consent by the other party. The form
and language of this Automatic Temporary Restraining
Order (ATRO) is specified in statute. [Family Code
Section 2040.] The ATRO is in effect unless the court
orders otherwise or a final judgment is entered in the
proceeding.
Existing law requires a petition for and a judgment of
dissolution or nullity of marriage, legal separation, or
summary dissolution of marriage to contain a notice,
specified in statute, relating to the possible effect of
dissolution or annulment of marriage on disposition of
property under a will, among others. [Family Code Section
2024.]
This bill would specify that the ATRO restrains both
parties from creating or modifying a nonprobate transfer
in a manner that affects disposition of property subject
to the transfer, without written consent of the other
party or order of the court.
This bill would provide exceptions to the ATRO for the
following activities:
Creation, modification, or revocation of a will;
Revocation of a nonprobate transfer, including a
revocable trust, provided notice is filed and served
on the other party before the change takes effect;
Creation of an unfunded revocable or irrevocable
trust;
Execution and filing of a disclaimer (to a
testamentary or other interest as defined by the
Probate Code).
This bill would define "nonprobate transfer" as an
instrument, other than a will, that makes a transfer of
property upon death of the transferor, including a
revocable trust, pay on death account in a financial
institution, a Totten Trust, transfer on death
registration of personal property, or other written
provision or instrument as described in Probate Code
Section 5000.
AB 873 (Harman)
Page 5
This bill would amend the statutory form of the notice
given with the petition for or judgment of dissolution,
annulment, or legal separation relating to property
rights of parties, to conform to the above provisions.
3. Existing law protects the holder of property under an
instrument containing a provision for nonprobate transfer
of property or benefits, for making transfers in
satisfaction of the terms of the instrument regardless of
whether the transfer is consistent with the named
beneficiary's rights, except where the holder has been
served with a written notice of a person claiming to have
an adverse interest in the property or benefit. [Probate
Code Section 5003.]
This bill would require a court, in a proceeding relating
to the rights of the parties, to award costs, including
attorney's fees, and damages, against a person who in bad
faith serves notice of an adverse interest to this holder
of property. [Proposed Section 5003(e).]
COMMENT
1. Law Revision Commission recommendations
In a letter to then-Governor Wilson in September, 1998,
the California Law Revision Commission stated:
"A person who creates an instrument making a
nonprobate transfer to a spouse probably does not intend
that it continue to operate in favor of the spouse after
dissolution of their marriage. In many cases the person
inadvertently fails to revoke the nonprobate transfer,
with the result that on the person's death, the property
passes to the person's former spouse, rather than to the
person's estate. This result is contrary to the likely
intentions of most divorcing parties and is inconsistent
with the law governing wills and other inheritance
rights. The Commission therefore recommends that
dissolution of marriage prevent the operation of a
revocable nonprobate transfer on death to a former
spouse, unless there is clear and convincing evidence
that the transferor intends to preserve the nonprobate
transfer in favor of the transferor's former spouse."
AB 873 (Harman)
Page 6
This bill contains the entire recommendation of the CLRC
with regard to nonprobate transfers to former spouses.
Regarding another provision in the bill, on October 3,
2000, the Commission's letter to Governor Davis, urging
amendment of the Family Code provisions relating to
automatic restraining orders issued in connection with
petitions for dissolution of marriage, stated that "the
extent to which the [ATRO] affects estate planning
changes that only affect the disposition of property on
death is not clear."
This bill contains the Commission's recommendations to
clarify the scope of the restraining order, consistent
with the principle that the ATRO should not restrain
changes that cannot dispose of the other spouse's
property, and that the ATRO should restrain changes that
could dispose of the other spouse's property.
The sponsor of the bill, the Estate Planning, Probate,
Trust and Probate Law Section of the State Bar, contends
that the changes proposed by this bill are designed to
avoid unnecessary litigation between former spouses and
estates (or beneficiaries) of decedents. Also, they
state that because more and more people are using trusts
and other nonprobate-type instruments for estate
planning, statutory clarity is needed as to the effect of
dissolution on nonprobate transfers, and the ability of
divorcing spouses to effect some estate planning changes
that would dispose only of their own interest and not the
other party's.
2. Automatic revocation of nonprobate transfers to former
spouse
a. Automatic revocation of will provisions upon divorce
or annulment; similar provision applicable to
nonprobate transfers
Under existing law, any provision in a will that
disposes of property to a spouse, nominates the spouse
as executor, trustee, conservator or guardian of the
person executing the will, or confers a power of
appointment to a spouse, is automatically revoked upon
dissolution or annulment of marriage between the
AB 873 (Harman)
Page 7
spouse and the person executing the will. [Probate
Code Section 6122.] This policy is based on the
assumption that typical divorcing parties will not
intend or expect a will provision benefiting a spouse
to survive the dissolution of their marriage. [CLRC
Recommendation, September 1998.]
Probate Code Section 6122 was originally enacted in
1983, overturning case law rule that dissolution or
annulment had no effect on the will of either party
[Cf. In re Estate of Patterson (1923) 64 Cal. App.
643, cert. denied, 266 U.S. 594 (1925).] Amendments
made to this section since then have not changed its
substance, and in fact, the section was reenacted in
connection with statutory wills. [Probate Code
Section 6227.]
A similar provision for automatic revocation does not
exist for nonprobate transfers to former spouses.
(For examples and the definition of "nonprobate
transfer, see Comment 2b.)
Thus, where a person inadvertently fails to change a
provision making a nonprobate transfer after divorce,
the transferred property will pass to the former
spouse, rather than to the person's estate. This
result is contrary to the probable intentions and
expectations of most divorcing spouses, as articulated
by the courts in cases such as In re Marriage of Allen
(1992) 8 Cal. App. 4th 1225, 1231 (operation of joint
tenancy survivorship after divorce not "consistent
with what the average decedent and former spouse would
have wanted had death been anticipated") and Estate of
Blair (1988) 199 Cal. App. 3d 161, 169 (unlikely that
divorcing parties wish to preserve joint tenancy after
divorce, where an "untimely death results in a
windfall to the surviving spouse, a result neither
party presumably intends or anticipates").
This bill would establish a statutory scheme
applicable to the nonprobate transfer of property
(including by joint tenancy) to a former spouse. The
bill would provide that such nonprobate transfer would
fail, or joint tenancy severed, if, upon death of the
transferor, the spouse was not a "surviving spouse"
AB 873 (Harman)
Page 8
under Probate Code Section 78. A spouse whose
marriage to transferor was terminated by dissolution
or annulment is clearly not a "surviving spouse" under
Section 78. (But see Comment 2d for a discussion of
"surviving spouse" as to legal separations, referenced
in Probate Codes 6122 and 6227.)
Thus, according to proponents, this bill would bring
consistency to the treatment of both probate and
nonprobate transfers in the event of a marital
dissolution by automatically revoking any disposition
to a former spouse. Where a nonprobate transfer fails
by operation of this bill, the instrument making the
nonprobate transfer would be treated as if the former
spouse died prior to the transferor, same as a
transfer made to a former spouse under a will.
Of course, as in present law pertaining to transfers
or nominations under a will, the automatically revoked
provisions in nonprobate transfer instruments would be
revived by remarriage of the spouses.
b. "Nonprobate transfers" covered by this bill
Existing law provides a person with various ways of
transferring property upon his or her death, other
than through a will. Current estate planning
instruments include living trusts (revocable trusts),
life insurance policies, retirement death benefits,
pay on death bank accounts, transfer on death vehicle
registrations, and joint tenancies. Too, beneficiaries
designated in mortgage insurance policies, promissory
notes, bonds, certificated or uncertificated
securities, compensation plans, pension plans, and
other types of written contracts may provide for the
payment of benefits upon death. All of these
transfers are classified as "nonprobate transfers"
under California law, and are not considered invalid
even if they do not meet the requirements for
execution of a will. [Probate Code Section 5000.]
This bill would apply to all of the above types of
instruments, except for a provision of a life
insurance policy, and it also would apply to a
provision in an instrument that operates on death,
AB 873 (Harman)
Page 9
other than a will, conferring a power of appointment
or naming a trustee (e.g., a testamentary trust).
c. Exceptions
i) Where nonprobate transfer or severance of joint
tenancy would not fail
There are several exceptions provided to allow a
nonprobate transfer to or joint tenancy with a
former spouse to survive and escape failure under
this bill:
(a) if the nonprobate transfer is not subject to
revocation by the transferor at the time of death
or the joint tenancy is not subject to severance
by the decedent at the time of death; or
(b) there is clear and convincing evidence that
the transferor intended to preserve the
nonprobate transfer or the joint tenancy in
favor of the former spouse; or
(c) in the case of a nonprobate transfer only,
there is in effect a court order to maintain the
nonprobate transfer on behalf of the former
spouse at the time of the transferor's death.
This provision would preserve the court's ability to
order a party to a dissolution or annulment of
marriage to maintain the former spouse as a
beneficiary on any nonprobate transfer, or to
preserve a joint tenancy in favor of the former
spouse.
ii) No effect if transferor dies or judgment of
dissolution before 1-1-2002
AB 873 would affect only those nonprobate transfers
or joint tenancies created before dissolution or
annulment of marriage. Thus, if a transfer is made
or a joint tenancy is created between a transferor
and a former spouse after the dissolution becomes
final, that transfer or joint tenancy would not be
invalidated by operation of this bill.
The bill would affect all transfers made and joint
AB 873 (Harman)
Page 10
tenancies created before or after its operative date
of January 1, 2002, but not transfers where the
transferor dies before January 1, 2002, or the
dissolution (or other event disqualifying the
transferee as a "surviving spouse," see Comment 2d)
occurs before January 1, 2002.
While the bill would make transferors take action
affirmatively to preserve an intended transfer to a
former spouse after its operative date, it would not
affect retroactively those transfers where the
transferor dies or the dissolution becomes final
prior to that date (1-1-2002).
d) Subsequent purchaser or encumbrancer for value in
good faith; purchaser
or encumbrancer of real property for value in good
faith in reliance on affidavit
To protect bona fide purchasers, this bill would
provide that it would not affect rights of a
subsequent purchaser or encumbrancer for value in good
faith who relies on the apparent failure of the
nonprobate transfer or apparent severance of joint
tenancy, or who lacks knowledge of the failure.
According to the CLRC, the remedy then for a person
who is injured by a transaction with a purchaser or
encumbrancer is against the transacting former spouse
and not against the bona fide purchaser or
encumbrancer.
Additionally, this bill would provide that it does not
affect rights of a purchaser or encumbrancer of real
property for value who in good faith relies on an
affidavit or declaration under penalty of perjury
stating, among other things, that the affiant is the
surviving spouse of the decedent, or that the affiant
is not the surviving spouse of the decedent, but that
his or her rights to the property proposed to be sold
or encumbered are not affected by the nonprobate
transfer provisions of this bill. Such a purchaser or
encumbrancer relying on this statement would have no
duty to inquire into the truth of the affidavit or
declaration.
AB 873 (Harman)
Page 11
e. Parallel provisions for legally separated parties
needed
Unlike current Probate Code Sections 6122 and 6277
that specifically refer to will provisions affected by
the dissolution or annulment of marriage, this bill
would provide that nonprobate transfers and joint
tenancies fail where the spouse is not a surviving
spouse under Probate Code Section 78 at the time of
decedent's death. To be sure, both Sections 6122 and
6277 also refer to Section 78 in defining dissolutions
and annulments as those that exclude the former spouse
as a surviving spouse under Section 78.
Section 78 provides that a surviving spouse does not
include:
A person whose marriage to decedent has been
dissolved or annulled, unless the person and
decedent remarried and they were married at the time
of death;
A person whose marriage to decedent has been
dissolved or annulled by a judgment not recognized
as valid in this state, unless the person and
decedent subsequently participated in a marriage
ceremony purporting to marry one to the other or
they subsequently live together as husband and wife;
A person who, after the decedent obtained a
judgment of dissolution or annulment, subsequently
married a third person;
A person who was party to a proceeding
concluded by an order purporting to terminate all
marital property rights.
Thus, Section 78 would exclude as a surviving spouse
someone who was a party to a final judgment of legal
separation dividing property (and therefore transfers
to a former spouse would be subject to automatic
revocation). However, Sections 6122 and 6227 state
that a legal separation that does not terminate the
status of the parties as husband and wife is not a
dissolution, and therefore, those transfers and
appointments made under a will are not automatically
revoked by the legal separation. The effect is to
create an exemption from Sections 6122 and 6227 for
AB 873 (Harman)
Page 12
parties who are legally separated and who are, under
California law, still husband and wife.
AB 873 attempts to avoid the seemingly inconsistent
language in Probate Code Sections 6122 and 6227, by
referring only to nonprobate transfers and joint
tenancies where the transferee spouse is not a
surviving spouse at the time of transferor's death,
without reference to dissolutions, annulments, or
legal separations.
By doing so, the bill would treat spouses who are
legally separated (where all marital property rights
may have been disposed of but status as husband and
wife are preserved) differently if a transfer is made
by will than if a nonprobate transfer is involved.
However, there is no rationale advanced why this
should be so, when the goal of the bill is to treat
nonprobate transfers equally as transfers by will.
Author's amendment : The author's proposed amendment
would create parallel provisions and equal treatment
of legally separated parties whether they transfer
property under a will or by nonprobate transfer
instrument.
f. New type of property ownership: community property
with rights of survivorship
Last year, AB 2913 (Kuehl, Chapter 645, Statutes of
2000) created a new type of property ownership in
California, the community property with rights of
survivorship, where property held as such would pass
directly to the surviving spouse, as if it were held
in joint tenancy.
The CLRC's recommendations (which were made earlier,
in 1998, after a couple of years of review) did not
address this type of property, which may be treated as
a nonprobate transfer. Because this type of ownership
is more akin to a joint tenancy, it should probably be
treated as such under the provisions of this bill.
Author's amendment : The author's proposed amendment
would clarify that for purposes of the nonprobate
AB 873 (Harman)
Page 13
transfer to former spouses provisions, property held
as community property with rights of survivorship
shall be treated the same as property held in joint
tenancy.
The amendment also would resolve this issue for the
California Land Title Association.
3. ATROs: effect on estate planning during dissolution
Existing law imposes an automatic temporary restraining
order (ATRO) on both parties in a proceeding for
dissolution or annulment of marriage, or legal separation
(collectively referred to as "dissolution" here). The
ATRO restrains the parties from transferring,
encumbering, hypothecating, concealing or in any way
disposing of the real or personal property of the
parties, whether community, quasi-community or separate,
without the written consent of the parties or on order of
the court. Parties are allowed to apply for use of the
property to pay ordinary living expenses or usual
business expenses, or attorney's fees.
Proponents contend that the law is not clear as to the
extent to which the ATRO restrains estate planning
changes during a dissolution. Apparently, different
trial courts (and different family law treatises)
interpret an ATRO differently, resulting in inconsistent
application of the ATRO rule across the state, and courts
in other states have done the same. In the recent case
of Estate of Mitchell (1999) 76 Cal.App. 4th 1378, the
court held that revocation of a joint tenancy is not
restrained by the ATRO, because unilateral severance does
not involve a transfer and because severance only
disposes of an expectancy, not property. While this is a
reasonable interpretation of Family Code 2040 (which
establishes the ATRO), the CLRC would have wanted the
court to also clarify the application of the ATRO to
other types of estate planning changes, such as creation,
modification, or revocation of a trust.
The CLRC argues that unintended transfers may occur due
to the inability of a person to, for example, revoke a
trust during a pending divorce. For example, if
community property had been conveyed to a trust that
AB 873 (Harman)
Page 14
names the survivor of husband and wife as the beneficiary
and that is unilaterally revocable by either one, and the
wife files for divorce, revokes the trust, executes a
will devising her share of the community property to her
children, and then dies before she gets a court order
permitting the estate planning change or before the
divorce becomes a judgment, her husband would get her
entire community property share, contrary to her wishes.
Thus, the need to clarify what may be restrained under an
ATRO, and what may not be restrained, is critical, they
say.
This bill would, pursuant to CLRC recommendation, provide
that an ATRO would be effective as to estate planning
actions or changes made by a party to a dissolution or
annulment, where those activities cannot dispose of his
or her spouse's property, including:
Creation, modification or revocation of a will;
Revocation of a nonprobate transfer (other than
life insurance);
Creation of an unfunded trust; and
Execution of a disclaimer (to an interest).
Conversely, the bill would expressly state that an ATRO
would restrain actions that could dispose of the other
spouse's property, including the creation of a nonprobate
transfer or the modification of a nonprobate transfer in
a manner that affects the disposition of the property,
without the written consent of the other party or upon
order of the court.
The changes proposed by AB 873 will, according to the
CLRC, follow the court's ruling in Mitchell , supra, and
serves to extend it clearly to other types of nonprobate
transfers that do not dispose of the other party's
property.
4. Attorney's fees and costs assessed against person who
serves notice of adverse interest in bad faith
Existing law protects from liability the holder of
property under an instrument containing a provision for
nonprobate transfer for making transfers in satisfaction
of the terms of the instrument, except where the holder
has been served with a court order or a person claiming
AB 873 (Harman)
Page 15
to have an adverse interest has served a written notice
to the holder.
This bill would require the court to award damages and
costs, including attorney's fees, against a person who
serves notice of an adverse claim in bad faith on the
holder of property, and the holder, presumably, takes
action or does not take action that subsequently results
in an action or proceeding affecting the rights of
parties. Thus, rather than simply nullifying the
exception to the protection provided under law, this bill
would affirmatively place the burden for the liability
caused by a notice served in bad faith on the party
serving the notice.
This remedy, according to proponents, is necessary in
order to continue the protection afforded holders of
property when they satisfy nonprobate transfer provisions
and at the same time dissuade persons who file frivolous
adverse claims that result in damages.
Support: California Judges Association
Opposition: None Known
HISTORY
Source: California Law Revision Commission; Estate
Planning, Trust and
Probate Law Section of the State Bar
Related Pending Legislation: None Known
Prior Legislation: None Known
Prior Vote: Asm. Jud. (Ayes 9, Noes 0)
Asm Appr. (Ayes 21, Noes 0)
Asm Flr. (Ayes 72, Noes 0)
**************