BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 873|
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THIRD READING
Bill No: AB 873
Author: Harman (R)
Amended: 7/9/01 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 7-0, 7/3/01
AYES: Escutia, Ackerman, Haynes, Kuehl, O'Connell, Peace,
Sher
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 72-0, 5/29/01 - See last page for vote
SUBJECT : Nonprobate transfers: former spouses
SOURCE : California Law Revision Commission
Estate Planning, Trust and Probate Law Section
of the State
Bar
DIGEST : This bill invalidates 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 requires the court to award costs, including
attorney's fees, and damages against a person who in bad
CONTINUED
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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 makes 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,
annulment, or legal separation on property rights, wills,
and other instruments would be amended to reflect the
changes this bill would make.
ANALYSIS : 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.
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
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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:
1. The transfer is not subject to revocation at the time of
transferor's death; or
2. There is clear and convincing evidence that the
transferor intended to preserve the nonprobate transfer
to the former spouse; or
3. 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.
Existing law requires that a summons issued in connection
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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 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:
1. Creation, modification, or revocation of a will;
2. Revocation of a nonprobate transfer, including a
revocable trust, provided notice is filed and served on
the other party before the change takes effect;
3. Creation of an unfunded revocable or irrevocable trust;
4. 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
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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.
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.
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).]
Background :
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
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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."
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 8/20/01)
California Law Revision Commission (co-source)
Estate Planning, Trust and Probate Law Section of the State
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Bar (co-source)
California Judges Association
ASSEMBLY FLOOR :
AYES: Aanestad, Alquist, Aroner, Ashburn, Bogh, Calderon,
John Campbell, Canciamilla, Cardenas, Cardoza, Cedillo,
Chavez, Chu, Cogdill, Cohn, Correa, Cox, Daucher, Diaz,
Dickerson, Dutra, Firebaugh, Frommer, Goldberg, Harman,
Havice, Hollingsworth, Jackson, Keeley, Kehoe, Kelley,
Koretz, La Suer, Leach, Leonard, Leslie, Liu, Longville,
Lowenthal, Maddox, Maldonado, Matthews, Migden, Mountjoy,
Nakano, Nation, Negrete McLeod, Oropeza, Robert Pacheco,
Rod Pacheco, Papan, Pavley, Pescetti, Reyes, Richman,
Runner, Salinas, Shelley, Simitian, Steinberg,
Strickland, Strom-Martin, Thomson, Vargas, Washington,
Wayne, Wesson, Wiggins, Wright, Wyland, Wyman, Zettel
RJG:jk 8/20/01 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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