BILL ANALYSIS
AB 1784
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Date of Hearing: May 7, 2002
ASSEMBLY COMMITTEE ON JUDICIARY
Ellen M. Corbett, Chair
AB 1784 (Harman) - As Amended: April 30, 2002
PROPOSED CONSENT
SUBJECT : PROBATE CODE: CONSTRUCTION OF INSTRUMENTS
KEY ISSUE : SHOULD PROBATE CODE PROVISIONS REGARDING THE
CONSTRUCTION OF ESTATE PLANNING INSTRUMENTS BE CLARIFIED AND
UPDATED?
SYNOPSIS
This non-controversial bill implements the recommendations of
the California Law Revision Commission for clarification of
Probate Code provisions regarding the construction of trusts and
other instruments. The expansion of the rules for construction
of testamentary instruments to apply to other estate planning
instruments has led to some instances of confusion and
inappropriate application; this bill limits application of
certain rules of construction to apply only where appropriate.
The bill also clarifies existing law and updates obsolete
references.
SUMMARY : Updates provisions relating to the rules of
construction of estate planning instruments. Specifically, this
bill :
1)Deletes certain provisions of law that are duplicative of
other provisions and therefore unnecessary.
2)Clarifies that extrinsic evidence may be used to determine the
intention of a transferor.
3)Clarifies the terminology and definition relating to transfers
that are revocable during the life of the transferor, renaming
"testamentary gifts" as "at-death transfers."
4)Limits application of the requirement that a transferee
survive a transferor in order to take under the instrument to
apply only as to at-death transfers.
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5)Provides that if a residuary gift fails, the failed gift
passes in the transferor's estate.
6)Conforms California law regarding determination of
beneficiaries entitled to take under a class gift to heirs,
next of kin, relatives or family to the current version of the
Uniform Probate Code.
7)Repeals a provision creating a presumption that interests vest
at the donor's death.
8)Conforms the rule for valuing property used in satisfaction of
a pecuniary gift to current Treasury regulations regarding tax
requirements for such gifts.
9)Revises the provision regarding construction of a gift of
securities when there is a change in the form of securities.
10)Limits application of the rule of construction regarding
specific gifts to apply only to at-death transfers, and
conforms the rule with the current Uniform Probate Code.
11)Conforms provisions regarding the effect of a conservatorship
or power of attorney on a specific gift to conform with
current provisions of the Uniform Probate Code, extending
these provisions to apply with regard to agents acting under
durable power of attorney, and to provide a rule as to
transfer when the given property is mortgaged by a conservator
or agent.
12)Conforms California law regarding ademption to conform to the
current provisions of the Uniform Probate Code.
13)Makes various technical changes and corrections in the
Probate Code.
EXISTING LAW :
1)Provides that the intention of the transferor as expressed in
the instrument controls the legal effect of the dispositions
made in the instrument, and that the rules of construction set
forth in the Probate Code apply where the intention of the
transferor is not indicated by the instrument. (Probate Code
section 21102. All further references are to this code unless
otherwise indicated.)
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2)Defines a "testamentary gift" as a transfer in possession or
enjoyment that takes effect at or after death. (Section
21104.)
3)Provides that a transferee who fails to survive the transferor
or until any future time required by the instrument does not
take under the instrument. (Section 21109.)
4)Provides that a requirement that the initial transferee
survive for a specified period of time after the death of the
transferor is sufficient to override the statutory presumption
that the issue of the transferee take in the transferee's
place. (Section 21110 (b).)
5)Provides rules of construction regarding the distribution of
property when a transfer fails for any reason. (Section
21111.)
6)Provides a rule of construction regarding a transfer to a
person's heirs, next of kin, relatives, family, or to persons
described by words of similar import. (Section 21114.)
7)Provides that a testamentary disposition is presumed to vest
at the transferor's death. (Section 21116.)
8)Provides a rule of construction regarding the valuation of
property used to satisfy a pecuniary gift. (Section 21118.)
9)Provides for the construction of a gift of securities when
there has been a change in the form of the securities.
(Section 21132.)
10)Provides a rule of construction regarding the transfer of a
specific gift when the property given was no longer in
possession of the transferor at the time of transfer.
(Section 21133.)
11)States the effect of certain actions by a conservator on a
specific gift of property. (Section 21134.)
12)Provides a rule as to when a gift during the lifetime of a
transferor is treated as satisfaction of an at-death transfer
to the transferee. (Section 21135.)
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FISCAL EFFECT : The bill as currently in print is keyed
non-fiscal
COMMENTS : This bill is sponsored by the California Law
Revision Commission to update and clarify Probate Code
provisions regarding rules of construction for estate planning
instruments. The sponsor states:
Modern rules of construction for wills were enacted in
California in 1983 on recommendation of the Law Revision
Commission. Subsequent legislation sponsored by the State
Bar Estate Planning, Trust and Probate Law Section extended
the rules of construction to trusts and other instruments.
Problems in the application of the extended rules have
become apparent. ? This [bill] proposes adjustments in the
rules of construction to ensure their proper functioning in
the environment of their expanded application to trusts and
other instruments.
The bill makes several significant clarifying changes with
regard to the rules of construction. First, it clarifies that
extrinsic evidence may be used to determine the intent of the
transferor when needed to assist in interpretation of the
instrument. This is consistent with existing California case
law regarding the use of extrinsic evidence. (See Estate of
Guidotti (2001) 90 Cal.App. 4th 1403.)
Next, the bill updates the terminology used as to "testamentary
gifts" to refer instead to "at-death transfers" to clarify the
application of certain provisions to transfers made by
instruments other than wills. The bill defines an "at-death
transfer" as one revocable during the life of the transferor.
Several provisions are limited, under the bill, to apply only to
at-death transfers, such as the requirement under section 21109
that the transferee survive the transferor, and the provisions
of section 21133 regarding specific gifts. These provisions
were clearly not meant to apply to transfers, such as lifetime
gifts, that become irrevocable during the life of the
transferee.
Section 21118 currently provides that the property selected to
satisfy a pecuniary gift shall have an aggregate fair market
value on the date of distribution that when added to any cash
distributed will amount to no less than the amount of the
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pecuniary gift as stated in the instrument. This provision has
been criticized as allowing overfunding of a marital or
charitable deduction gift, or other manipulations. In addition,
it may run afoul of the generation skipping transfer tax
requirement that assets allocated in satisfaction of a pecuniary
gift must fairly reflect net appreciation or depreciation in the
value of all assets available for funding the gift. AB 1784
redrafts the standard in accordance with federal Treasury
regulations.
AB 1784 amends several sections to update the law in conformity
with new provisions of the Uniform Probate Code. The existing
provisions were based on the 1987 version of the Uniform Probate
Code; they are updated to reflect the latest, 1990 version.
These updating changes are made with regard to the rule of
construction for a gift of securities, when there has been a
change in the form of the securities (section 21132); the rule
applying as to a specific gift when the property given has been
affected by the actions of a conservator (section 21134) and the
rule as to when a gift during the lifetime of the transferor is
treated as a satisfaction of the at-death transfer (section
21135). These changes clarify ambiguities in the existing law
and ensure consistency in California law.
Finally, AB 1784 makes numerous technical changes, correcting
references to code sections that have been moved and deleting
sections that are obsolete or duplicative.
REGISTERED SUPPORT / OPPOSITION :
Support
California Law Revision Commission (sponsor)
State Bar of California, Trusts and Estates Section
Opposition
None on file.
Analysis Prepared by : Kathy Sher / JUD. / (916) 319-2334