BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Martha M. Escutia, Chair
2001-2002 Regular Session
SB 1575 S
Senator Sher B
As Amended April 1, 2002
Hearing Date: April 2, 2002 1
Probate Code 5
GMO:cjt 7
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SUBJECT
Wills and Trusts: Prohibited Transferees
DESCRIPTION
This bill would make some clarifying changes to the rule
that voids transfers made through an instrument or will to
specified persons who are disqualified due to a fiduciary
relationship with the transferor. The bill would add
domestic persons and persons who lived with the transferor
for six months to those exempt from the rule, as well as
exempt transfers of up to $3,000 and transfers made by a
nonresident through an instrument signed outside the state.
BACKGROUND
This bill is sponsored by the Estate Planning, Trust and
Probate Law Section of the State Bar.
AB 21 (Umberg), Chapter 293, Statutes of 1993, was enacted
to stem major abuses perpetrated by an attorney who drafted
wills that made himself and his children major
beneficiaries of his clients. AB 21 thus disqualified
specified persons from receiving a transfer under an
instrument, such as the person who drafted the instrument,
or his or her employee, relative, cohabitant, or law
partner or law firm shareholder; and generally persons in a
fiduciary capacity relative to the donor or the transferor.
(more)
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Certain persons were exempted from the group of
disqualified individuals, if their relationship to the
transferor would make it unlikely that the transfer was the
result of undue influence, fraud or duress (such as the
transferor's spouse or relative. The statute (Probate Code
Section 21350) was amended several times to further expand
the class of disqualified persons and to refine the
exceptions to the rule.
This bill is a further refinement of the statute, to
accommodate recent enactments of the Legislature regarding
domestic partners and ambiguities perceived by attorneys
practicing probate law.
CHANGES TO EXISTING LAW
Existing law voids any provision or provisions in any
instrument that makes a donative transfer to the following
persons:
1) the person who drafted the instrument, or his or her
relative by blood or marriage, cohabitant, or employee;
2) any partner or shareholder of a law firm or corporation
in which the person who drafted the instrument holds an
interest, or an employee of that law firm or law
corporation;
3) any person who is in a fiduciary relationship with the
transferor, such as conservator or trustee, who
transcribes the instrument or causes the instrument to be
transcribed, or that person's relative or cohabitant;
4) a care custodian of a dependent adult, as defined.
Existing law exempts from the prohibited transferee rule,
transfers made under the following circumstances:
1) if the transferor is related by blood or marriage (as
defined) to the person who drafted the instrument; or
2) if the instrument was reviewed by an independent
attorney who counsels the transferor about the nature of
the intended transfer and who signs and delivers to the
transferor and to the drafter a certificate of
independent review stating his or her conclusion that the
transfer was not the product of fraud, duress, menace, or
undue influence;
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3) if the court approves the instrument and orders the
transfer after full disclosure of the relationships of
the persons involved;
4) as to specified instruments, if the court determines,
upon clear and convincing evidence, excluding the
testimony of the prohibited transferee, that the transfer
was not the product of fraud, menace, duress or undue
influence (if it was, disqualified person is required to
pay all costs of the proceeding, including attorney's
fees);
5) if the transferee is a federal, state, or local entity,
a tax-exempt 501(c)(3) or 501(c)(19) entity or a trust
holding an interest in the tax-exempt entity or its
trustee.
This bill would add to the list of persons exempted from
the prohibited transferee rule, a domestic partner (as
defined in the Family Code) and a person who is not a
prohibited transferee and lived with the transferor for at
least six months.
This bill would exempt transfers of up to $3,000 from the
rule, as well as transfers made by a nonresident through an
instrument signed outside the state.
This bill would require the attorney conducting the
independent review to determine whether fraud, duress,
menace or undue influence was involved in the transfer and
to provide an original certificate to each of the
transferors and the drafter of the instrument.
Lastly, the bill would clarify that the attorney conducting
the independent review shall not be considered to otherwise
represent the client.
COMMENT
1. Need for the bill
The bill is needed, the sponsor says, to update the
prohibited transferee rule, clarify its provisions, and
make it more effective in its operation.
2. Domestic partner is not a prohibited transferee
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In 2000 the Legislature enacted the Domestic Partnership
Act, which recognized same-sex partners and heterosexual
partners 65 or over as domestic partners if they meet
specified conditions and register with the state. The
Act established certain rights of domestic partners, and
in certain instances, domestic partners are accorded the
same status as spouses.
This bill would update the prohibited transferee rule by
exempting domestic partners, as recognized under the
Domestic Partnership Act, from the list of prohibited
transferees. Therefore, under this bill, a domestic
partner who drafts his or her partner's will that makes
him or her the major beneficiary of the will would be
exempt from the prohibited transferee rule, in the same
manner as the spouse of the transferor is exempt under
current law.
3. Definition of exempt "cohabitant" may need refinement
SB 1575 would delete a "cohabitant" of the transferor
from the list of exempted transferees, but would add a
provision exempting a person "who lived with the
transferor for at least six months" and who is not a
person described as a prohibited transferee under the
rule.
This definition may cause confusion. If a person is not
a prohibited transferee under the rule, then a donative
transfer to that person is not invalid per se, and any
challenge to the validity of the transfer is subject to
all other rules regarding the validity of any donative
transfer made by an instrument to anyone. This rule
would apply whether the transferee is a "cohabitant" or
not. Therefore this qualifying phrase "who is not a
person described in Section 21350(a)" to a "person who
lived with the transferor at least for six months" to
describe who is exempt from the rule is superfluous.
Additionally, Section 21350.5 already defines a
"disqualified person" as someone who is on the list of
prohibited transferees (Section 21350) and who is not
exempt under Section 21351.
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SHOULD THIS SUPERFLUOUS PHRASE BE REMOVED?
Also, the definition of a person as having "lived with
the transferor for at least six months" begs the question
of when the cohabitation had to occur for the person to
be exempt from the prohibited transfer rule. Should the
six months be immediately prior to the date the
instrument was executed? Or could the six months be at
any given time during the life of the transferor? Should
the six months be a continuous period of time or could it
be a cumulative period?
SHOULD THIS BE CLARIFIED?
4. Independent attorney review and certification
When the original legislation enacting Probate Code
Sections 21350 and 21351 was passed, provision was made
for the validation of a transfer made to an otherwise
disqualified person by allowing an independent attorney
hired for the purpose of reviewing the instrument and
advising the transferor of the nature and consequences of
the intended transfer. The exact language of the
certification required to be signed and delivered by the
independent attorney is in the statute, and states the
attorney's conclusion that the transfer or transfers are
valid because they are not the product of fraud, duress,
menace, or undue influence.
Apparently, some interpret the lack of clarity in the
statute to mean that an attorney could make this
certification of his or her conclusion without actually
attempting to determine whether or not fraud, duress,
menace or undue influence was involved in the drafting or
execution of the transfer instrument. Therefore, this
bill would list this task in addition to advising the
transferor of the nature and consequences of the
transfer.
The bill also would require that the attorney provide an
original certificate to each of the transferor and the
drafter of the instrument. The new language is not clear
as to whether each recipient would get an original
certificate.
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SHOULD THIS BE CLARIFIED?
5. Other transfers exempted from prohibited transferee
rule
a. Upon court determination of no fraud, duress, menace
or undue influence
In addition, Probate Code Section 21351 exempts
transfers that a court determines, upon clear and
convincing evidence, that the transfer was not the
product of fraud, duress, menace or undue influence.
The statute specifically excludes testimony of the
person who is a potential prohibited transferee from
consideration in making this determination.
This bill would remove the flat exclusion of that
testimony, and allow it to be a basis, but not the
sole basis, for the court's determination that the
transfer was not the product of fraud, duress, menace
or undue influence.
The change would acknowledge that the potential
prohibited transferee's testimony may have some value
in assisting the court to make that determination, and
that the court is able to weigh competing testimony in
any case to make the correct decision. Requiring
extrinsic evidence to be considered in addition to the
prohibited transferee's testimony however, would
ensure that the court's decision is not bootstrapped
to that person's testimony alone. According to the
sponsor of the bill, this would also resolve equal
protection and due process challenges that may be
brought if a person's testimony is excluded because he
or she is a potential disqualified person.
b. Where the donative transfer does not exceed $3,000
This bill would add transfers not exceeding $3,000 to
those exempt from the prohibited transferee rule.
According to the sponsor, this exemption would allow
transferors to make nominal gifts or bequests to
caretakers who have provided good service, without
fear of the small gift being attacked under Section
21350. The sponsor also asserts that since the amount
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is nominal, they do not believe that a transferor's
estate plan is likely to be greatly affected by the
gift or bequest, and the cost of defending such a
bequest is likely to discourage a recipient (the
potential prohibited transferee) from exerting any
undue influence, fraud, duress or menace simply to
obtain the bequest.
Still, the choice of $3,000 as the "small gift"
exemption from the prohibited transferee rule is
totally arbitrary. To some people $3,000 is still a
lot of money, especially if the estate is only ten
times that in size ($30,000). Tying the amount to the
size of the estate (say, a minimum of $60,000, which
would make the $3,000 bequest 5% of the total) may
alleviate the appearance of the arbitrariness of the
exemption.
SHOULD THE EXEMPTION BE TIED TO AN ESTATE OF A MINIMUM
VALUE OF $60,000?
c. Transfers made by nonresident by instrument signed
outside the state
Under current law, a transfer to a prohibited
transferee made by a person who was not a resident of
the state at the time the instrument was executed
would be exempt from the rule if a court determined
that the transfer was made without fraud, duress,
menace or undue influence.
This bill would delete this exemption and create a new
provision that would exempt from the rule a transfer
made by an instrument executed by a nonresident of the
state and that was not signed in California,
eliminating in this process a court determination that
no fraud, duress, menace or undue influence was
involved.
In other words, whereas under current law, a court
determination that the transfer made under an
instrument signed by a nonresident is not invalid due
to fraud or duress would have to be made, under this
bill, the nonresident will need only to have executed
the instrument outside the state for the transfer to
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be exempt from the rule.
There are several problems with the language of this
proposed provision. First, the current statute is
clear that the instrument in question would have to
have been signed by the transferor who was not a
resident of California at the time it was executed.
The transferor could be a resident of California now,
and the transferor could have signed the instrument in
California while still not qualifying as a resident of
California for all general purposes. If this transfer
survives a court challenge due to fraud or duress, it
would be valid.
The proposed language deviates from the current
statute by not specifying that the transferor was a
nonresident at the time of execution of the instrument
and by removing the requirement of a court
determination regarding fraud, duress, menace or undue
influence. Thus, a bequest made by a resident of
California who visits someone (a potential prohibited
transferee) in Colorado and decides to execute his or
her will while there would not be exempt under this
provision; a bequest made by a nonresident of
California under the same circumstances, would be
exempt from the rule.
SHOULD THE PROVISION SPECIFY THAT THE TRANSFEROR WAS A
NONRESIDENT AT THE TIME OF EXECUTION OF THE
INSTRUMENT?
While the sponsor's explanation for desiring this
change in the law is clear, i.e., that transfers made
by persons who were nonresidents at the time of
execution of the instrument and who signed the
instrument outside of California should be a
categorical exemption from the rule, the rationale
doesn't make sense when coupled with the removal of
the requirement that the court make a determination
that no fraud was involved.
SHOULD THIS TRANSFER BE EXAMINED BY A COURT BEFORE THE
TRANSFER IS VALIDATED?
After all, the probable reason for the matter to be in
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probate court is that the transferor died a California
resident and the instrument signed out of state (i.e.,
the will) is being administered in probate court. Why
should the potential prohibited transfer be exempt
without examination by the court?
6. Definition of "relative by blood or marriage"
Under existing law, a donative transfer to a person who
is a relative by blood or marriage of the person who
drafted the instrument or who is a relative by blood or
marriage of someone in a fiduciary relationship with the
transferor (such as a conservator or trustee) is invalid.
However, if the transferor were related by blood or
marriage to either of the potential prohibited
transferee, the rule would not apply. For example, a
transfer made by will to the son of an attorney who
drafted the will for his (the attorney's) sister is a
transfer exempted from the rule.
This bill would clarify the phrase "relative by blood or
marriage" as used in the list of exclusions to the
prohibited transferee rule, by defining the relationship
as being to the fifth degree (rather than the current
"seventh degree"), unless they are heirs or next of kin
under the Probate Code. The sponsor states that the
exclusion should be narrowed to relatives within the
fifth degree (e.g., second cousins, first cousins once
removed, great-grand nieces) because "only a tiny
proportion of the population is acquainted with relatives
within the sixth or seventh degree (e.g.,
great-great-great grand nieces and nephews and second
cousins twice removed)."
According to the sponsor, the reduction in the number of
degrees of relationship will eliminate the possibility
that a complete stranger who is otherwise disqualified
will be exempted from Sec. 21350 because he happens to be
the fourth cousin of the spouse of the testator. And, in
the rare instances where the next of kin of a decedent is
a relative who is more remote than the fifth degree of
relationship, the proposed provision would not disqualify
such a person (as it also would exempt heirs or next of
kin).
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It should be noted here that the exemption from the rule,
even as revised by this bill, would be broader than the
definition of relative by blood or marriage that would
disqualify a potential prohibited transferee under
Section 21350 (the statute here uses relative by blood or
marriage to the third degree and their spouse).
Support: None Known
Opposition: Campaign for California Families
HISTORY
Source: Estate Planning, Trust and Probate Section of the
State Bar
Related Pending Legislation: None Known
Prior Legislation: None Known
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